Japan Apple Pay Launch Week Analysis

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Tim Cook’s Keynote slide at the October 27 event were he mentioned the Apple Pay and Transit launch in Japan.

It was an interesting week, starting early October 25 with the iOS 10.1 update which rolled out Apple Pay and Transit services for Japan. The next day was 4Q financials day followed by the new MacBook event on October 27.

The Launch
The first few hours of the Apple Pay rollout was fascinating, especially the ebb and flow, and palpable excitement of Japanese iPhone users on Twitter.

  • 2:30 am (Japan time): First there was the actual iOS 10.1 update drop which took up to an hour to download and install from Apple’s stressed out servers.
  • 3:30 am ~ 5 am: Lots of users tweeted Apple Pay wasn’t showing up even after the update. The lucky ones who did see Apple Pay showing up in Wallet could not load Suica successfully but got a nice message from the JR East servers: Suica Apple Pay will be operational at 5 am.
  • 5 am: Suica Apple Pay went live at the promised time and Twitter was flooded with Japanese “I got Suica loaded in Apple Pay!” comments.

JR East and Apple should have been paying attention because all those excited and tweeting Japanese  iPhone 7 users got ready for work and hit the road on their daily commuter transit rush. Only this time with Suica Apple Pay loaded on their iPhone 7 phones.

The result: around 7 am the JR East Mobile Suica servers, the part of Suica which processes smartphone/feature phone transactions, went down under a deluge of traffic 10 times the normal amount. Apple Pay iCloud servers also jammed up making it difficult to load any new card into Apple Pay.

The Press
Most of the press reported the event like they usually do: “Apple servers fall down again, they just can’t do cloud stuff.” Grabbing page views by making fun of Apple is standard practice but not real reporting, let alone analysis.

The only English language journalist who got even close to what was going on was Johnny Evans It looks like Apple Pay is already really big in Japan. Evans actually took the trouble of asking a Bloomberg journalist who said, “It’s a shame that systems went down, but it shows just how much user interest there is.” As the Showa Emperor used to say, “Is that so?”

The Reality
If you paid attention there was a lot more interesting stuff going on that pointed to how big the Japan Apple Pay launch was, not just for Apple but also for Japanese companies. For starters, Tim Cook mentioned the Japan Apple Pay launch twice during the week.

The first was during the 4Q financial conference call. Tim said that Apple Pay had grown 500% and that September transaction volume alone was larger than the rest of the financial year. He then mentioned the Apple Pay Japan launch which was just in the first 24 hours of operation. The mention may only have been standard financial PR but it felt like Tim was preparing us for something much bigger… something much bigger after the first full quarter of Apple Pay Japan operations.

The second mention was during Tim’s iOS 10 update section at the MacBook event. He devoted two Keynotes slides, one to Apple Pay, one to the Japan Transit service launch and mentioned “everyday there’s over 160 million contactless transactions” made in Japan. He also promoted the Apple Pay – Japan Transit integration as “the best and easiest way to get around in Japan.”

The Smart Money
Anybody paying close attention to the Japanese market noticed that the stock of a Japanese FeliCa transaction processing company, Flight Holdings Inc. (TYO:3753), started gaining traction in August. This was just about the time that Japanese smartphone journalist Tsutsumu Ishikawa broke the Apple Pay – JR East story. Flight Holdings reached one peak on October 25, the Apple Pay Japan launch day. There was also an interesting under the radar PR blurb on October 28 announcing IBM Japan/ Rambus Bell support for Japanese banks integrating Apple Pay.

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Flight Holdings Inc. (TYO:3753) chart November 14~18.

Japanese investor Yujiro Hayami for one, says the Apple Pay Japan story has only just started and will play out in interesting ways, not only for Apple but for Japanese companies that provide FeliCa infrastructure support.

The most interesting question however is this: Apple made a big bet on FeliCa technology and Apple only makes a big bet on things that take years to play out. What’s the long term?

For Japan the Apple Pay launch is the “a-ha” inflection point when many disparate parts suddenly come together and shine, but it would be short-sighted to assume that Apple’s FeliCa bet is only for the Japanese market.