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Economy

High credit card fees threaten Japan's push to go cashless

Program to offset sales tax hike could be hurt as well

The Japanese government aims to encourage more small retailers to accept credit cards.

TOKYO -- A Japanese reward points program aimed at softening the impact of this year's sales tax hike could be undermined by a jump in credit card processing fees.

The government plans to roll out a nine-month points program in October, when the consumption tax will rise to 10% from 8%. It will apply to cashless payments and include a cap on the credit card processing fees paid by retailers.

The points program is also designed to encourage small retailers to accept cashless payments. But after the program ends, JCB, UC Card, Mitsubishi UFJ Nicos and other card issuers will likely raise processing rates.

The looming fee hike could dissuade mom-and-pop retailers from participating in the points program, and potentially weaken its impact.

Shoppers paying via credit card, e-money and other cash less methods will receive points worth 5% of purchases at small and midsize outlets, offsetting the 2-point tax hike.

To bring more small retailers into the program, the government will subsidize the cost of the reward points and place a 3.25% cap on credit card processing fees. Processing charges normally hover around 2-5% in Japan, reportedly higher than most countries.

The fee cap was originally to remain after the points program ends in June 2020. But strong pushback from the credit card industry forced lawmakers to backtrack, leaving card companies free to decide whether to maintain the cap.

Credit cards account for 90% of cashless payments in Japan, where most cardholders pay off their balances in full each month. Consequently, Japanese credit card companies rely more on processing fees from retailers for income than in other places.

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