The Hidden Intentions of the Ministry of Health, Labor and Welfare Behind the Start of Digital Salary

Sending money via PayPay for support.

Maruko Izumi, who operates a “Living and Money” consultation room in the Tokyo metropolitan area, has a student daughter. She mentioned, “I ask my daughter what she wants for her allowance, and depending on the month, I sometimes send money via PayPay instead of her bank account.” Unlike bank transfers, there are no fees, and it’s convenient if her daughter plans to use PayPay. She added that some of her daughter’s friends also receive their allowances via PayPay from their parents.

Maruko, a first-class financial planner, also noted:

“Younger people often prefer to receive their part-time job wages entirely through PayPay. There’s a generational difference in how familiar they are with electronic money. Young people who haven’t opened a bank account likely welcome payments via PayPay.”

To use PayPay, one needs to download the app on their smartphone and can fund it through cash at designated banks or directly from their bank account. When paying for products or services, users scan a QR code with their smartphone. This means there’s no need to carry a wallet as long as you have your phone.

In Japan, which has been lagging in cashless payments, the use of QR payments and electronic money for shopping and service fees has been increasing. The preference for contactless payments during the COVID-19 pandemic has led to wider adoption, and some electronic money services offer incentives like points based on usage amounts, which are also appealing.

Digital salaries have been allowed since August. Are there people who insist on using only electronic money?

Due to the rise of electronic money, the system has recently been revised to allow workers to receive their salaries not only in cash but also through electronic money. In August of this year, PayPay was recognized as a form of electronic money that can be received, and SoftBank Group companies have begun offering a PayPay salary receipt service for their employees.

Digital salary payments are based on the hopes and consent of the workers. In addition to PayPay, other electronic money options like Rakuten Pay are awaiting approval, indicating that the range of options is likely to expand. What benefits does digital salary provide to workers?

According to explanatory materials from the Ministry of Health, Labour and Welfare, the introduction of digital salaries is backed by the spread of cashless payments and the need for diverse remittance methods, particularly highlighting the elimination of the hassle of having to charge electronic money oneself.

Regarding digital salaries, a wage-related official from the Ministry of Health, Labour and Welfare stated, “There is a certain level of demand, and it is one of the options. If someone wants their salary to be deposited this way, they can use it.” Furthermore, for part-time workers and day laborers, who have previously been paid in cash daily, electronic money will become an option for payments in the future.

Regarding the introduction of digital salaries, Mika Koizumi, Product Manager and Head of Financial Relations at Free Inc. (Shinagawa, Tokyo), stated, “The hassle of charging electronic money is eliminated, making it one of the options.” She mentioned that not only general workers but also the increasing number of foreign workers in Japan may find it difficult to open a bank account immediately, making it desirable to receive wages not only in cash but also through electronic money. To open a bank account in Japan, foreigners are typically required to have a residence period of a certain length, a residence card, and a certificate of residence.

Companies are also showing interest in adopting digital salaries. Besides the SoftBank Group, Koizumi noted that “Sakai Moving Center and Nichigas seem to be considering it,” suggesting that it could be appealing in industries with a high number of part-time workers.

Eiichi Taniguchi, a senior researcher at the Japan Research Institute, stated that for companies implementing digital salaries, it can be an appealing factor for young people and those who understand digital platforms. He also mentioned that the spread of digital salaries will depend on how much the electronic money operators engage in promotional campaigns. On the other hand, he questioned whether there are people who absolutely require electronic money, expressing uncertainty about how many people would actually prefer digital salaries.

The upper limit for PayPay’s balance is 200,000 yen.

Regarding digital salaries, Maruko mentioned, “When I asked people around me, there were overwhelmingly more who preferred their salaries to be deposited into bank accounts.” On the other hand, she noted that “some people wanted to receive payments via PayPay, and there were those who welcomed the convenience of not having to charge for amounts around 20,000 yen a month.”

Koizumi explained, “Electronic money is intended for daily spending, not for accumulating.” The amounts and frequency of use vary for each individual, and usage can fluctuate significantly over time. If a portion of the salary is received in electronic money once a month, the balance may accumulate if the spending amount is low.

Payments via digital salary have a maximum balance limit of 1 million yen. Within that limit, one can receive all or part of their salary in digital money. Unlike standard electronic money, which cannot be converted back into cash once charged, electronic money recognized as digital salary can be exchanged for cash. If the balance reaches 1 million yen, any excess will be transferred to a designated bank account. Currently, PayPay has set a maximum balance limit of 200,000 yen.

If a salary is deposited in electronic money, any excess over the balance limit will be converted to cash and transferred to a bank account, negating the purpose of receiving a digital salary. Conversely, if the electronic money received as a digital salary is set lower than the monthly usage amount, the individual must deal with the hassle of additional charging.

It is expected that many who wish to receive a digital salary will only want a portion of it, making it cumbersome for businesses that pay employees to manage payments divided between bank accounts and electronic money.

There are also voices saying, “Isn’t auto-charge good enough?”

When Tanaguchi asked his wife if she would use digital salary if it were implemented, she replied that she wouldn’t. This is because electronic money has an auto-charge feature that automatically charges from bank accounts, making it unnecessary to receive a digital salary.

Some electronic money services have auto-charge functions linked to bank accounts or credit cards. For example, if a balance is set, it automatically charges when the balance falls below that amount after use. The charge amount can also be set. The presence and mechanism of this auto-charge feature vary among different electronic money services.

Maruko mentioned, “I charge manually, but I don’t find it cumbersome. Going to a convenience store to charge is a hassle, but I can charge through apps on my smartphone at any time, even in the middle of the night.”

The utility of digital salary depends on how electronic money is used, so it’s hard to say it offers benefits to all workers. If electronic money offers convenient features like auto-charge linked to bank accounts, or the ability to charge easily, digital salary may not be necessary. On the other hand, for younger generations who are accustomed to using electronic money, there is potential for the spread of digital salary.

As a background to the introduction of digital salary, Koizumi pointed out that it aims to allow not only banks and financial sectors, which are heavily regulated by financial authorities, but also fintech companies that handle electronic money to participate. Fintech is a portmanteau of finance and technology, representing the fusion of financial services with IT (information technology), leading to technological innovations. New services, like remittances through computers or smartphones, are advancing in the financial world, and fintech companies are looking to find business opportunities in this space.

The hidden intentions of the Ministry of Health, Labour and Welfare are.

The Rengo (Japanese Trade Union Confederation) states, “Wages are compensation for labor, and the accounts where wages are paid must ensure safety and certainty.” The operators of the electronic money eligible for digital salaries are limited to those who meet certain criteria, including systems for swift compensation in the event of bankruptcy and for compensating workers in cases of fraudulent use.

Recently, operators of electronic money have been trapping consumers with point rewards and forming their own “economic zones.” Koizumi suggests, “Electronic money operators that are developing these economic zones are likely to target digital salaries.”

If an electronic money service is recognized by the Ministry of Health, Labour and Welfare as eligible for digital salaries, it will be perceived as having high social credibility. Being eligible for digital salaries would be beneficial for the business development of the electronic money operator.

For the Ministry of Health, Labour and Welfare, which has been promoting the introduction of digital salaries, it creates connections not only with the healthcare industry but also with electronic money operators, allowing them to take a position as a recognized authority in determining eligibility for digital salaries. While the banking sector falls under the jurisdiction of the Financial Services Agency, this initiative has also established connections with fintech companies, which are seen as a growing industry.

Although it remains unclear how much benefit the general workforce will derive from the introduction of digital salaries, it is certain that it will be advantageous for electronic money operators and the Ministry of Health, Labour and Welfare.