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Gov't plan to boost point rewards for cashless payments confuses retailers, restaurants

Prime Minister Shinzo Abe, third from right, delivers a speech at a joint session of the Council on Economic and Fiscal Policy and other government panels at the prime minister's office in Tokyo's Chiyoda Ward, on Nov. 26, 2018. (Mainichi/Motohiro Negishi)

TOKYO -- The retail and restaurant industries are bewildered by a government plan to raise points-based rebates for cashless payments at smaller retailers to 5 percent of purchase prices from 2 percent as initially planned, while credit card firms generally welcome the move.

Prime Minister Shinzo Abe announced the larger point rewards on Nov. 22. The points-based rebate system, part of stimulus measures aimed at preventing the October 2019 consumption tax hike from 8 to 10 percent from cooling the economy, is intended to be temporary. The government will provide subsidies to cover necessary expenses borne by shops to implement the system.

By unveiling the plan, the prime minister demonstrated that his administration is prioritizing policy measures to prop up the economy ahead of the next House of Councillors election in summer 2019. However, it remains to be seen how far the measure will be effective in bolstering the economy after the tax hike.

Credit card companies were initially skeptical of the point rewards program, but many of them are now leaning toward participating because the rewards rate has been raised. The firms expect that the move will increase credit card user numbers and payments, as well as the number of small shops and restaurants with card payment machines.

"We can provide points worth 5 percent of purchase prices to our customers without shouldering any financial burden. We have no choice but to participate, considering that our customers will benefit from the system," said an executive of a major credit card company.

Small and medium-sized shops and eateries that accept credit cards typically pay a 7-percent commission on sales to credit card companies.

The government intends to solicit credit companies to participate in the program on condition that they limit their commissions to 3.25 percent. The increased point rewards is expected to boost the number of credit firms participating in the program.

In contrast, retailers and eateries are perplexed by the move, as establishments that qualify for the point rewards scheme do business side by side with those that do not.

Under the government plan, only small and medium-sized outlets will be subject to the point reward system. For example, convenience store chain franchises run by small business operators are covered by the point rewards program, while those run directly by convenience store companies are not.

If convenience stores operating under the same name respond differently to the point reward program, it would be confusing for consumers. The government expects convenience store companies will give reward points for cashless payments at directly operated outlets at the firms' expense.

Convenience store giants, such as Seven-Eleven Japan Co., are believed to have the financial wherewithal to cover the cost of cashless payment rewards at their directly operated stores. However, such a practice is burdensome for smaller companies operating multiple convenience stores in regional areas.

"If the point reward rate was 2 percent, we thought we should shoulder the burden, but 5 percent is too tough for us," said an individual linked to a smaller industry player.

The government intends to include a wide diversity of business sectors in the points program, including restaurants.

Less than 10 percent of major convenience store chain outlets are operated directly by the parent firm. In contrast, over 90 percent of eateries in some major restaurant chains are run directly by the company.

Since it is difficult for such major restaurant chain operators to cover the cost of rewarding points for cashless payments at their own expense, some operators are likely to choose not to participate in the program.

The operators of regional supermarket chains will also likely be left at a disadvantage. These firms are not regarded as small or medium-sized businesses, and are thus ineligible for the government-backed point rewards program. However, unlike supermarket giants such as Aeon Co. and Ito-Yokado Co., they also cannot afford to reward points on their own.

A senior executive of a second-tier supermarket operator based in the Kanto region around Tokyo expressed fears that the company could lose customers to convenience stores.

"If the point reward rate is raised to 5 percent, it will have a huge influence on consumer behavior. We may lose customers who buy sweets and daily necessities to convenience stores," the executive said.

-- Economic stimulus measures morphing into pork-barreling

The scale of economic stimulus measures, including the point rewards program, has expanded far beyond initial proposals, and has drawn criticism as pork-barreling. Moreover, consumer spending could decline after the program ends, which could force the government to implement additional stimulus measures, as one economist points out.

Using a massive amount of taxpayers' money to fund large-scale economic stimulus policies will make it difficult for the government to restore fiscal health, which is a key goal of the consumption tax hike. "For what purpose will the government raise the consumption tax?" said a senior LDP legislator.

(Japanese original by Wataru Okubo, Shiho Fujibuchi and Kenji Wada, Business News Department)

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