The Cashless Society
Can the Japanese give up their love of paper money?

The Japanese economy is awash in cash -- wads and wads of paper money -- and cash is deeply ingrained in the culture and customs of Japan. Just how far the Japanese will go in giving up the tactile and emotive experience of handling shihei is yet to be seen. But if a large cybercash experiment now taking place in Japan is successful, the sun may be rising on a new cashless society. by Yaeko Mitsumori Katsuyuki Shiraishi gets right to the point. "Our aim is to make Shibuya a cashless city." Shiraishi is manager of the Shibuya Smart Card Society, the organizer of the world's largest electronic cash experiment in Tokyo's Shibuya ward. According to the Society, 130,000 Visa Cash cards will be distributed in and around Shibuya, and card holders can shop at 2,000 retail stores in the area. The IC cards -- designed by Visa International -- are being issued by eight major credit companies, nine banks, and one credit association. Twenty-five manufacturers are providing loading machines, CATs (Credit Authorization Terminals), viewers, and vending machines for Visa Cash. Between this year and next, several large-scale electronic money experiments will be inaugurated. The Cyber Business Association launched their "Internet Cash" experiment last September, and a "Super Cash" experiment will be launched next April in Shinjuku District. Financial institutions, manufacturers, and service providers are all struggling to enter the new money market. The electronic money market is expected to be worth ¥4.2 trillion in 2000. The aim of these numerous experiments is to develop secure, convenient and practical implementations of electronic cash. The Shibuya experiment is recognized as the world's largest electronic money experiment, but for the participating banks and credit card companies, the experiment is more important as a trial of IC (integrated circuit) cards. These stalwarts of Japanese finance recognize that they must replace the present magnetic stripe technology with the improved IC cards if Japan is to embrace e-commerce. Why change Magnetic stripe cards are inexpensive, easy to handle and widely used. At present, more than 10 billion such credit cards are being used around the world, and more than 2 billion are in use in Japan. But magnetic stripe technology was developed more than 20 years ago, and is showing its age. The cards are vulnerable to tampering and fraud do to their limited 72 character storage capacity per magnetic stripe. An IC chip, on the other hand, can store up to 32,000 characters, therefore offering greater encryption capabilities and functionality. IC cards are also more rugged than magnetic stripe technology, and designed to explode if tampered with. "There has been no case of counterfeited or fraudulently used IC cards," says Takashi Ono, Manager of Multimedia Promotion Department of Nippon Shinpan Co., Ltd. In France, all of the bank and credit cards have been replaced with IC cards. The downside of this great new technology is cost. While a magnetic stripe card costs less than ¥100 per card, an IC card can cost between ¥400 and ¥2,000, depending on the design. But such high cost may pay off since an IC card, with its larger storage capacity, can provide a much broader range of features. The feature on everyone's mind now is electronic money. Unlike conventional credit cards, which uses an on-line authentication system, Visa Cash does its authentication job off-line, using the large storage capacity of its IC chip. According to Setsuko Yamanaka, senior manager of Visa International, legitimacy of the IC card is confirmed by the CAT, using a system called Dynamic Data Authentication, or Statistic Data Authentication. Thanks to this new system, merchants can reduce costs by eliminating the confirmation call to CAFIS (Credit and Finance Information Switching System). The writing's on the vault The IC cards are obviously the future for financial institutions. The trick will be to lure online shoppers away from conventional magnetic stripe cards. As the number of Internet users increases in Japan, on-line shopping is gaining popularity. Most of the malls now on the Internet are offering shoppers on-line settlement service using credit cards, and many credit card companies are embracing on-line settlement services using SET, or Secure Electronic Transaction. (See explanation about SET). Nippon Shinpan Co., Ltd., the largest consumer credit card company, on Oct. 12 started providing on-line settlement services using SET ver. 1.0 by winning authorization from both Visa International and Master Card International. The firm opened their own shopping mall, "NICOS City," and is presently nesting 14 virtual stores. A unique element of the service is the JPO (Japanese Payment Option), which allows customers to choose to make their payments in installments or even during the typical Japanese bonus periods of June and December. Junichi Sato, chief manager of Nippon Shinpan's multimedia promotion department says that by employing SET and JPO, the firm is now providing highly secured and qualified services to their customers. Nippon Shinpan is planning to get about 30,000 members for the service in the coming year. UC Card, a major credit card company, started providing on-line settlement services with SET ver. 1.0 in November on an experimental basis. Presently 13,000 monitors of Cybernet Project are shopping at 73 virtual stores. That same month, the firm started distributing Digital Wallet through the Internet and opened Mass Customization Mall, billed as a showcase demonstrating customized merchandizing. Both Nippon Shinpan and UC Card are using Japan Certificate Service (JCS) as their certificate issuers. DC Card, another major credit card company, and the advocator for the Shibuya Experiment, on Oct. 9 started providing settlement services using SET ver. 1.0. Once they receive certificates from Cybertrust, DC cardholders can shop at four malls. The firm is planning to win 50,000 members by the end of next fiscal year (March 2000). Motofumi Kogure, General Manager of Smart Card Planning of DC Card, says the firm is making efforts to simplify the Internet shopping system and provide compelling merchandise. "Today, Internet shopping is for a limited number of hardcore computer users. Before they can even start shopping, users have to go through too many hurdles." As mentioned above, credit companies recognize that the present magnetic stripe cards must be replaced with IC cards in the future. Once that happens, users will be able to shop both in virtual and real malls with only one IC card. Participants of another large-scale electronic money experiment -- scheduled to be held in Shinjuku District next year -- will be able to shop both at virtual malls and real malls with the same IC card. Unlike the Shibuya experiment, mainly led by credit card companies, the Shinjuku experiment will be promoted by 24 major banks and NTT. NTT, Japan's telecom flag barer, developed Super Cash, the electronic cash used in the experiment. A small-scale pilot test will be kicked off in February. But the world's largest experiment -- with 100,000 participants -- will be kicked off in April. The maximum amount of money stored in the Super Cash will be just ¥100,000. (At the Shibuya experiment, the ceiling is ¥30,000). The Super Cash Promotion Headquarters is busily working out interpretability of loading machines between participating banks. Commercial based use of the money is expected to be kicked off in May 2000. The Super Cash is based on the so-called NTT-BOJ cash developed in 1996 by both NTT and the Bank of Japan. However, unlike the NTT-BOJ cash, the Super Cash employs a closed loop scheme. In other words, the cash cannot be transferred to another person. In addition, while the NTT-BOJ cash was designed to have a registry and issuers separately in order to maintain the anonymity of users, the Super Cash was designed to have a sole organization which takes the role of a registry, a financial institute and the issuer. In other words, the Super Cash is more practical but does not protect privacy of the users. Futoshi Mimasa, a spokesman of Super Cash Promotion Headquarters, says that they will evaluate security and operability of Super Cash in the Shinjuku Experiment, and implement what they learn from the experiment will work out the design of the cash for commercial implementation. "We may consider employing an open loop scheme if they find it necessary," he says Meanwhile, the Cyber Business Association, an MPT related organization, launched another electronic cash experiment using Internet Cash. The experiment is limited to virtual malls and consists of two phases: in the first phase kicked off last September, some 1,000 employees of participating firms shop at a dozen stores using the Internet Cash. In the second phase, scheduled to start in April, some 10,000 publicly invited participants will shop at 30 virtual malls using the money. In the second phase, participants will be able to make purchases at a foreign mall with US dollars. Tatsuo Yamashita, the spokesman of the Cyber Business Association, says that the purpose of the experiment is to evaluate security of electronic settlement on the Internet using electronic money with the features of conventional cash. Both Internet Cash and Super Cash are based on the NTT-BOJ cash. But the two cyber cash models have very different specifications. The Super Cash as mentioned above employs a closed loop and does not keep the anonymity of users, while the Internet Cash employs an open loop (can be transferred) and does keep its users anonymous. However, in order to reduce its system load, the Internet Cash does not have a registry. Instead, by letting banks and issuers deal with the different profiles -- banks process only the real names, and the issuers deal only with the alternate identifier -- the system keeps the anonymity of users. When some illegal activity is found, the issuer and the bank work together to find the identity of the perpetrator. Regarding the differences of the two cash models, Masayuki Hatanaka, supervisor of Project Team 7 of NTT's Information and Communication Systems Laboratories, explained that the Super Cash was designed around practical implementation, while the Internet Cash was designed with security in mind. "By using the Internet Cash, users can settle even small amount of payment that credit cards today can not deal with. We hope that the electronic cash will create new business," he says. Although the Internet Cash is categorized a "net typed" cash, it also uses an IC card. All necessary data is written on the IC chip. Hatanaka explained that they decided to employ the form because they are planning to use the (Internet) cash in real malls in the future, although this time the experiment is limited to virtual malls. Critical mass In the Shibuya experiment, credit companies say they have already issued the proposed number of cards. However, the experiment seems to be a bit of a non-plus in the district. The organizer proudly says that 2,000 stores are participating in the experiment, but we were hard pressed to find participating stores among the thousands of merchants in the Shibuya shopping district. A sales person at Shibuchika (under the ground shopping center near JR Shibuya Station) says only a few shoppers use the card a day. A clerk at Tokyu Hands, a large stationary store on Koen Dori, says one or two shoppers use the card in any given day. Shibuya Parco, a large department store on Koen Dori, is one of the few places where shoppers can purchase prepaid-type Visa Cash, but the card cannot be used at the department store. Recently a dozen Coca-Cola vending machines that accept Visa Cash were parked around the district. Some users say the card is especially useful when they purchase a canned drink at a vending machine because they typically cost ¥110 and require small coins. But it is hard to find such vending machines in the area. Regardless of the obstacles, early-adopters and the technologically deft are using the card. According to Visa International, sales of Visa Cash in both in Shibuya and Kobe totaled to ¥18 million in September. Before the experiment was launched, the Shibuya Smart Society office had said they planned to begin commercial-based implementation next October. Now they seem to be waffling, saying that the banks and credit institutions must take responsibility to implement the system. What may be giving them cause for concern are the inherent high costs. CAT, for example, costs ¥150,000 per unit, and loading machines costs ¥8 million. A viewer that is distributed free of charge to cardholders of a combined Visa Cash and bankcard costs more than ¥1,000. At present, credit card companies and banks are bearing all of the cost. But it is impossible to bear all of the cost when the commercialized-based use is launched next October. "The experiment is expensive. But we are promoting it in order to let consumers be accustomed with the cards. How far we can reduce the cost is the key for commercial implementation of the technology," Kogure of DC Card says.

About SET: Rather than providing virtual stores with a credit card number, a shopper sends the information to them in encoded form. The shopper can not see the encrypted credit card number, but can forward the transaction request to the credit card company or clearinghouse where the information is decrypted and verified. Only the financial institution has the key to unlock the encrypted account information. The financial institute responds to the store request with a digital certificate that serves to verify the authenticity of the parties and the overall legitimacy of the transaction.

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