The Horse’s Mouth

When Nikkei writes that suppliers are experiencing an ‘extraordinary decline’ in Chinese demand I take it with a grain of salt. Nikkei has a long history of insider trading reporter scandals. To me they are more market manipulation mafioso than a reliable media outlet. However, the source the Nikkei report is Nidec Chairman Shigenobu Nagamori. When Nagamori san says he’s never seen anything like this Chinese drop in demand for Nidec products across the board, people across Japan sit up and listen. This is a serious contraction in Chinese manufacturing and there will be a lot more reports coming as the Nidec story gets picked up. It’s just the tip of the iceberg but at least the China construction sector seems to be holding up as Komatsu is still seeing some sales growth there.

Shigenobu Nagamori is a charismatic founder who loves and lives his company every bit as much as Steve Jobs loved and lived Apple. He obsesses over little details and tours Nidec factory floors making sure everything is clean and properly stored. Sweat the details and the big things take care of themselves. He has lived and survived many recessions. When a downturn comes the first thing he does is cut company executive and board member salary and bonuses while holding the line for regular employees. Real leaders rally the troops by sharing the hard times.

Steve Jobs famously worked for a dollar a year salary. I wonder if Tim Cook and the Apple Leadership will take a pay and bonus cut like Steve Jobs did and Shigenobu Nagamori does. It would certainly rally the Apple team if they did.

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Dear Tim

Dear Tim

In uncertain and challenging times it’s more important than ever to look for good opportunities. Here is one for the Japanese market. Did you see that news item from JR East about all those old Osaifu-Keitai models being dropped from Mobile Suica in 2020? That’s a few million upgrade opportunities right there.

How about doing a nice little marketing campaign with the Japanese carriers offering a nice trade in price for those old Osaifu-Keitai with a discount on a iPhone XR or iPhone 8? I know, I know, you only want to sell iPhone XR but until the Face ID camera has magic x-ray ability at an affordable price, all those face mask users in Japan will really appreciate a Touch ID iPhone 8 choice. Offer trade in customers free assistance moving and setting up their Mobile Suica accounts in Apple Pay Suica at local Apple Stores. I’m sure it would be a success.

And while you’re at it offer a nice little replacement campaign for those pesky iPhone X units that don’t work with Suica. There are a lot of Japanese customers who would really appreciate Apple reaching out to help and would probably upgrade with a little encouragement and a bug free iOS 12.

Oh and one last thing, offer a similar little iPhone XR/iPhone 8 upgrade campaign in Hong Kong when Apple rolls out Octopus on Apple Pay. With 33 million Octopus card users in Hong Kong I’m sure it would help iPhone sales there too. Apple has a wonderfully unique global FeliCa strategy tucked away in Apple Pay, used wisely it could be a great sales tool.

Love and kisses,

Ata Distance

Return of the Secure Element Wars?

Visa has been phasing out payWave on SIM cards in Japan and other countries because the secure element wars are over and the SIM mafia didn’t win. Unfortunately nobody gave the news to INCIR, yet another FinTech startup in Japan (founded by Singapore startup Gooute) with yet another payment platform idea: instead of selling NFC A/B SIM cards, let’s sell NFC A/B microSD cards for cheap shit Android phones and call it INCIR WALLET.

This might sound like a viable business plan for India or China but it doesn’t sound like a good idea for Japan where:

Good luck with that.

Free Mobile Suica for Everybody in 2020

JR East announced the end of the Mobile Suica ¥1030 annual membership fee for all Android devices on February 26 2020. Mobile Suica is free for Apple Pay users. JR East also announced the end of Symbian OS feature phone support with most devices being cut off from Mobile Suica on February 25 2020, and the rest following on December 22 2020 along with some Android devices.

All of the ‘offed’ devices can still use Suica for transit and purchases but are limited to cash recharge which can be done at station kiosks and any convenience store. Users who want to keep their Mobile Suica account will have to migrate to an eligible Apple or Android device.

JR East is also terminating Mobile Suica Shinkansen e-ticket purchases this year and will replace it with a new service similar to JR Central’s Smart EX. Details should be coming soon.

All in all it looks like JR East is clearing the Mobile Suica deck for the 2021 Super Suica launch.

Japan Cashless Map for 2019

The Crowd Cast cashless map illustrates the rich variety of Japanese payment platforms

Because of its long history pioneering many of the technologies used for contactless payments, Japan is one of the most interesting, complex and difficult markets to study and analyze cashless payment trends. Accurate analysis of Japanese cashless/contactless payment trends is challenging because of fragmentation and regionality. Every market report or survey is just one tiny fragment of a much larger moving picture. An accurate map is good starting point.

Fintech startup Crowd Cast, Ltd. CEO Takashi Hoshikawa has a blog and posted a handy helpful cashless map for 2019. It’s not perfect however so I tweaked it a bit to clearly outline the 3 basic cashless groups: plastic cards, NFC, QR.

Digital wallets like Apple Pay and Google Pay work with all the NFC flavors (A-B-F) but Apple has made a much deeper investment integrating FeliCa into the basic technology bundle that powers Apple Pay alongside EMV, delivering it globally as a payment solution that “just works”. EMV contactless is called NFC Pay in Japan and is slowly being deployed alongside existing FeliCa payment networks so that POS systems and readers “just work” with everything. Hopefully it will all be up and running in time for the 2020 Tokyo Olympics.

QR Codes are not big outside of China and I don’t see conservative markets like Europe or the US taking them up. Japanese QR Code payment platforms are cropping up thick and fast but availability has not translated to actual use. ICT Research & Consulting has released a market report on mobile cashless payments (for ¥95,000) that basically covers 2018 with a web survey of 4,062 participants. The teaser page offers a few interesting free data tidbits. I don’t trust web based surveys as a tool for analyzing a highly regional and fragmented market, but the cash vs cashless chart illustrates exactly what I wrote in the Apple Pay Japan One Year Mark: people use contactless payments like Apple Pay for coffee and train fare but do not use Apple Pay for buying a couch. However the chart offers an interesting point: Japanese people use (plastic) credit cards for larger purchases and cash for smaller ones.

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The Apple Pay Japan Story so far
Japanese IT journalist Junya Suzuki predicted that Apple Pay would be the ‘black ship’ that would revolutionize contactless payments in Japan. Apple Pay turned out to be the match that finally lit the fuse of the huge Japanese contactless transit and payments infrastructure investment and launched it into orbit. The global FeliCa iPhone is a inflection point that many people have yet to recognize, one that will soon provide Apple Pay another growth opportunity in Hong Kong. A year ago I wrote:

Apple Pay in Japan is all about Apple Pay Suica which we already knew. In the Suica home base area, the Kanto region, contactless payments grew from 20% of total transactions to more than 40% in the year that Apple Pay Suica has been available… What used to be ‘some people some of the time’ is quickly transitioning to ‘most people most of the time’.

Stores and businesses interviewed for that post report that contactless digital wallet payments (Apple Pay, Google Pay, Osaifu Keitai) use continued to grow throughout 2018 but nothing is simple or straightforward:

  • Apple Pay Suica continues to drive the Apple Pay story in Japan but is highly regional as initial uptake is tied to commuter passes which are currently restricted to the JR East rail network. Nevertheless Suica issuance continues double digit growth. Japanese customers prefer easy to use prepaid cards, they will always be the gateway to cashless for the majority.
  • Only 30% of iPhone users with Apple Pay Japan capable devices (iPhone 7 and later) use Apple Pay. I suspect Osaifu Keitai and Google Pay uptake is similar or lower.

The upcoming 10% consumption tax increase will offer incentives and tax discounts for cashless purchases. The cash vs cashless trends outlined above are positive signs that change is possible with the right set of incentives and ease of use environment:

  • Plastic will continue to be king with prepaid cards the king of kings. One of the many advantages that digital wallet platforms like Apple Pay have over QR Code platforms is that plastic cards are always there as a last resort physical option. This is very important for many customers, especially the elderly. And they don’t need a battery.
  • Reward point systems and cards need to be digital (such as VAS powered Ponta) that automatically link with the appropriate transactions. Digital wallets only replace physical ones when everything can be matched and loaded on smartphones.

For Apple the key will be getting more Japanese iPhone customers to use Apple Pay by making different service parts work together in new ways that don’t play together well, i.e. the sum must be greater than the total of the parts. Think Rakuten. Rakuten has done an excellent job building an ecosystem of e-commerce, travel reservations and other services that offer members large discounts and points. This approach will pay huge dividends when the 10% consumption tax arrives October 1.