Apple Pay Japan Inbound Outbound

6 months after the release of iOS 11 the new NFC switching Apple Pay functionality combined with the global NFC support in iPhone X / iPhone 8 / Apple Watch 3 is driving tremendous change in Japan while creating the most advanced Apple Pay environment that exists for iPhone customers.

As I said before, Japan is the world’s most interesting and diverse contactless payment market:

What’s interesting is that Global FeliCa support in iPhone 8, iPhone X and Apple Watch 3 lets anybody visiting Japan with those devices add Suica to Apple Pay and instantly enjoy the benefits of Japanese FeliCa contactless payments.

Apple Pay in Japan is the only place in the world where you can mix and match FeliCa and (contactless) EMV payments side by side with the same device. That’s astonishing, and lots of fun.

To appreciate the change Apple Pay is bringing to Japan, here’s a look at the Apple Pay environment for Inbound and Outbound global NFC iPhone customers.

Apple Pay Japan and NFC Pay
Japan issue credit card holders using iOS 11 Apple Pay have the best experience across the board for FeliCa payment networks in Japan and NFC Pay networks abroad.

The first full year of Apple Pay in Japan drove a large uptake in mobile payments spearheaded by Apple Pay Suica. Japanese iPhone users are magically morphing from Apple Pay paupers into the most sophisticated, diverse and technically advanced set of Apple Pay users that exist, all without doing a single thing except use Apple Pay in Japan… and abroad. A full list of outbound capable Apple Pay Japan issue credit cards is here.

The reason for the transformation is simple, the NFC switching function of iOS 11 Apple Pay seamlessly uses FeliCa networks in Japan and NFC Pay networks abroad for Japanese users without requiring any new payment infrastructure investment. Apple Pay simply utilizes what’s already in place very effectively. NTT Docomo has something like this for Docomo customers but Apple Pay takes it to a whole new global level.

Apple Pay Inbound
Inbound credit card holders using iOS 11 Apple Pay also have the best experience across the board for FeliCa payment networks in Japan using their Apple Pay credit cards from home to add money to Suica. NFC Pay in Japan is limited but Apple Pay Suica has you covered.

Apple Pay Inbound is a very different situation. NFC Pay support is still limited to ‘Gaijin Ghettos’ (McDonalds, Tokyo Disneyland, IKEA, a few vending machines, and so on). Customer experience is all over the place. The staff at my local McDonalds, none of them Japanese most of them from India, insist in mishmash Japanese English that Mastercard Contactless is not a payment option. Mastercard Contactless is an option of course but explaining that is a hassle. It’s much faster to pay with Apple Pay Suica and be on my way.

Do yourself a favor and put Suica on your global NFC iPhone. Apple Pay Suica neatly sidesteps the NFC Pay infrastructure shortage and liberates every iPhone X / 8 customer. Add money to it with your Apple Pay credit cards from home. It works like magic and the entire Japanese contactless nation is at your command.

Truth be told that Visa, Mastercard and American Express have done little over the years to promote their NFC Pay contactless services with Japanese merchants or customers anyway. Only recently has Visa started to market dual-mode iD/payWave Visa Debit cards via SMBC that do not work with Apple Pay but certainly attempt to compete with it with plastic.

That NFC Pay Infrastructure Problem
McDonalds, convenience stores and other retail empires have the IT and POS backend resources to add NFC Pay support at any time but one problem is the situation for middle tier businesses and smaller merchants. If their business is 99% Japanese, 1% of the customer base is no incentive to upgrade a payment processing system to add NFC Pay when there is no return.

The most important issue holding up NFC Pay support in Japan right now is this: the vast majority of inbound visitors are from China who don’t care about or use NFC Pay, they want QR Payments (WeChat, etc.). Payments infrastructure follows the money so that is why Rakuten Pay, Origami Pay Mizuho Bank and the soon to be released Docomo ‘d Harai’ are investing in QR, not NFC Pay support. These systems are about servicing Chinese visitors, nothing more.

Some people suggest that Japan should junk FeliCa and go all in with NFC Pay and MIFARE. That’s not only ridiculous and solves nothing, it’s a security risk. If there is a lesson to learn from Meltdown and Spector it is that technology diversity is strength. Right? The NFC Forum now requires NFC A-B-F support for smart device global certification anyway, smartphones are quickly evolving to take care of it all. The ‘let’s do everything with NFC A-B’ argument is a moot point.

It’s All About Vision
Japanese enjoy the world’s most diverse and advanced version of Apple Pay thanks to Apple’s iOS 11 advancements and decision to put global NFC in iPhone and Apple Watch. But it is also due to MasterCard, JCB and AMEX card issuers taking care of Japanese customers by providing dual global NFC ID numbers to Apple Pay. This is a fascinating development that points a way forward for all smartphones and platforms combined with global NFC support.

Japanese customers don’t have to do anything except use Apple Pay. iPhone takes care of everything, it just works. Why can’t it ‘just work’ for inbound Apple Pay too? Or other platforms? It doesn’t because credit card companies and issuers don’t really care about customers. They focus on capturing transaction fees rather than working together to improve customer services.

If Mastercard started offering dual global NFC ID numbers to all customers worldwide, I guarantee Visa would add NFC-F to the EMV/NFC spec faster than you could say: cash or charge? When it comes to the credit card industry world standards like EMV are just market share bargaining chips, nothing more. Customer service is a distant concern.

This is why I think transit operators in London, Singapore and NYC are insane allowing direct credit card EMV contactless transactions at the transit gate. Not only does it slow transactions way down, it’s also gives away money and control to credit card operators who do not care about transit customer service or that slow transactions mean overcrowded gates, overcrowded stairs and platforms that impact transit safety.

It’s much smarter for transit operators to keep all the money and control with fast stored value cards, put them on smartphones and limit credit cards to a secondary role with an Apple Pay Suica Recharge approach. Oh, and while you’re at it, build your own retail transaction processing empire a la JR East Suica.

Reimagine New York metropolitan area transit with a Tokyo level of transportation infrastructure and station retail combined with a New York area ‘Suica’ for transit and store purchases. The mass movement of money would rebuild New York’s economic foundation for the next generation. It’s amazing to me that Americans don’t consider themselves important enough to deserve this.

Moving people is moving money. Build a beautiful, attractive and insanely convenient transportation / retail network and people will flock to it showering money.




Apple Pay Japan Adds DC Card and JAL Cards

Mitsubishi UFJ Nicos added Apple Pay support for DC Card this week joining their MUFG Card which has been on Apple Pay since December 2016. The company also said that NICOS Card Apple Pay support is coming soon.

DC Card hosts both Mastercard and Visa brands but Apple Pay ads exclusively showcase DC Card Mastercard. The reason for this is that Visa Japan cards only support Apple Pay store purchases but not in-app / web purchases, Apple Pay Suica recharging or NFC switching.

DC Card Apple Pay

DC Card Mastercard fully supports Apple Pay and the NFC switching feature of iOS 11 Apple Pay allowing Japanese DC Card customers to use Apple Pay with Mastercard Contactless terminals around the world and the FeliCa QUICPay network at home. See the Apple Pay Japan Credit Card page for the full list of NFC switching card support

One final bonus is that Mastercard Japan offers the best exchange rates with overseas card purchases, better than Visa, American Express or JCB.

JAL also added more cards to Apple Pay via DC Card:

JAL Card Suica (via View Card)
JAL・JCB Card (via JCB)
JAL・Visa Card (via DC Card)
JAL・Mastercard (via DC Card)
JAL Card TOKYU POINT ClubQ (via DC Card)

JAL-JCB card and JAL-View Card have been on Apple Pay for over a year but the DC Card support is new. All of these work on the QUICPay payment network in Japan. JAL-DC Card Mastercard and JAL-JCB cards also support iOS 11 NFC switching for Apple Pay use abroad via Mastercard Contactless and J/Speedy payment networks.

reddit reactions

Somebody linked my Apple Pay Japan One Year Mark post on reddit, reading user comments there was fun. Most were “Apple Pay Suica is neat” variety but in true reddit fashion there were a few rants.

First there is the typical ‘why can’t Japan follow world standards’ complaint that’s pretty standard outside of Asia.

Japan was the first country to introduce osaifu keitai (e-wallets) for mobile contactless payments on Docomo feature phones starting July, 2004. FeliCa (NFC-F) was the technology behind it. The Nokia 6131 in 2006 was the first feature phone outside of Japan to use NFC (A-B). Next time you hear somebody complain about Japan ‘re-inventing’ the mobile contactless payments wheel, kindly remind them that wheel was invented first in Japan.

This complaint goes hand in hand with the ‘you can’t use proper Apple Pay here’ in Japan complaint. I guess NFC-F and FeliCa are somehow not ‘proper’.

The NFC Forum and EMV members could have added NFC-F during the NFC Forum sponsored credit card NFC normalization process about eight year ago. They did not choose to do so. Philips developed NFC-A, Motorola NFC-B, Sony NFC-F. World Standards are loaded with international politics. I don’t think it’s an overstatement to say that American and European interests chose to freeze Japanese mobile payment technology out of the game.

I’ll write more about Japanese NFC Pay support (paywave, Mastercard Contactless, etc.) in a future post.
Japan e-money map

The complaint about the richly diverse Japanese ‘e-money’ contactless payment network is an interesting one. It would be great to simply tell the store clerk ‘Apple Pay’ and have the correct Apple Pay card magically appear for authentication. Japanese carrier Osaifu Keitai already do something like this and automatically recognize the correct payment network. All smartphones need to work this way too.

But there will always be limits, what if you have two cards under the same payment network sitting in Apple Pay Wallet? iPhone X / iPhone 8 hold up to 12 Apple Pay cards, some manual selection will always be necessary.

The Suica Recharge complaint is fascinating. Suica not being a credit card and stored value is the very thing that separates it from the creaky credit card payments processing networks and makes it so fast with transactions. It’s also ‘safe’ and only holds what you put into it which is why so many Japanese love to use Apple Pay Suica as a kind of daily allowance card. Spending habits are highly personal. There are cash people, credit card people, and stored value card people too.

What’s right is simply what is right for you.

The Apple Pay Japan One Year Mark

The short story
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. My analysis is that Apple Pay Suica is responsible for driving that change. What used to be ‘some people some of the time’ is quickly transitioning to ‘most people most of the time’.

One 7-Eleven store owner summed it up nicely: “e-money (Suica) purchases have really taken off this past year.”

The long story
There has been hand ringing in the Japanese media recently that Japan is missing the contactless payments boat because QR Code payments are all the rage in mainland China and Japanese don’t care about them. How ridiculous. IT journalist Junya Suzuki and NHK both ran similar stories the same day.

The NHK piece in particular reads like QR code payment stealth marketing in a news report wrapper. If you have ever eye-witnessed the incredibly shoddy NHK report creation process from the inside, you know that outside of weather and traffic news and the occasional nature program. Believe NHK news at your own risk.

Junya Suzuki’s report has much more depth and insight but suffers from what I feel is poorly focused analysis. Sometimes the big data doesn’t convey the big picture because in this case it only shows Japanese smartphone contactless payment usage rates endlessly stuck at 7.5% of the install base.

Credit Card Usage
Credit Card usage by country. The VISA marketing slide doesn’t communicate anything useful.

For example Suzuki san points out the Visa Corp marketing slide showing Japanese credit card use at 17% vs. South Korea at 73%. That sounds like a huge gap. But the reality is that the entire economic volume of South Korea comfortably fits into the Tokyo area economy with room to spare. The Japanese 17% represents a much larger amount of money.

Analyzing the rich and complex Japanese contactless payments landscape demands a different measuring stick and approach.

Unpacking the big picture
People in Japan, America, and Europe, countries where credit cards have been around a long time, have entrenched spending habits. My mother for example used checks for bread and butter supermarket purchases, and department store credit cards (Lord & Taylors, etc.) for bigger ticket items.

In the 1980’s her local checking account bank issue VISA card finally replaced the checkbook but different cards filled different purchase needs: one for small, one for medium, one for large. This is exactly what most Japanese seem to do as well.

The logical starting point for contactless payment uptake is small purchases. The 7-Eleven lunch, the cup of coffee at Doutor, the vending machine bottle of green tea. The convenience for customers is they don’t have to deal with coins.

The Japan e-money map
Japan pioneered contactless payments built on FeliCa technology and the market is rich, complex and regional. Denshi Money, e-money, is a Japanese term that specifically refers to FeliCa based payment networks.

Japan e-money map
Apple Pay in Japan supports QUICPay, iD and Suica. Transit cards are compatible so Apple Pay Suica works nationwide.

Stored value cards are the contactless payment entry point for the masses. They are not credit cards so anyone can buy one at the convenience store or local station and start using it right away. Stored value transit cards in general and transit card commuter passes in particular however are the golden uptake to contactless payments and constant use.

Japanese companies reimburse worker commuting expenses every month and workers can squeeze a little more money out of the arrangement by purchasing 6 month transit passes. For a Japanese iPhone user with a Suica commuter pass it’s a no brainer to add the pass to Apple Pay because the company pays for it.

When a person adds a Suica commuter pass to Apple Pay they quickly discover how convenient Express Transit is, but the secret ingredient is the Apple Pay credit card ‘anywhere, anytime’ Suica recharge feature. This completely changes how Suica is used and makes the experience entirely different from using plastic Suica. The convenience of the Apple Pay backend also sets Apple Pay Suica apart from other stored value cards. The next step is using Apple Pay Suica for convenience store and cafe payments. Apple Pay usage takes off from there.

There’s one very important point to remember however: Apple Pay Suica works across Japan, but Apple Pay Suica Commuter is limited to the JR East region. All commuter transit cards in Japan remain locked to the card locales they are issued in. This effectively limits the golden uptake of Apple Pay Suica to the JR East Kanto region.

The Golden Uptake in Kanto
Junya Suzuki’s piece refers to the Mobile Marketing Data Labo report released in December. It’s a good take on what is happening in the Apple Pay Suica Commuter home base Kanto region one year after the Apple Pay Japan launch.

MMD Data 5
Contactless Payments: Plastic vs. Smartphone
MMD Data 3
Smartphone Contactless Payments: e-money payment network usage ranking. Note that stored value cards are used much more than credit cards.

Important points:  Nearly 40% of contactless payments are on smartphones and the majority of smartphone contactless payments are stored value cards, not credit cards.

MMD Data 1
Smartphone contactless payment method usage ranking.

Osaifu Keitai is the FeliCa e-wallet feature phone service that Docomo launched in 2004 and was later offered by KDDI and SoftBank. Today it more or less refers to the e-wallet services that Docomo, KDDI and SoftBank bundle with their Android based carrier models.

Line Pay is a complicated stored value beast that is an outliner for this analysis because Line Pay covers: online Line Store purchases, payments between Line users, and convenience store purchases. Also Line Pay’s core user group is college age and younger, in other words people without money. In short Line Pay doesn’t see much action at the cash register.

The interesting point is that Apple Pay has made a big impact in one year beating out the long-established Rakuten Pay.

MMD Data 3
Smartphone Contactless Payments: e-money payment network usage ranking. Note that Stored Value cards are used much more than credit cards.
MMD Data 2
Smartphone contactless payment usage ranking. Suica is the only transit card on mobile. Not having PASMO on mobile is holding back mobile payment uptake for transit.
MMD Data 4
Japanese e-money (Plastic and smartphone) usage ranking. PASMO is still only plastic which accounts for the usage ranking difference compared to smartphone usage ranking.

Important points: top ranked Suica and PASMO simply confirm that stored value transit cards are the golden uptake path for contactless payments. If PASMO was on Apple Pay transit use would likely be the top item in both usage ranking charts.

My private data
I have 10 or so stores where I regularly use Apple Pay Suica. I’m friendly with the store managers, the ones who have manned the cash registers for a long time and know what they are taking about. Every month I ask them the same questions: what’s the ratio of contactless payments from total transactions and what % of those are Apple Pay Suica?

Area: Suica/PASMO Home Region (Kanto)
Time: October 2016 ~ December 2017
Store profile: Convenience stores, cafes, bread stores

Theory: Japanese customers use contactless payments most for small daily ‘on the go’ purchases.

Finding: Store managers report a surge in e-money contactless payment use for the period. On average e-money contactless payments of total transactions grew from 20% to 40%. In JR East station area malls and stores located near stations usage is approaching 50%.

Key quote: “e-money (Suica) purchases really taken off over the past year.” 7-Eleven Store Owner/manager in Ikegami Ota-ku

Analysis: Most of the growth seems to be stored value transit cards on smartphones. As Apple Pay has been the single largest change in the market this past year I think it is safe to conclude that Apple Pay Suica has been driving this change.

Summary and thoughts
Apple Pay has brought tremendous change to the Japanese market but it is hard to see because it’s regional and tied to the Apple Pay Suica commuter Kanto area. If Suica supported commuter passes nationwide or the other transit cards were on Apple Pay, the ‘golden uptake’ would be much larger and easier to see.

The challenge for Apple is to get the other commuter transit cards on Apple Pay. The challenge for the other transit cards is to get their mobile service act together, or cut a cloud deal with JR East.

The story arc is very simple. Once Japanese users start using mobile contactless payment services like Apple Pay Suica for small purchases, the usage sticks. It will evolve to bigger things over time.

If Apple can keep the momentum going, and if the other transit cards can get on both Apple and Android platforms, the next 2 years leading up to the Tokyo Olympics are going to be very interesting indeed.

Update: Junya Suzuki reached out and explained that his article was ‘repositioned’ by the editor to focus on QR Code payments which was not his original intent. It is good to know that he has not lost his keen insights on Japanese contactless payment market trends.