Japan’s Transportation Industry on the Road of Becoming Cashless Author: Ali Raza Last Updated: 11 June 2019 The cashless society is one of the goals of the crypto industry, and while most of the world still resists such a major change of culture, there are a few examples where such changes are being realized. Japan, as a particularly crypto-friendly nation, is seeing more and more of its industries embracing cryptocurrency, and now — its transportation industry is making significant moves towards actually going full-cashless. To achieve this, two of the country’s major players, Rakuten and the East Japan Railway Company, entered a partnership which would simplify and promote cashless payments. The two aim to start providing electronic support for JR East’s Suica cards, which can be used for accessing trains, as well as for paying for goods and services. At first, they will only be used for payments at some kiosks within train stations, as well as some selected stores within the country. But, if everything goes as plans, the people of Japan will likely be able to charge their cards via Rakuten Pay app, likely by 2020. Japan struggles against going cashless Japan is known for its train stations, their efficiency, precision, and punctuality. There are currently around 5,000 train stations, as well as 50,000 buses within the country. Meanwhile, Rakuten Pay is accepted by more than 600,000 stores. Considering the country’s cultural affinity when it comes to coins and bills, the shift is likely to represent a major change in Japan. While Japan is well on its way of becoming a cashless society, the fact is that it still has a long way to go. The recent data provided by the country’s Ministry of Economy, Trade, and Industry (METI) shows that only around 20% of Japan’s citizens tend to use cashless methods of making payments. Japan has been trying to encourage people to go cashless ever since March 2017, when METI launched a ‘Cashless Vision’ campaign. The efforts continued in 2019 as well, with the Japanese government recently publishing the Abenomics Policy, which states that the goal is to reach a cashless payment rate of 40% in the next eight years. All of this comes with the goal of abandoning cash entirely in Japan’s day-to-day transactions. But, as mentioned, the population appears to be resisting the shift, and for several reasons. Cash is generally seen as reliable, and Japan itself is known for low theft and high security. Further, cash can easily be accessed. As a result, the average citizen has no real need to go crypto. Of course, many enjoy trading and investing, and Bitcoin trading is as popular as ever. However, abandoning cash completely is more of a psychological process, one which represents too big of a change just to happen overnight. This is especially true for Japan’s aging population, as the number of the country’s citizens older than 65 has grown almost four times in the past 40 years. It is no secret that Japan’s citizens have quite long life spans, while the birth rates remain low. As a result, the elderly population is dominating, and they do not like changing their habits, particularly when it comes to learning cash. All of these factors put together show quite clearly why Japan struggles with going cashless, despite the fact that younger generations are quite eager to go full crypto. However, since both JR East and Rakuten are well-known and respected firms, they might serve as a catalyst for the cashless system adoption. Rakuten has yet to reach a decision regarding crypto Speculation regarding Rakuten potentially adding cryptocurrencies to its app has been around for a while, particularly back in March. Now, with the new partnership with JR East, it is possible that Japanese citizens might be able to use cryptocurrencies for topping up their Suica cards. Many still speculate that this might start as soon as next year. Of course, both companies are still keeping the details of the partnership and its implications to themselves. Rakuten Payment’s CEO, Koichi Nakamura, said as much last week. He pointed out that he cannot comment on the inclusion of digital currencies as a payment option, but he did let out that the company is at the point when some big final decisions are to be made. In other words, the company is considering whether or not to add crypto, and the final decision has yet to be made. He also stated that there are certain conditions under which Rakuten might be willing to support crypto payments. The most important one, naturally, is that the crypto service would have to guarantee the safety and be compliant with the regulatory framework. Also, it should be easy to use, as the company aims to deliver convenience, comfort, and familiarity. If dealing with crypto ends up being complicated at the very start, it is unlikely that the population will approve of it. Rakuten is known and respected throughout Japan, similarly to Amazon in the US. Its partnership with JR East is also likely to affect most online shoppers and commuters in Japan. Meanwhile, JR East serviced over 70% of Japan’s passenger transport volume in 2016. Both companies are widely used, and the way they choose to handle the matter is likely to bring big changes for Japan. There is no doubt that Rakuten is interested in working with cryptocurrencies, and it even announced the launch of its own cryptocurrency exchange, Rakuten Wallet. The announcement came in late March, and since then, the company did a few other moves towards achieving this goal, such as starting the account application in April. It also acquired a service known as Everybody’s Bitcoin, although this was done back in August 2018. Going cashless: Japan vs. Neighbors While Japan continues to struggle with its dependency on cash, the situation is noticeably different when it comes to other countries in the region. South Korea, for example, is the major hub for Bitcoin trading, as well as for trading cryptocurrencies, in general. It has been, for years now, and the interesting thing is that this has happened despite the fact that its government has been rather tough towards the crypto sector. The country even reached a certain amount of fame for its ‘Kimchi Premium.’ This refers to the fact that those looking to buy Bitcoin in South Korea usually have to pay a higher price per coin than its value on exchanges in other countries. South Koreans continued to buy cryptocurrency even during the crypto winter of 2018, and April 2019 brought more crypto purchases than any year before. While Japan sees only 20% of payments being cashless, the situation is completely reversed in Korea — only 20% of the population still uses cash. South Korea has always been known for fast adoption of new technologies, and the country’s government has been supportive of alternative payment methods, so the adoption of cashless systems is not too big of a surprise. Then, there is China, which is also advancing rapidly towards going cashless. Cashless methods are not as widespread as in Korea, but the country is certainly doing better in this regard than Japan. It is believed that the fact that China is home to two of the world’s largest firms — Alibaba and Tencent — significantly helped with the adoption. Both are massive tech giant, and they pretty much have a monopoly on payment and messaging apps in the country. Their WeChat Pay and Alipay are being used by more than three-quarters of the population, and WeChat Pay became the most popular smartphone application. Further, the country’s mobile transactions exceeded those of the US in 2017 by far, although this is likely due to the fact that it has 1.4 billion citizens, compared to the United States’ 327.2 million. Japan can distance itself from cash via the private sector Obviously, Japan’s government and Tokyo are trying all they can think of to encourage their citizens to adopt cashless payment services. Further, with the sales tax increase coming this October, the country’s government is attempting to stimulate consumer spending. To achieve this, they started offering reward points that go as high as 5% of the purchase for those who choose to buy goods via cashless methods. This incentive is expected to stick around for nine months in total, and hopefully encourage Japan’s consumers to try out alternative payment methods. For now, it remains to be seen whether the partnership of two major firms will have more luck in promoting cashless payments. However, many feel optimistic, and the companies’ efforts, combined with those of Japan’s government and regulators, might finally start bringing in more crypto users to the industry and force the old habits to let go.