With the rapid development of smartphone payment technologies, cashless transactions in Japan have increasingly come under the spotlight. In 2023, PayPay successfully obtained authorization from the Ministry of Health, Labour, and Welfare to begin using digital currencies for salary payments. The initial trial will encompass 10 companies under the SoftBank Group, providing approximately 44,000 employees the option to participate. This move is poised to advance cashless payment systems in Japan, but what specific changes can it bring? In this article, we’ll explore the concept of digital salaries, the implementation plan, and its potential impact on Japan’s economy.
What is Digital Salary Payment?
Digital salary payment refers to a modern approach where wages are paid through digital currency systems. The concept emerged in April 2023 when the Japanese government lifted restrictions on paying salaries through smartphone payment apps and electronic money accounts. According to Japan’s Labour Standards Act, the traditional method of wage payment has always been cash. However, since 1975, bank account transfers have gradually been accepted, and in 1998, transfers to securities accounts were also recognized. Digital salary payment is a new extension of this trend, seen as a pivotal strategy for Japan’s move towards a cashless society.
The fundamental principle behind digital salary payments is to use money transfer services like PayPay to directly deposit employee wages into their electronic accounts. After reaching an agreement and signing an appropriate contract with the employees, companies process wage payments through these platforms. This method not only enhances payment efficiency but also increases the transparency and security of wage distribution.
PayPay’s Pilot Program and Operational Details
As one of the first companies to obtain approval for digital salary payments from the Ministry of Health, Labour, and Welfare, PayPay plans to deploy this innovative payment method within the SoftBank Group. Employees can register for the digital account number through the dedicated mini-app, “PayPay Salary Receiving,” available on the PayPay app. This account number is generated by agreements between PayPay and its partner bank (such as PayPay Bank), and employees do not need to visit the bank personally to open an account.
After completing registration and receiving a digital account number, employees provide this number to their employer, enabling the company to directly deposit salaries into the digital account. Each employee’s PayPay balance account is set with a cap of 200,000 yen. When the balance exceeds this limit, the excess amount is automatically transferred to the employee’s pre-configured financial institution account, ensuring liquidity and security of the user’s funds.
Potential Appeal for Small and Medium Enterprises
PayPay is also accelerating its efforts to expand its customer base in the corporate sector, planning to extend the service to other companies by 2024. To this end, PayPay has partnered with OBC (OHTM Business Consultant), a leading provider of labor management software in Japan, integrating PayPay functionalities into OBC’s “Bugyo Series” software. This means that even small businesses using this suite can benefit from the convenience of digital salary payments, simplifying their HR management processes.
To attract more businesses, PayPay offers several incentives, including waiving transfer fees for corporate accounts opened with PayPay Bank. These policies aim to lower financial barriers for companies adopting digital salary payments and encourage more small and medium-sized enterprises to embrace this modern payment method.
Potential Changes in Japan’s Cashless Payment Landscape
According to data from the Ministry of Economy, Trade, and Industry, Japan’s cashless payment ratio reached 39% by 2023. The government’s target for 2025 is to raise this to 40%, which still lags behind cashless adoption levels in countries like the UK and the U.S. For instance, as of 2021, cashless payment usage in the UK and Singapore reached 60%, and over 50% in the U.S. Although cashless payments in Japan are steadily increasing, many local areas still have numerous merchants that haven’t adopted cashless systems, and traditional cash remains the norm for tax payments and other transactions.
The proliferation of cashless payments could also yield significant economic benefits. First and foremost, cashless payments can substantially reduce the societal costs associated with handling physical cash. According to estimates by Nomura Research Institute, the annual costs arising from cash transportation, sorting, and settlement amount to approximately 1.6 trillion yen. By alleviating these costs, cashless payments can save substantial resources for society and, to some extent, mitigate Japan’s long-standing labor shortage issues.
PayPay’s digital salary payment service represents a significant step forward for cashless payments in Japan. While its immediate impact is still uncertain, it is undoubtedly a positive signal for the country’s digital economic transformation. PayPay’s innovation and promotion not only serve as a positive catalyst for cashless payment scenarios but also provide a crucial supplement to broader economic operations. With ongoing technological and service advancements, we have reasons to anticipate witnessing a more digitalized and efficient Japanese society in the near future.
