Introduction

In recent years, the rapid expansion of digital payment ecosystems has led to the proliferation of prepaid payment instruments (“PPI”) such as electronic money cards, prepaid apps, and mobile wallet balances. Japan, with its rich fintech landscape and consumer-driven cashless policy initiatives, has developed a complex yet flexible regulatory framework governing these instruments. For legal practitioners and compliance professionals, understanding the classification, legal obligations, and operational implications of PPI is crucial.

This article aims to provide a comprehensive analysis of prepaid payment instruments in Japan from a legal perspective, discussing their categorization, relevant statutory obligations under the Payment Services Act (“PSA”), and related compliance challenges.

I. Definition

Under the PSA, a payment method satisfying all the following items falls under PPI:

(i) The amount of money or the quantity of goods or services is stated on a voucher, electronic device or other item or recorded by an electromagnetic method.

(ii) It is issued for consideration commensurate with the value indicated on it.

(iii) The value indicated on it is issued in the form of a symbol, numerical value, etc.

(iv) It can claim goods or services by presenting the value indicated on it.

For example, in-game currency likely falls under PPI. In-game currency can be purchased in exchange for real currency, and the quantity of currency purchased is recorded in the application. It can then be used to purchase in-game items and services that enable users to have more exciting game experience. That satisfies all the above items.

Moreover, there are some exceptions. For example, PPI with an expiry date less than six months from the date of issue are not subject to PSA regulations, even if it satisfies all the above conditions.

II. Closed-PPI and Open-PPI

The PSA divides PPI into two categories, Closed-PPI and Open PPI.

The Closed-PPI is a PPI that can only be used for the goods or services of the issuer or its group companies. Business operators that issue the Closed PPI are required to file a notification to the authorities. If the unused balance of PPIs issued (total amount issued minus total amount used) as of the end of March or September of a given year is JPY 10 million or less, the PSA does not apply, and the notification is not required.

The Open-PPI is a PPI that can be used for the goods or services of third parties in addition to the issuer. Business operators issuing Open PPI must register with the authorities prior to issuing the Open-PPI.

III. Obligations for PPI Issuers

The main obligations are as follows:

(i) PPI Issuers must provide the following items with users

(a) the name of the PPI issuer

(b) the amount of PPI available and the amount of goods or services to be provided

(c) the expiry date of the PPI if any

(d) contact details of the PPI issuer

(e) where the PPI may be used

(f) precautions for using the PPI

(g) how to check the available balance

(h) terms and conditions if any

In addition to the above items, it is necessary to disclose the methods used to safeguard funds received from users and the policy for compensating users for losses incurred due to fraudulent transactions.

The issuer may post the above information on its website to fulfil this obligation.

(ii) If the unused balance of the PPI issued exceeds JPY 10 million at the end of March or September in a given year, the issuer must deposit an amount equivalent to at least half of the unused balance at Legal Affairs Bureau.

Contact Us

Kensei Law Offices are committed to supporting your business in Japan with experienced bilingual legal professionals. If you require legal advice or assistance, please do not hesitate to contact us.