Japan has recently taken a new step in the field of digital payments. PayPay, a QR code-based payment application, has become the first operator to receive government approval for digital wage payments. This marks the beginning of Japan’s attempt to pay wages digitally.

Ten companies under the SoftBank Group, including PayPay Corp., have announced that from September 2024, with employee consent, they will pay a portion of wages through the PayPay application. Employees can choose to receive up to 200,000 yen (approximately $1,340) of their wages through the app.

This change stems from a decision made by Japan’s Ministry of Labor in 2022. The ministry stated that from April 2023, companies would be allowed to pay wages to digital payment applications. This policy aims to promote cashless payments as a way to improve the economic environment.

Importantly, this new policy is not mandatory. Employees who are unwilling to receive wages digitally can still opt for traditional direct deposit to bank accounts.

PayPay currently has over 65 million registered users. According to a government survey in 2020, about 40% of workers indicated they would consider having their wages paid into QR code-based payment accounts. These figures show the potential demand for digital wage payments in Japan.

To protect users, the government has set some restrictions on the digital wage payment system. For example, the maximum balance for digital wallets used to receive wages is set at 1 million yen. This is because, unlike banks, app operators are not covered by the national deposit insurance system.

Operators applying to become digital wage payment platforms need to undergo at least one year of government review. This process aims to assess whether the operator can ensure the safety of paid wages in case of business issues. Currently, besides PayPay, three other app operators have applied for certification with the Ministry of Labor.

Key points:

• PayPay becomes Japan’s first operator approved for digital wage payments.
• Ten SoftBank Group companies will implement digital wage payments from September 2023, with a maximum payment of 200,000 yen.
• Japan’s Ministry of Labor has allowed companies to pay wages to digital payment applications since April 2023.
• Employees can freely choose whether to accept digital wage payments.
• PayPay has over 65 million registered users, and about 40% of Japanese workers indicated willingness to consider digital wage payments.
• To protect users, digital wallet balances are limited to a maximum of 1 million yen.
• App providers need to undergo at least one year of government review.
• Currently, a total of four app operators have applied to become digital wage payment platforms.