The partnership will combine KDDI's 5G technologies and Lawson's network of stores, along with both companies' fledgling payment and loyalty systems, the companies said on Monday.

They did not disclose the price paid for the stake, but KDDI's investment would be worth more than 13 billion yen ($118.8 million) based on Lawson's last closing price.

Ultra-low interest rates, a nationwide web of ATMs and relatively low crime rates have made Japanese consumers late compared to some other developed nations in embracing electronic money and mobile payments.

But a consolidating banking sector and corporate drive for automation are encouraging businesses to go digital.

As part of the partnership, KDDI will also buy 20% of issued shares in Loyalty Marketing, which operates the Ponta loyalty point card, from Lawson's parent company Mitsubishi Corp, whose holding will fall to 22.37%, the companies said.

From May, KDDI and Loyalty Marketing will integrate their point systems into the Ponta service, creating Japan's biggest such loyalty network with over 100 million subscribers, they said.

The Japanese government has been promoting cashless payments in a bid to bolster productivity amid a labour crunch, aiming to double the ratio of electronic settlements to 40% by 2025 and to 80% eventually.

Japan's most popular smartphone payment system — QR code payment app PayPay, owned jointly by SoftBank and Yahoo Japan — has seen membership spike since October, helped by a government rebate campaign.

Lawson, Japan's third-biggest convenience store chain, also has a tie-up with KDDI's rival NTT Docomo.

(Reporting by Ritsuko Ando and Kevin Buckland; Editing by Himani Sarkar and Muralikumar Anantharaman)