Japanese put their e-cards where currency used to be

TOKYO — Toru Nashimoto, a trim 36-year-old with nary a coin in the pockets of his pinstriped suit, confidently strode toward the cashier at a bustling sushi bar to settle his $45 lunch tab. He whipped out a thin electronic card and placed it above a scanner that quickly blinked neon blue before emitting a computerized "ka-ching."

It was the telltale sound of Japan's new electronic money. In seconds, Nashimoto had paid for his meal of sea urchin, eel and raw fish. No change from the cash register, no waiting for confirmation, no PIN code to enter.

"Who needs to carry real money?" said the commercial real-estate manager. "I often don't even carry a wallet with me anymore."

Technology analysts say the use of electronic money amounts to a leap forward in commerce and shopping. Using cellphones that transmit infrared signals — or, as in Nashimoto's case, a smart card that doubles as electronic keys and lets him earn airline miles — Japanese consumers are whisking through checkout lines, buying everything from sushi to furniture without yanking out their wallets.

Docking and stocking

Users can add value to their cards or cellphones at thousands of automated docking stations around the country, where they insert paper money and get credit for e-cash. They can use credit cards to replenish e-cash on the Internet.

Electronic money emerged four years ago as a convenient tool for fast-paced train commuters. The Japan Research Institute estimates at least 15 million people here now use e-cash, a figure projected to reach 40 million — about one in every three Japanese — by 2008.

The number of e-cash transactions reached 15.8 million per month in 2005, more than double last year's figure, according to Japan's two largest electronic-money providers.

E-cash is accepted at convenience stores, department stores, restaurants, newsstands and electronics retailers. At some supermarkets, up to 40 percent of all purchases are made with electronic money.

Vending machines that dispense sodas and snacks with a flash of a cellphone are popping up across Japan. Tokyo's subway system — the world's second busiest after Moscow's — will begin accepting electronic money next year.

"Japan is moving toward the cashless society," said Makoto Yamada, an executive at bitWallet, operator of Japan's largest virtual-money service and a partnership owned by the Sony Group, the Toyota Group, All Nippon Airways, two large Japanese banks and NTT DoCoMo, Japan's largest cellphone operator. "Electronic money is taking us there."

The smart cards and phones used are embedded with antennas and integrated circuit chips that allow the devices to receive and emit electronic signals. When the devices are placed near a scanner at a checkout, a signal is emitted and e-money is deducted.

Geographic differences

Similar electronic-money concepts are being tried in North America and Europe. Analysts say the Japanese version requires fine-tuning before it can be exported.

Many note the idea works well here partly because concerns about safety and security are quite low. In Japan, even lost wallets are often returned intact. The loss of a card or a cellphone loaded with hundreds of dollars of e-cash represents a comparatively small risk.

Electronic money also banks on consumers willing to pay for purchases in advance, the opposite philosophy of a credit card. That works well in debt-averse Japan, where only 9 percent of consumer transactions are settled by credit card.

But would it work in a place like the United States, where 24 percent of transactions are made on credit?

Some Americans, analysts note, use a version of e-cash to bypass toll lanes on highways.

"In the U.S., use of credit cards and debit cards is already very well-developed, so it's unclear how electronic money will take off there," said Shigeru Takamura, senior consultant at the Japan Research Institute, which is affiliated with the Tokyo-based Mitsui Sumitomo Financial Group. "Look for it in places where saving time matters, like parking garages and grocery stores."

One explanation for electronic money becoming part of the fabric of everyday life — particularly for young professionals — is that using cash here can be cumbersome. The lowest denomination of paper currency is the 1,000-yen note — worth about $8.30. That means people lug around six values of yen coins to make small purchases.

Cellphone connection

The e-cash service exploded after DoCoMo added electronic-money transmitters to its latest cellphone in 2004.

"If I need to buy something quickly, I just grab my cellphone and run out the door," said Mihoko Iguchi, 43, a dress-shop owner who was using a bright-orange cellphone to buy a fashion magazine at a convenience store. "I don't have to sift around for coins, and I can buy all sorts of different things."

Most electronic-money purchases are for less than $10, according to statistics. That amount is expected to increase, particularly after DoCoMo begins extending credits on phones and smart cards next month, doing away with the need to constantly replenish e-cash.

Electronic money is helping urban dwellers save another precious commodity — time.

One study by the Japanese convenience-store chain AM/PM indicated shoppers using e-cash completed their purchases 10 percent faster than those using real cash.

The time savings was greater when customers were buying more than one item, and greater yet when compared with those paying by credit card.

"During the lunchtime rush, we often have long lineups of 10 people or more," said Yoshihisa Okuma, AM/PM's head of strategic planning. "But we've been able to significantly reduce waiting times by using electronic money."

Link to economy

After almost a decade of deflation in the world's second-largest economy, electronic money is also credited with playing at least some role in the economic recovery here. Thousands of businesses are purchasing the hardware required to accept e-cash.

More important, the system is subtly designed to encourage Japanese consumers to buy more.

E-cash shoppers at AM/PM stores, for instance, are laying out about 15 percent more per transaction than those paying with real cash. Shoppers view electronic money as already spent, making it psychologically easier to buy extra items. Businesses offer incentives to spend e-cash, including discounts or bonus points toward airline tickets, free DVD rentals and other merchandise.

Nashimoto, the real-estate manager, earns one mile on All Nippon Airways for each $1.66 worth of virtual money he spends. He receives double points when he uses his traditional airline credit card to recharge his electronic money card on the Internet.

"Maybe I do spend a bit more with electronic money," he said.

But since he began using the system three years ago, he has earned about 10,000 airline miles using the system.

"So it still seems smart to me — and kind of cool," he said.