In Japan, employers are legally required to pay workers’ salaries only through cash payment or bank transfer. At present, the government is formulating rules such that these regulations can be relaxed and salaries can be received even via smartphone apps. Nomura Research Institute (NRI)’s Katsutoshi Takehana, who analyzes money circulation and researches currency and financial system theories, explains the impact of this deregulation.
―― There are many e-payment apps. What kind of apps will be able to receive salaries?
In recent years, a number of payment apps named "xx Pay" have appeared, making it somewhat difficult for users to understand the difference between them. There are several possible methods of classification, but I think it will be easiest to understand if we divide them into three categories depending on when the user's wallet or bank account is debited: "prepaid," "spot payment," and "postpaid".
Prepaid apps such as "nanaco" or "Suica" are similar to electronic money. This system charges a bank account registered in the app to a wallet (account) of the app itself, and uses a QR code or a bar code for payment. Spot payment is withdrawal of money on the spot from the user's bank account when he purchases something, and the most popular app of this kind is “Origami”. Recently, other payment apps provided by bank themselves, such as “Hama Pay” by the Bank of Yokohama, and “YOKA!Pay” by the Bank of Fukuoka, have been expanding rapidly. For postpaid apps, payment can be made by registering one’s credit card information in the app in advance and presenting a QR code at the time of shopping. In fact, multiple payment types such as prepaid and postpaid are often combined in one app.
Prepayment methods can be further divided based on whether the amount charged can be refunded in cash or to a bank account or not. Broadly speaking, refundable types can be classified as "funds transfer businesses" and non-refundable types as "prepaid instruments". A typical example of the former "LINE Pay" and that of the latter is "Kyash". It may seem like a minor detail, but whether cash refunds are possible or not is a very important legal distinction, and funds transfer businesses and prepaid instruments are treated differently under the law.
Now, it is being said that the ban on receiving salaries may be lifted for refundable "funds transfer business" apps. The funds transfer business is a business stipulated by the Act on Financial Settlements, and 64 companies were registered under it as of February 2019. Currently, the Ministry of Health, Labor and Welfare, which oversees labor laws, is in the process of examining in detail the rules that are required to make funds transfer business operators able to receive salaries. Among the 64 companies, the "funds transfer business" apps that satisfy the requirements will be made available for salary transfer.
―― What impact does this deregulation have on society and companies?
First of all, we expect that this will further encourage a cashless society. The transfer of one’s salary is the starting point of people’s savings. When this starting point is changed from a bank account to a smartphone app that is more often used in everyday life, the more time and effort is saved, the more convenient it will be for users and it will be widely adopted. If this happens, shops will also adopt the system since everyone is using it, and both users and member stores will increase. The introduction of other types of payment apps will also accelerate in response to that of funds transfer apps, and as a result, the entire e-payment market as a whole will receive an impetus and a cashless economy will be encouraged.
In addition, I think there is a possibility of expansion of financial services that use smartphones as the entryway. App payment providers collect information directly related to financial services suggestions, such as user preferences, purchase history, and life events. However, they cannot provide financial products or services themselves. On the other hand, since existing financial institutions are subject to strict regulations, there are many restrictions on direct collection of information, as with app payment providers. If this is the case, the two can cooperate with each other and share roles and responsibilities, such as apps being the contact point for customers and existing financial institutions providing financial products. As a result, e-payment apps may be used to receive payments and may begin to function as entry points for financial transactions such as investment and insurance, thereby making financial transactions that were so far inaccessible to the general public more familiar. We believe that the current deregulation will play a significant role in initiating these developments.
Nomura Research Institute, Ltd.
Corporate Communications Department