2021 Outlook: Apple Pay Code Payments and Multi-Payment Wallet Cards

A happy new year to everybody. When reading Junya Suzuki’s year end Apple Pay and contactless history in Japan article, I was irritated by its ‘rah rah for open loop’ ending that seemed to conclude EMV isn’t very slow and tap speed differences don’t really matter. After reading followup tweets with other IT journalists I realized that wasn’t his point at all. What Suzuki san was really saying was the total transit gate experience counts more than any particular technology package (MIFARE, FeliCa, EMV Open Loop, etc.).

Steve Jobs said the same thing about technology and products in the famous, “you have to start with the customer experience and work backwards to the technology,” 1997 WWDC video. In other words, the whole (the product) has to be larger than sum of the parts (the technology pieces that make up the product) to be a success. It’s all about how they integrate as a product into the larger whole ‘vision’ thing. JR East transit gates are great because the total experience is greater than sum of FeliCa, Suica, JREM reader and gate design technology parts added together.

When it comes to payments however it’s not just about technology, it’s also the raw power plays going on behind the scenes. In the same article Suzuki san nonchalantly mentions that NTT Docomo dCard, which SMBC has issued and operated since the very beginning but in open warfare with Docomo these past few years, is dumping SMBC for UC Card group (Mizuho) this year.

There is also constant pressure to eliminate Japanese FeliCa contactless payment networks in favor EMV using the old bait and switch tactic of promoting a proprietary industry standard when the real end game is eliminating local competitors. These are issues that few journalists bother to analyze deeply and also what got Jack Ma in trouble when he blasted the Basel Accords, the traditional banking system, as an exclusive old men’s club that stifles innovation.

Power games in the world’s greatest free-for-all payments market
I’ve said this many times but one of the great things about Japan many western journalists completely miss, is that Japan is the world best guinea pig test market. Especially useful for observing new payment trends at work. The market is a perfect not too big not too small size, super cohesive, and it has a long history of Osaifu Keitai mobile payments with a wide foundation of payment technologies encompassing FeliCa, EMV and QR. And there is lots of money sitting in bank accounts. This unique mix affords the careful observer a virtual front seat on the power games playing out right now after the introduction of QR based payment services like Line Pay, PayPay and dBarai (dPay).

When Docomo unveiled their dBarai app service it confused many users. What was the point of using code payments when Docomo already had dCard and the whole Mobile FeliCa iD network in place for promoting contactless payments? But it wasn’t long before Docomo linked the 2 payment services together. dBarai users can pay using 3 different backend payment choices: direct dCard billing, monthly Docomo billing, a rechargeable stored value dBarai account with cash recharge options via ATM or linked bank account.

From the user point of view it doesn’t matter when they pay with a Docomo code payment app tied and charged to their dCard on the backend, it’s the same monthly bill. But to Docomo it is very different: instead of using the iD or SMBC VISA/MC payment network on the front end, it’s the Docomo dBarai payment network. I suspect Docomo pays less of a transaction cut to the bank because they have the cash flow to assume some of the risk that banks usually assume in establied credit card network transactions. Docomo likely also leverages the daily transaction float. In short the AliPay model. The next logical step for Docomo dBarai will be P2P payments that leverage Docomo’s Mercari connection.

The value of code payments in dBarai isn’t the technology, it’s a expedient tool that Docomo leverages to circumvent the limitations and fee structure of banks and card networks to create their own flexible payment network. This wiggle room is the essential margin that drives QR Code payment empire cashbacks, point giveaways and new services. This is the epicenter of the cashless payment turf wars that pits new mobile payment players against established card and bank networks. And Apple is about to dump delicious chunk bait into this shark tank.

The Toyota Wallet multi-payment model
In the Apple Pay 2020 wrap-up I mentioned Toyota Wallet as the most important trend: a Wallet app that lets users pay with a QR code or with NFC via an instant issue prepaid Apple Pay Wallet card. The Toyota Wallet iD/Mastercard has 2 Apple Pay device account numbers, one for the iD payment network and one for the Mastercard payment network. This is common for most Japanese issue payment cards on Apple Pay but it is less about NFC protocols (FeliCa, EMV) and all about dual payment network support in a single payment card. And it is not limited to Japan. In Australia there are dual payment Apple Pay cards that support both Mastercard and EFTPOS payment networks in a single card.

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With Apple Pay Code Payments on the way, possibly with iOS 14.4, we have another option for multi-payment network cards: code payment and NFC payment. Apple Pay Code Payments are thought of as being only for AliPay and WeChat Pay support in China, but they are much more than that.

Apple Pay Code Payments gives mobile payment players the ability to move QR/barcode payments from an outside app and integrate them directly into an Apple Pay Wallet card. In the Toyota Wallet example below, Toyota could simply add another device account number for the QR Code payment network:

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This might seem trivial but it’s important to remember some key differences of Wallet payment cards:

• Direct side button Wallet activation with automatic Face/Touch ID authentication and payment at the reader.
• Device payment transactions handled by the eSE without a network connection.
• Ability to set a default main card for Apple Pay use.

If Apple Pay Code Payments are equal with Apple Pay NFC payments, and by all indications from beta screen shots they are and use the same ‘card’ UI metaphor, I think we are in for another wave of Apple Pay market disruption. Instead of NFC vs QR Codes, or Apple Pay/Google Pay vs apps, all of it just red herring fake debate, we can focus on what’s real: the payment network turf wars.

In the Japan market Line Pay, PayPay, dBarai, Rakuten and all other new players will have the tools to create better services tightly integrated in a Apple Pay Wallet card. Docomo for example could incorporate dBarai into dCard with an additional device account number. Mix and match payment networking in one card.

In the payment network world where market share is all, card networks have held too much power for too long, exactly what Jack Ma was complaining about. I see competition as a good thing that encourages innovation and choice, mobile payments are doing that.

Looping back to the open loop beginning of this piece I think it makes sense now to realign the debate points away from focusing on technology (EMV vs FeliCa, NFC vs QR, etc.), i.e. things that can change and evolve, and focus on payment network turf wars, i.e. things that are hard to change until you see the battles lines clearly enough to create a better strategy and get where you want to go.

In the public transit arena it always comes down to this. Moving people quickly and safely by transit, managed wisely, is licensed cash flow from the fare gates. A transit company can keep control of that license to build something of greater long term value for the users and businesses of the transit card region, which can cover the nation. A transit company can give control away to someone else and let them take their cut, but just like Jack Ma pointed out before he disappeared, will there be innovation when going all in with traditional card and bank payment networks?

I still say a transit platform, especially in the mobile era of chaotic opportunity, is the best approach if a company wants to achieve the former: a system where the whole is greater than the sum of the parts. Start with the best customer experience you want to deliver and work backwards to the technology.