Electronic money is catching on in many parts of the globe, but Japan—the world’s third-largest economy and one of the most technologically sophisticated—has mostly been a spectator. The CEO of India’s biggest digital payments company, however, thinks the island nation is finally getting over paper cash.
Paytm founder and CEO Vijay Shekhar Sharma says his collaboration with SoftBank and Yahoo Japan is off to a better-than-expected start, according to a Business Standard report. The Japanese service, called PayPay, uses Paytm’s QR code payment technology and launched earlier this year. SoftBank Vision Fund is also an investor in Paytm, which is owned by Indian mobile-internet firm One97 Communications.
If Paytm “kills it” in Japan, Sharma says that will be a green light to expand in other advanced economies. “My personal ambition will be to make America great again,” he said in the report.
Sharma and his partners have good timing. Prime minister Shinzo Abe’s ambition is for Japan to double its share of digital payments within a decade, from around 20% now to 40% by 2025. Abe’s longer-term goal is a world-leading 80%.
It would be a massive shift. For now, Japan prints and distributes far more paper money as a percentage of its economy than other major countries.
There are several reasons Japan is rolling in so much physical cash. For one thing, a long period of ultra-low interest rates and deflation have encouraged the Japanese to hoard paper notes, which gain spending power over time.
A big underground economy could be another reason, according to Harvard professor Kenneth Rogoff’s book The Curse of Cash. The economist cites estimates that Japan’s underground economy is bigger than the one in the US. Shifting from paper cash to digital transactions would help the government clamp down on tax evasion, as well as the Japanese mob’s yakuza underworld. There will be resistance.
Digital money could also give the Bank of Japan more flexibility the next time the economy stumbles. Slashing interest rates has traditionally been the main tool for fighting back when the economy slows, but Japan’s benchmark interest rates are already negative, giving the central bank fewer options during a downturn.
Digital money, however, would give the Bank of Japan room to drive interest rates even deeper into negative territory—essentially penalizing (subtracting) money held in bank accounts. This could inspire savers to take more risks with their money—putting it into the stock market, for example—rather than switching their savings to physical cash and keeping it under the tatami mat.
The thing is, attitudes about money are deeply ingrained in culture and habits are hard to change. In the meantime, the Paytm joint venture is up against the Line instant message service and Mercari, a flea-market app.
Similar dynamics are playing out in other geographies: US companies like PayPal, Amazon, Google, Facebook, and Chinese giants Tencent and Alibaba affiliate Ant Finance are battling in their home markets. They, too, harbor ambitions of expanding around the world.
Does Sharma have a shot with his India- and Japan-tested technology in the world’s biggest economy? He’d have to beat the likes of Apple and Amazon on their own turf. But similar to Japan, the US market for digital wallets is still up for grabs, which suggests there could be a chance.
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The future of finance elsewhere
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Previously, in Future of Finance Friday
Nov. 16: Americans are splurging on all flavors of subprime debt
Nov. 9: People who use mobile fintech apps tend to make worse financial decisions
Oct. 5: Elon Musk had a radical, revolutionary idea for finance in 1999 — it’s finally being realized