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.

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:

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.

Buddhism Q&A: The Power of Written Odaimoku

These ‘Senbon Hata’ (One Thousand flags) are found on the trail and around Ichinoike (First Lake) of Shichimensan are offerings for ancestors, a wish for good health, etc. They used to be plentiful but have declined along with the number of pilgrims climbing holy mountains.

It is said that one of the reasons Toki Jonin went to so much trouble traveling all over Japan to collect Nichiren Shonin’s writings and letters was not only to preserve them, but preserve them from being eaten. Much like Nichiren Shonin writing the Odaimoku on the rough sea waters for safe passage on his way to exile in Sado, followers of that time revered his words of the Lotus Sutra teachings so much they believed the kanji characters had special protective and healing powers. They would cut out pieces and eat them.

You can find this today in traditional cures or with Kito blessings, some temple give packets that contain tiny slips of flat edible paper like substance with handwritten Odaimoku on it. Followers take them with tea or water as part of the healing. You can also see it in various protective amulets for people or buildings or even farmers’ fields.

The Buddhist history invoking the power of written sutras is long and varied, but the distinctive Ippen Shudai (Odaimoku Mandala) created by Nichiren Shonin has a special power and style found nowhere else. But the power is not in the object, the paper, the calligraphy, or the priest’s hand. Ultimately, it is the power of the Lotus Sutra expounded by Shakyamuni Buddha transmitted to our eyes and our minds from the heart and mind of Nichiren Shonin.

The Great Big Nankai VISA Touch Transit Boutique

VISA Japan has been busy this year marketing VISA Touch contactless cards with the SMBC group, leveraging the SMBC-GMO-VISA co-venture stera payment platform that launched on July 6. We have already seen a few VISA Touch stera powered ‘transit boutiques’: smallish inbound tourist centric transit companies that don’t support Transit IC cards like Suica and PASMO. This could be changing.

Nankai Electric Railway along with VISA Japan, SMBC and QUADRAC Co., Ltd., a SoftBank and hedge funded systems company that develops VISA Touch and QR fare systems among other things, announced a co-venture test of VISA Touch and QR Code open loop fares for ‘inbound tourists’ on Nankai transit gates in 2021. ‘Test’ not ‘rollout’. The wording of the press announcement is vague with photo ‘images’ of what it might look like. It reads more like a VISA PR release than a Nankai one.

To understand why Nankai is testing this it helps to know a few things. Nankai lines service Kansai International Airport that up until COVID hit had a lot of inbound tourists from China visiting Universal Studio Japan in Osaka, amoung other things, the AliPay thing being the most important.

The other thing to know is that Kansai area transit companies (Hankyu, Keihan, Nankai, Hanshin) never developed a PASMO like transit card for non-JR group transit companies. PiTaPa is a failure because it’s a post-pay transit card, a SMBC managed credit card with credit card checks and unsuitable for the commuter pass masses without credit cards. This is why Hankyu ‘borrows’ the JR West ICOCA card for issuing commuter passes. It’s a mess. But it also means that transit companies in the PiTaPa SMBC orbit are in a weaker position, open to SMBC pressure and loan incentives to try VISA Touch open loop (not really open loop when it’s an exclusive VISA Touch arrangement and nothing else right?).

The Japan Transit IC map. Post-pay PiTaPa based transit cards are in a weaker position than regular prepaid transit cards

It also helps to know that stera Panasonic JT-C60 NFC readers are the slowest transit Suica compatible readers I have every used. These same readers are used in VISA Touch transit boutiques and we all know that EMV contactless is slower than FeliCa.

So what is Nankai testing exactly?

(1) Transit gate friction. Transit IC card tap speed is less than 200 milliseconds (ms) while legacy mag strip paper ticketing is 600 ms. The stera Panasonic readers are far slower than 600 ms, if that’s what they end up using for the test…it’s hilarious to imagine Nankai retrofitting a bulky slow Android based NFC reader on a Omron transit gate.

(2) Fare system overhead. How much does the centralized fare processing and linking to VISA and AliPay cost and how does it perform versus local stored value transit IC cards.

The eventual rollout plan will be based on hardware and system cost balanced against the estimate of capturing more inbound transit revenue. There are also transit gate layout issues to consider, is it better to go with slow and fast lane transit gate layout, or retrofit every gate as cheaply as possible. Does any of this make sense in the COVID era when tap speed is more important than ever?

The Real Friction Point: Inbound
We’ll see how it works out but since the advertised point of this effort is for the benefit of inbound tourists, I’ll come out and say it: one of the best things about COVID is the elimination of inbound tourists and their luggage on commuter trains in heavily trafficked areas like JR East Yamanote.

Large groups of people with lots of luggage riding commuter trains during rush hours without following common sense etiquette is a huge stress point for regular commuters. When doors are blocked by luggage and tourists who don’t know, or don’t care about other people using the train, it’s trouble in the making.

The hallmark of any good transit system is safety and reliability, a finely tuned balance of servicing all customers and wisely investing in infrastructure. All too often the grab for inbound tourists ignores this balance at the expense of daily riders. Nankai must keep this in mind. If they do not it will end up being a ‘do less with more’ money losing proposition for Nankai, but not for VISA, SMBC and QUARDRAC.

Apple Pay Japan 2020 Wrap Up Wish List

A two word summary for people in a hurry: COVID and PASMO. As everybody in Japan knows at this point, COVID drove cashless payment use more than any government program could, or anything else for that matter. Cashless went from being the perennial ‘next big thing’ to first choice at checkout in a surprisingly short time with a growing number of ‘cashless only’ places. Here’s a short recap of the best and worst all things Apple Pay Japan in 2020.

The Worst: Face ID Apple Pay
COVID meant mandatory face mask wear outside the home. iPhone Face ID users outside of Asia quickly learned that Face ID and especially Face ID Apple Pay really sucks with face masks. Apple tweaked Face ID slightly to alleviate the issue but this is a long term problem with no short term workaround. Apple had the foresight to resurrect Touch ID in iPhone SE 2, the right device coming at the right time. For the time being it will hold up the middle and lower range iPhone user base in Japan. Face ID is such a marketing embarrassment right now that Apple only features Touch ID recharge on the Apple Pay PASMO page. The real short term future proof Face ID Apple Pay fix is Apple Watch.

The Biggest: Apple Pay PASMO
Mobile PASMO finally joined Mobile Suica, first on Osaifu Keitai Android then Apple Pay, the biggest and most important launch for Apple Pay Japan in 2020. Suica and PASMO combined represent 80% of the entire transit IC card market. In terms of pure usability, a large and diverse installed base, with Express Transit powered transit and purchases on iPhone and Apple Watch, PASMO easily beat all other Apple Pay service rollouts this year. Apple had VIP execs and foreign media on hand at the press event, something they haven’t done since the Apple Pay Japan launch in 2016.

The Most Influential: Toyota Wallet
The Toyota Wallet App rollout I wrote about a year ago turned out to be the model everybody is doing now: ‘XX Pay’ or ‘XX Wallet’ app consisting of a user account linked to a bank or credit card with a flexible payment dual mode front end offering QR Code payment via the app and a ‘instant issue’ prepaid card in Apple Pay Wallet. The Apple Pay Line Pay card launched on December 22 is the exact same model. Instant app issue debit and prepaid Wallet cards do away with plastic issue costs and lower the user entry bar, amount other things. Expect more of this in 2021, actually expect everybody to do this in 2021.

The WildCard: App Clips
iOS 14.3 App Clip Code support completed the picture for App Clip developers, but it will take time to see how they play out in a market overcrowded with mobile payment options. I think there is always a chance for a low cost high quality service which intelligently designed App Clips can deliver. The key will be solving the Japanese Softcream Cashless Index (SCI) Challenge: can App Clip cashless do a faster more reliable job than good old food ticket vending machines, without an app and without an account? How streamlined can it be and still be an App Clip? I hope we can find the answers to those questions in 2021… but there’s one more thing.

The Missing: Apple Pay Code Payments
The iOS 14 Apple Pay AliPay/Apple Pay Code Payment has been in open secret test mode for nearly a year with no firm release in sight. If screenshots are anything to go by, Apple Pay Code Payments are done with a virtual Wallet ‘card’ like any other and Apple Pay Wallet cards have certain properties:

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

Supporting QR Code payments with an Apple Pay Wallet ‘card’ moves QR payments out of the app and removes some, but not all, of the QR payment friction points. It makes App Clips a better user experience too when all payments can be accomplished with Apple Pay.

Ultimately I hope the Apple Pay Wallet card model moves away from single mode technology and evolves to multimode awareness that encompasses NFC, Ultra Wideband, QR, etc. It has too. Our smartphones must be smart and take care of any payment technology for us. They have to because things are only going to get more complicated. People ridicule the Japanese payments landscape but that will be everywhere. Card companies and banks push EMV as a ‘global standard’ but EMV already comes in different flavors like PBOC, so does NFC (NFC A-B-F-V), and Ultra Wideband is joining the mix.

That’s what digital payments are all about: combining complex things into ‘it just works’ simplicity. Anybody can create or load a Suica, Octopus or PASMO into Apple Pay, without signing up or creating a new account, and start using it for lots of different instant payments. That’s how simple it should always be. That’s my 2021 Apple Pay wish.

Best wishes for a happy and safe 2021.

UPDATE: Reader Apple Pay Wishes for 2021

>Mine would be for VISA Japan to support Apple Pay.

>Mine are resurrecting #FeliCa-based @VisaJP TOUCH (can be rebranded), @id_credit re-attempts @ #FeliCa network expansion overseas starting w/ equipping end-users w/ the technology in new card distribution (via digital & physical), & @JCB_CARD expands @QUICPay_PR network overseas.

Merry Cashless Christmas 2020 Style

Nice Christmas colors…

A young co-worker tested positive for COVID yesterday so today is PCR test day for the entire office. The office pays but everybody has to find a testing place on their own. Fortunately a PCR test place opened up at Shinjuku Kabukicho yesterday and accepts all major cashless payments including Suica so I was in luck and made an online reservation.

If you go, all you do is make an online reservation, receive an email with name, number and time, then line up with everybody else. When it’s your turn to enter, show your smartphone email number and name to the staff, pay with Suica, iD, QUICPay, etc. (Rakuten Pay), take the pouch and go to to any empty partition then drool into a vial with a straw. When done, put straw in vial, cap it, stick your label on, put in plastic pouch and give it the staff.

It’s a dire but perfect setting for a cashless only operation: limited time and staff processing a constant stream of people who can’t be bothered making change. Staff and customers don’t want to risk health either, the less contact the better for all concerned. It’s also the perfect 2020 Japan cashless wrap up: a cashless only COVID PCR testing facility in a year where COVID relentlessly drove cashless use.

As they say in Japanese: やれやれ.

Have a good cashless…and a Merry COVID free Christmas.