Just rode JRE's Yamanote line with Apple Pay. Can't wait for our customers in Japan to start using it later this month. pic.twitter.com/mMcK3iIaS4
— Tim Cook (@tim_cook) October 13, 2016
In Japan, where Apple Pay launched last October, more than 0.5 million transit users are completing 20 million Apple Pay transactions per month.
Apple Pay Japan Market Math
Is this a good result or a bad one? Suzuki san does the math: if you take 500,000 users, multiply that by two (a round trip) and factor in one month of 20 work days you get 20 million transactions exactly.
In other words Tim is talking about Suica Apple Pay commuters who use it everyday.
Japanese government figures estimate smartphone share at 76% of the entire mobile phone market. iPhone share is estimated at 60% of that putting Apple’s Japanese iPhone installed base between 40~50 million devices.
Suzuki san estimates the iPhone 7/7 Plus installed base for Japan between 10~15 million devices. Suica Apple Pay commuters are limited to the greater Tokyo area, 1 out of every 4 Japanese, which gives us 2.5~3.5 million Suica Apple Pay ready iPhones in Tokyo.
Suzuki san thinks 500,000 daily Apple Pay users out of 2.5~3.5 million iPhone 7 devices is a pretty good result. I agree. There are many more casual Apple Pay Japan users out there, but Apple wanted a nice simple marketable info nugget for the earnings call. The big question is where does it go from here?
Breaking the 20% Glass Barrier
The Apple Pay Japan ready iPhone installed base will rise as users trade up to the latest and greatest iPhone but the real test will be if Apple Pay breaks the Japanese mobile wallet utilization glass barrier that has stubbornly remained at 20% no matter how many mobile wallet capable mobile devices are sold, regardless of platform. Mobile payments are still too geeky and difficult for most people to bother with.
The arrival of Apple Pay in Japan has already generated excitement, change and opportunity in a static mobile payments market. The JCB QUICPay network has been very aggressive getting new card partners on board the Apple Pay bandwagon, marketing them heavily to steal what they can from NTT Docomo’s iD market lead. It’s great fun reading Japanese twitter user comments about dumping VISA that don’t work with Apple Pay or switching to a QUICPay card to get better mileage out of Apple Pay.
The challenge for Apple Pay Japan will be how much traction it can capture in the two-year run up to the 2020 Tokyo Summer Olympics. It boils down to two essential attack points:
- More Partners: make the Apple Pay Japan footprint wide as possible.
- Systems integration: make Apple Pay dead simple ‘it just works’ savvy.
The Japanese payment networks that work currently with Apple Pay are: Suica, iD and QUICPay. Apple needs to add as many transit card systems as they can, along with the major missing payment networks: Edy, nanaco and WAON.
For reference here is a small survey analysis from February 2017 of what payment systems Japanese have:
- Suica (Transit) (Apple Pay): 20%
- nananco: 15%
- Rakuten Edy (Android Pay): 14%
- au WALLET: 9%
- QUICPay (Apple Pay): 8%
- PASMO: (Transit) 7%
- iD (Apple Pay): 7%
- ICOCA: (Transit) 5%
Transit cards are the easiest way to capture users because the Suica Apple Pay ease of use appeal to commuters, taken nation wide, is a slam dunk entry point: users first sign on to use their commuter pass on iPhone then quickly migrate to using the convenience of mobile purchases.
Systems integration will be the trickier of the two. Apple already deploys the full set of NFC flavors (A/B/FeliCa) on iPhone and Apple Watch but limits them geographically: FeliCa in Japan but not other countries, etc. From a technology viewpoint it should not be hard to make NFC transactions ‘just work’ for Apple Pay Japanese users going abroad and vice versa.
Unfortunately as Horace Dediu pointed out, payments infrastructure is complicated and messy with many moving pieces: banks, credit card companies, merchants, point of sale terminal technology, smartphone platforms and last but not least, the customer.
In Japan for example the customer tells the cashier ‘I’ll pay with Suica (or iD, or QUICPay)’, or selects a payment network on the terminal display screen. Then the customer has to bring up the appropriate Apple Pay card and Touch ID verify it. Some terminals take advantage of Suica Apple Pay Express Transit mode which bypasses Touch ID while other terminals require it. Some terminal readers offer a smooth experience, others do not.
This is not a user-friendly and inviting experience because all too often those messy pieces don’t work as a seamless whole.
Breaking the 20% glass barrier means Apple Pay Japan has to offer a better experience out of the box and across the board without rough edges or gotchas that restrict it to the tech savvy crowd. Suzuki san thinks those fancy new Panasonic JT-R600CR terminals going into McDonald’s and Lawson that handle every conceivable payment method and NFC flavor are a big part of the solution.
I think that’s wishful ‘technology can solve anything’ thinking. Payment technology won’t help much if banks, credit card companies and smartphone platforms do not integrate in a much bigger, and international savvy way. EMV and NFC use the same payment infrastructure, wouldn’t it be nice if it all just worked, all the time, everywhere?
The real solution rests with Apple, or the competition, making all those messy payment pieces fit together and work as one seamless whole. The next two years will be very interesting.
The Apple Pay Japan One Year Mark
One thing Suzuki san points out in his piece that I forgot to mention was the automatic selection functionality of the Panasonic JT-R600CR terminals. From his explanation it sounds like the terminal automatically senses and selects your main Apple Pay card, or the most appropriate one for payment transaction.
I have not tested the new Panasonic terminals yet but hope to soon. It should be a smoother and faster experience than it is now. Suzuki san thinks the Japanese payments infrastructure will see a massive rollout of new much smarter terminals in the lead up to the 2020 Tokyo Olympics. Japanese companies want to capture as much ‘inbound’ customer business as they can.