Concern over safety of paying salaries in e-money form must be addressed

The government is considering lifting the ban on e-money salary payments, in which salaries would be transferred to smartphone payment apps without going through banks, but there are many issues with this plan. It is essential to avoid making hasty judgments and thoroughly examine the impact of lifting the ban.

The Labor Standards Law requires companies to pay workers in full in cash to ensure they receive their wages. The government has allowed wages to be paid into accounts at financial institutions as an exception.

The main aim of introducing the payment of wages as e-money is to promote a cashless society, and a Health, Labor and Welfare Ministry council has been discussing the issue.

The government has said it also aims to create a better work environment for foreigners who find it difficult to open bank accounts in Japan. However, is it appropriate to widen such a measure to the general public?

A salary is a vital foundation for many people’s livelihoods. Safety must be given top priority above everything else.

Among e-money payment services, those expected to be subject to the lifting of the ban are said to be those that allow transfers, such as PayPay.

Banks operate under the public deposit insurance system, so that even in the event of a bank failing, a principal of up to ¥10 million is protected and paid promptly. To prevent damage to deposits when a bank’s other areas of business reach a dead end, there are strict restrictions on banks engaging in any other than their core businesses.

Money transfer companies, including mobile payment providers, are not subject to these conditions.

There are also fears about the plan because of a series of crimes targeting e-money, including illegal withdrawals of money from NTT Docomo Inc.’s Docomo Koza e-money payment service.

Will the money in the apps be protected and will salaries be paid as scheduled? It is also worrisome that failure in other business fields money transfer companies engage in may affect payment of salaries. It is imperative that these concerns be resolved first.

Under the Investment Deposit and Interest Rate Law, money transfer companies are not allowed to hold funds like for deposits and are only allowed to hold them temporarily for settlement purposes. If salaries are transferred in units of hundreds of thousands of yen, they are effectively equivalent to deposits. However, it is not clear at this point in time how to regard e-money transferred as a salary.

If a large amount of money is transferred to e-money services, banks will lose their earnings foundation. Bank’s function as financial intermediaries, in which they pool funds from individuals and lend them to companies, could be damaged, and the impact on the economy as a whole would be great.

Nevertheless, the ministry’s council consists of representatives from labor and management circles as well as scholars and does not include members from banks and other organizations. More comprehensive, multifaceted discussions must be held if changes are to be made to how salaries are handled, as this has a large impact on people’s lives.

— The original Japanese article appeared in The Yomiuri Shimbun on Feb. 27, 2021.