Name
Global FinTech Guide
Country _ Name
Japan
SectionTitle
Payment Services
Body
FinTechs belonging to this category offer alternative payment services which are supposed to provide a faster and cheaper way for national, European, and international payments for private and business customers by using new technologies.

For example, payment service providers hereby offer solutions to easily integrate several payment services in online shops.

Some FinTechs furthermore provide real cash register systems and online-reservation solutions for restaurants and shops providing their own payment services or making use of the payment services of FinTechs described above.

Introduction

Attitude of the country towards modern payment services

The digitalization of financial services, including payment services, is accelerating in Japan hand-in-hand with the ongoing digitalization of the entire social economy, spurned on largely by the Covid-19 pandemic and other factors. The Japanese government is actively promoting cashless payments as it announced target milestone to increase the cashless payment ratio from 24.1% in 2018 to 40% by 2025, in its "Growth Strategy Follow-Up" that was approved by the Cabinet on June 24, 2019. The Financial Services Agency in charge of supervising financial institutions in Japan (the “FSA”) also promotes modern payment services and other FinTech solutions by, among others, setting up a FinTech support desk to respond to various inquiries from the private sector.

With this in mind, the Japanese government has proceeded with revisions to the Payment Services Act and other measures to address the digitalization of remittance and payment methods in recent years. The goal is to promote private-sector innovation, which will contribute to the efficiency and convenience of payment services, as well as ensuring appropriate user protection.

Legal affairs

Obligations and requirements to provide payment services or ancillary services described above

Payment services in Japan can be categorized into remittance services and other payment services.

Remittance services Remittance (kawase-transactions) requires a banking business license under the Banking Act or a funds transfer service registration under the Payment Services Act.

A banking business license under the Banking Act requires a minimum capital of JPY 2 billion and other robust management structures for an applicant. As such, obtaining a banking business license only for providing payment services is not reasonable for most business operators.

As for the funds transfer service registration, an applicant must be a stock company (kabusiki-gaisha) or a registered foreign funds transfer service provider, and have the necessary financial base and organizational structure to properly carry out its business.

There are three types of funds transfer service registrations, depending on the maximum amount of remittance to be handled.

  • Type I: There is no legal limit on the amount of individual remittances handled, but the applicant must meet stricter requirements for its management system.
  • Type II: A registered funds transfer service provider is allowed to handle individual remittances up to JPY 1 million.
  • Type III: A registered funds transfer service provider is allowed to handle individual remittances up to JPY 50,000, but registration requirements are more relaxed than for the other types.
Other payment services Different regulations apply to electronic money under the Payment Services Act or the Installment Sales Act, depending on the time of payment such as prepayment, deferred payment, or immediate payment. When using electronic money
and QR code payment services, which have become popular in recent years, users add electronic money into their accounts prior to making payments. As such, these services often fall under the category of prepaid payment instruments. It should be noted that electronic money and QR code payment services have to, in principle, prohibit refunds of money added into user accounts in order to obtain a prepaid payment instruments registration. A business operator obtains a funds transfer service registration in order to include refunds services in its electronic money or QR code payment services. Popular QR code payment providers such as PayPay and Merpay are registered as both prepaid payment instruments and funds transfer service providers.

In addition to those mentioned above, crypto assets or stable coins could also be used as a payment method. Please see "f. DLT and cryptocurrencies" section for crypto assets. A stable coin, the value of which is pegged to the fiat currency and is redeemable for the same amount as the issue price, is regulated by the Payment Services Act. A stable coin broker, as an intermediary for trades of stable coins, must be registered under the Payment Services Act. In addition, issuance of stable coin requires a banking business license or fund transfer service registration in principle, as issuance of these coins falls within the definition of remittance transaction by the Banking Act and Payment Services Act.

Additional comments regarding the legal situation for payment services or what FinTech’s must be aware of in this business area

✓ When remitting an amount exceeding JPY 100,000, the identity of the remitter must be confirmed.
✓ When remitting money overseas, a notification including the name, address, and social insurance number ("My Number”), among others, is required of the remitter. In addition, identification and information about the party to whom payment is being made is also required.
✓ When remitting more than JPY 30 million overseas, increased reporting under the Foreign Exchange and Foreign Trade Act is required.

Economic conditions

Market size for payment services and biggest payment service providers

The overall market size of cashless payments was JPY 127 trillion in 2023 and the cashless payment ratio grew from 24.1% in 2018 to 39.1% in the same year. The breakdown by type of payment is as follows:

  • JPY 105.7 trillion for credit card payments (83.5%).
  • JPY 3.7 trillion for debit card payments (2.9%).
  • JPY 6.4 trillion for e-money payments (5.1%).
  • JPY 10.9 trillion for code payments (8.6%).

Regarding payment services for individuals, fierce competition is under way among railway payment settlement services (such as Suica and Pasmo), independent services (such as Rakuten Edy), retail services (such as nanako and WAON) and new IT service providers' services (such as LINE Pay and PayPay).

Additional comments regarding the economic situation for payment services or what FinTechs must be aware of in this business area

While the ratio of cashless payments in Japan has been steadily increasing in recent years, this ratio is still low when compared to other countries. The public and private sectors have been working together on various initiatives, and further increases are expected in the future.

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