Cash is Still King in Japan, but Digital Payments are Mounting a Coup d'état
Japanese consumers are finally warming up to using QR codes and digital payment apps as an alternative to cash.
What’s new: Japan is on track to reach its 40% cashless payment goal early, driven by widespread adoption of QR codes and innovative payment technologies.
Why it matters: Cashless payments are transforming Japan's financial ecosystem, making transactions faster, more efficient, and increasingly digital. While Japan is still catching up with most of the rest of the developed world in terms of adoption of digital payment technology, future growth is pretty much of a sure bet at this point.
By the numbers: It is surprising how far behind Japan is, but the country is making rapid progress to catch up.
In 2024, 39.3% of total purchases in Japan were cashless.
Last year, 126.7 trillion yen (about $840 billion) worth of cashless transactions were completed in Japan.
At this rate, Japan will certainly reach the 40% target by June 2025, about a year ahead of the long-term schedule set by the central government.
Japan aims to achieve 80% cashless payments by 2030.
State of play: The main factor is the increase in the number of small and medium-sized restaurants that are adopting QR code payments, which have relatively low fees.
"It reduces the workload of our staff. It's good to take the plunge into cashless payments...to avoid the hassle of handling cash." - Chitaro Tsuji, president of a chain of curry restaurants in the Tokyo metropolitan area
As cashless payments become more widespread, changes are also occurring in public transportation, where payment methods have been limited.
Of these, five major railway companies in the Kansai region - Nankai Electric Railway, Osaka Metro, Kinki Nippon Railway, Hankyu Corporation and Hanshin Electric Railway - introduced a "touch payment" system last year, which allows users to pass through ticket gates by holding up their credit cards, in addition to the existing transport IC cards.
While railway companies are burdened with the cost of upgrading their transport IC card readers, credit card companies offer services that keep costs down.
At the end of the day companies benefit from reduced staff workload, simplified transactions, and lower operating costs.
Context: There are several underlying factors that have slowed Japan's adoption of cashless payment technology, including the country's strong cultural preference for cash, an aging population that is less comfortable with digital payments, the historically conservative banking system, and security concerns among older generations. Japan tends to be technologically advanced but socially conservative - meaning that innovation is often incremental rather than disruptive. Consumers and businesses alike are reluctant to change what is already working well. However, Covid-19 led to a big push toward contactless solutions - including QR codes. Around the same time, the Japanese government also began promoting cashless initiatives by offering incentives to businesses and consumers.
Where it stands: Despite these recent improvements, Japan's current adoption rate of about 40% still marks it as a global laggard.
OECD average: About 85-90%
Furthest along: Curiously, Japan's long-time economic rival and neighbor, South Korea, leads the world in cashless payment adoption at 96%. South Korea is also the nation that sends the most tourists to Japan (2024 stats). Many Korean visitors are shocked to learn that they must carry wads of cash to pay for everyday items while on vacation in Japan. Other early adopters include Sweden at 95%, Canada at 90%, and the United Kingdom at 89%.
Within Asia: China's cashless adoption rate is 87%, driven largely by mobile payments. The economic powerhouse that is poised to overtake Japan's economy in size, India, is now 70% cashless - including legions of mom-and-pop shops and street vendors.
What's next: It is highly likely that Japan will achieve its long-term goal of 80% cashless payments by 2030 well ahead of schedule.
"So far, credit cards have been used for high-value transactions and QR codes for low-value transactions, but as the market becomes saturated, services that cross over between the two are becoming more common. For the proportion of cashless payments to continue to increase, it is important to improve the security of the infrastructure so that consumers' concerns about the potential for fraud are allayed." - Yuki Fukumoto, Director of the Financial Research Office at NLI Research Institute, who is an expert on cashless payment
At this point, there is no stopping the ongoing push to integrate cashless payment technology into the retail, hospitality, and transportation sectors.
Commentary: It seems paradoxical that the country that gave the world the “Quick Response,” or QR, code back in 1994 has been so slow to adopt this technology for cashless digital payments. Perhaps it was because "cash is king" has been the mantra for well over a thousand years in Japan. Even today, ATMs are ubiquitous, and many people still prefer cash for everyday purchases. QR codes were relegated to the factory floor, where they first made their debut at Denso Wave, a subsidiary of Toyota. A young engineer named Masahiro Hara (原昌宏) originally created the QR code to track car parts more efficiently than traditional bar codes.
IC cards (such as Suica and Pasmo) were probably partly to blame. Such technology was already widely used for transportation and small payments from the early 2000s.
Nevertheless, it seems that Japan really missed the boat to take advantage of this new technology. It's another case of first-mover advantage not necessarily guaranteeing long-term dominance - execution and timing matter as much as invention. Sony may have revolutionized portable music with the Walkman, but it failed to keep up when Apple came along with the iPod and a sleek, user-friendly design. In both cases, a Japanese innovation set the stage, but others capitalized on the idea more boldly and broadly, often by focusing on usability and design, building supporting ecosystems (e.g., iTunes for iPod, Alipay/WeChat for QR payments in China), and responding more aggressively to consumer needs.
There are other, well-known examples of how the initial innovator was eventually leapfrogged by someone who executed better, faster, or smarter. Think MySpace vs. Facebook or Xerox vs. Apple with the graphical user interface (GUI) and the mouse. Watch the 2023 movie BlackBerry, loosely adapted from Jacquie McNish and Sean Silcoff's book Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry, which was decimated by the iPhone.
Incidentally, Denso Wave decided not to patent the QR code, which helped it spread worldwide and become a global standard. I wonder what genius was responsible for that fateful decision.
Perhaps the initial success of first movers simply becomes a blind spot that prevents the original innovators from even considering how else their technology can be used.
In any case, the adage "better late than never" certainly applies to Japan's adoption of QR code technology to facilitate digital payments. Of course, Japan may quickly evolve beyond relying on credit cards and mobile phone apps to facilitate digital payments. Facial recognition technology could enable the country to leapfrog back to the forefront. For more details, see “Japan Deploys Walk-through Facial Recognition Ticket Turnstiles at Train Stations Across the Country: Soon, there will be no need to stand in line to buy a train ticket or even use an IC card to get on and off the platform. Just smile for the camera - even if you are wearing a mask!”
What do you think? How accustomed are you to making digital payments with a credit card or mobile phone app?
All answers to this quick survey are completely anonymous, even to the author.
Link to Japanese Source: https://www3.nhk.or.jp/news/html/20250326/k10014760021000.html
#CashlessPayments #DigitalPayments #ContactlessPayments #MobilePayments #ElectronicPayments #QRCodePayments #MobileWallet #ApplePay #GooglePay #TapToPay #キャッシュレス決済 #タッチ決済 #デジタル決済 #モバイル決済 #電子決済 #QRコード決済 #モバイルウォレット #タップトゥーペイ
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QR codes are just an optically coded string of text, simply a more flexible bar code. I wrote a software decoder for QR codes 20 years ago, and it’s generally a good idea that they were open sourced. NFC chips, like in Suica and credit cards and in smartphones are a more secure technology, and the only benefit to QR codes are they require only a printed code for the payee, but that is also the drawback, because the codes are not obviously readable to the naked eye, and anyone can replace a posted code with a counterfeit copy. I think Suica would have been a better choice, but the early cards from different railway companies didn’t interoperate, and it took a long time before they allowed Apple and Google to be able to put them into phones.
Japan is finally starting to change, but for better or worse, it's still way too gentle on people who are like, “New things are scary” or “I don’t get how this works.” Like, up until just a few years ago, it was honestly wild that in Tokyo, you could only buy JR train tickets with cash or a JR-affiliated credit card. That must’ve been super inconvenient for travelers from abroad. That said, considering how often natural disasters happen here, it's definitely still a good idea to carry at least some cash.