Japan Puts Its Money on E-Cash

Electronic money also banks on consumers who are willing to pay for their 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, are already using 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."

In Japan, electronic money is becoming part of the fabric of everyday life -- particularly for young professionals.

One explanation is that using cash in Japan 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 different values of yen coins to make small purchases.

The e-cash service exploded after DoCoMo added electronic money transmitters to its latest-generation cell phone last year, creating what has been dubbed a mobile wallet.

"If I need to buy something quickly, I just grab my cell phone and run out the door," said Mihoko Iguchi, 43, a dress shop owner who was using a bright orange cell phone 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 on another precious commodity -- time. One study by the Japanese convenience store chain AM/PM indicated that 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."

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 new 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 money already spent, making it psychologically easier to buy extra items. Businesses are also offering incentives to spend e-cash, including a proliferation of programs that offer discounts or bonus points toward the cost of airline tickets, free DVD rentals and other merchandise.

Nashimoto, for instance, earns one mile on All Nippon Airways for each $1.66 worth of virtual money he spends. He also receives double points when he uses his traditional ANA 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."

Special correspondent Sachiko Sakamaki contributed to this report.