>Contactless Payment Turf Wars: tapping the potential of TAP
The recent MacRumors report that the Los Angeles Metro Transit Access Pass card is coming to Apple Pay was not entirely new information, the Source blog and Curbed reported back in May 2017 that TAP was coming to smart devices with a system upgrade:
Cubics (sic), the company handling TAP technology, is developing Nextlink, a “cloud-based connection system,” that will link the existing TAP fare infrastructure to an upcoming mobile payment app. The app is expected to be released, “as early as 7-9 months from the start of development.”
“Metro’s TAP card system is getting a major upgrade” Curbed May 2017
As Curbed explains it, Cubic is developing a backend cloud system that enables online transit accounts with credit/debit cards attached to TAP cards for anywhere anytime mobile recharge with the eventual goal of TAP cards being hosted on mobile devices. In other words it sounds just like Mobile Suica, the world’s first contactless transit card system on mobile, which has been around since 2006 and on Apple Pay since 2017.
The MacRumors Apple Pay information was new but also vague and unclear:
MacRumors can confirm that LA Metro, the transit agency that manages integration of the TAP card system in the Los Angeles Area, said it is working with Apple to support mobile payments for iPhones, with rollout scheduled for this fall…and eventual support for Android phones with NFC, although the timeframe for the latter is unknown.
The process is similar to using Apple Pay for in-store payments. Depending on the iPhone, that means double-pressing the home button or side button, authenticating with Touch ID or Face ID, and holding the device near the card reader. Apple Watch payments are also activated by double-pressing the side button.
Cubic is the 800 pound gorilla of public transit gate and fare systems in America, Europe and Australia with long and profitable history of creating and operating fare systems. Cubic builds client IC transit card systems with MIFARE technology, which has made MIFARE a de facto standard in those regions. As Cubic literature says, “Over 60% of public transit rides in the US, UK and Australia are taken using Cubic systems.”
So far Cubic has not hosted any client transit card on digital wallet platforms like Apple Pay or Google Pay. Instead of native digital cards Cubic and clients have chosen ‘open loop’ EMV contactless credit/debit cards as their digital wallet strategy. Transit for London (TfL) went open loop in 2012, other Cubic operated systems such as Opal and Vancouver Compass have added it as well. The New York MTA and Cubic plan the same strategy for replacing the venerable New York Subway Metro Card.
There are huge business model and operational differences between the 2 approaches but from a Apple Pay user viewpoint the difference boils down to an Express Card-like experience (Suica, China Transit, Contactless Student ID cards) for going through a transit gate versus a Touch ID/Face ID credit-card-at-cash-register experience. That’s because EMV contactless was originally designed for cash registers, not transit gates. EMV contactless is a slow and very stupid smart card.
The MacRumors piece suggests that TAP on Apple Pay is Cubic TfL flavored EMV contactless, not native TAP Express Cards. But if TAP on Apple Pay turns out to be a native express card, it could be one of the largest express card deployments outside of Asia. In America and Europe there are only 4 native transit express cards on a digital wallet platform, all of them Google Pay only: Portland HOP, Las Vegas Monorail Network West Midlands Swift and Transport for Victoria Myki.
What’s fascinating to me is that smaller agencies like Transport for Victoria (TFV) are accomplishing what the mighty Cubic has not by launching native transit cards on digital wallets. Why? One possible explanation is that TFV understands the value of acquiring and managing online accounts while TfL dumps them in the Thames along with Oyster in favor of bank cards. I think we can look at LA Metro’s digital TAP rollout in the same way: if LA Metro is going to the trouble of building a cloud backend to migrate from plastic card management to online account management, does this mean they understand the business value of it? After all Apple, Amazon, Google, FaceBook and every other online business understands the value of online accounts with attached credit cards for building platforms, why not transit companies?
The Transit Platform Difference
One building block of a transit platform that follows the Japanese business model is migrating from plastic transit cards to a mobile account acquisition cloud backend that connects the customer transit card with credit/debit cards for anytime anywhere mobile recharge. The next step is loyalty reward goodies and bonus points with preferred cards, or better yet house brand cards. JR East Mobile Suica for example plugs and plays with a huge variety of cards but offers JRE bonus points for recharging with a JR East View card. Major retailers at major stations issue branded View cards with store points in addition to JRE points both of which help drive transit use and station area retail traffic.
The next crucial step is interoperable transit cards (TAP, EZ Rider, Compass, etc.) that are key to making transit easy to use statewide and eventually nationwide. This can only happen if there is good business planning and development behind the transit account acquisition process, and a management that understands the importance of how all the different infrastructure pieces need to integrate: California High-Speed Rail, regular lines, subway, buses, station retail, services, Mobile TAP, etc. The business vision has to create a whole that is much larger than the sum of various infrastructure parts.
Unfortunately this kind of business development and promotion comes hard for government run transit authorities. Egon Terplan of the San Francisco Bay Area Planning and Urban Research Association (SPUR) came to Tokyo and studied the business model:
By 2017, Japanese trains carried nearly 30 percent of all rail passengers in the world, more than all of Europe. But unlike many European countries, Japanese rail companies are privatized, with for-profit publicly traded companies running separate rail lines all around the country.
JR East, the largest of the JR companies, carries 17 million passengers per day on 12,300 trains. (By comparison, Amtrak carried just 31.3 million passengers during all of 2016, a record year in ridership; the New York City subway averages 5.5 million daily rides and BART, 430,000.) And JR East’s $26 billion in annual revenue includes no government subsidies.
I have lived in Japan since 1984 and am lucky to have witnessed the amazing transformation from Japan National Rail, dingy stations and paper tickets punched at the gate, to JR, Apple Pay Suica, constantly upgraded infrastructure and stations stuffed with and surrounded by all kinds of retail and delicious food. The transformation and integration continues and not only infrastructure.
The choice between keeping TAP transit card accounts ‘in-house’ and closed loop on Apple Pay/Google Pay vs. EMV contactless open loop may sound trivial, but the decision will reveal whether LA Metro values transit online accounts as a business resource to build on, or a giveaway to banks and credit card companies. It comes down to what the famous Japanese daimyo Uesugi Yozan (a favorite of John F. Kennedy by the way) had to say about government and economic planning: always plan 50 and 100 years ahead. Think and plan for the generations to come.
Update: edit updated with NFC Forum Public Transportation Workshop and Super Suica information
In Japan, iPhone purchases were traditionally subsidized, bundled with carrier contracts. Today, local regulations have significantly restricted those subsidies as well as related competition. We estimate less than half of iPhones sold in Japan in Q1 this year were sold via subsidy.
That and the battery replacement program were the official reasons. The unmentioned unresolved iPhone X Suica problem was another.
UPDATE Tim told Reuters that, ‘Apple is rethinking how it prices the iPhone outside the United States after largely setting the price in U.S. dollars, which made the phones more expensive in local currencies as the dollar strengthened.’ Hopefully Japan is one of the markets that could see iPhone price adjustments. There are also other things Apple can do in Japan to help offset the iPhone sales decline.
Just a friendly word of advice for Apple Pay Suica users who are thinking about trying the iOS 12.2 beta: don’t. Design tweaks have rearranged and hidden some important functions while breaking others. Wait until the beta is further along or the official release. A quick rundown:
Suica Notification shortcut links for Recharge and Commuter Pass Renewal don’t work, they only take the user to a default Suica card screen.
Recharge and Commuter Pass Renewal used to be one tap away on the default Suica card screen but have been relocated so that users have a convoluted 4 step drill down through a total of 3 screens to finally get to Recharge/Renewal. This is progress?
UPDATE: iOS 12.2 beta 2 does not have any Wallet/Suica UI fixes or improvements from beta 1
It looks like Apple is working with Japanese carriers to drum up iPhone XR sales. Docomo already issued a limited iPhone XR discount campaign in December aimed mainly at carrier switchers. Today’s SoftBank announcement of the “iPhone XR Happy Price Campaign” that launches on January 30 appears to be a broader ¥10,800 discount for customers who purchase a iPhone XR with a 2 year contract. However the campaign page says nothing about upgrades. I guess the devil will be in the details.
As Tim Cook mentioned in his letter to investors, carrier subsidies are going away in other markets and Japan as well. Docomo, KDDI au and SoftBank are in a transition away from subsides under pressure from the Japanese Government to get consumer monthly data and voice costs down.