Analyzing Apple Pay Japan Results for 2017 Q2 Updated

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Japanese IT journalist Junya Suzuki analyzes Tim Cook’s Apple Pay Japan comment in the 2017 Q2 earnings call for Business Insider Japan.

In Japan, where Apple Pay launched last October, more than 0.5 million transit users are completing 20 million Apple Pay transactions per month.

Apple Pay Japan Market Math
Is this a good result or a bad one? Suzuki san does the math: if you take 500,000 users, multiply that by two (a round trip) and factor in one month of 20 work days you get 20 million transactions exactly.

In other words Tim is talking about Suica Apple Pay commuters who use it everyday.

Japanese government figures estimate smartphone share at 76% of the entire mobile phone market. iPhone share is estimated at 60% of that putting Apple’s Japanese iPhone installed base between 40~50 million devices.

Suzuki san estimates the iPhone 7/7 Plus installed base for Japan between 10~15 million devices. Suica Apple Pay commuters are limited to the greater Tokyo area, 1 out of every 4 Japanese, which gives us 2.5~3.5 million Suica Apple Pay ready iPhones in Tokyo.

Suzuki san thinks 500,000 daily Apple Pay users out of 2.5~3.5 million iPhone 7 devices is a pretty good result. I agree. There are many more casual Apple Pay Japan users out there, but Apple wanted a nice simple marketable info nugget for the earnings call. The big question is where does it go from here?

Breaking the 20% Glass Barrier
The Apple Pay Japan ready iPhone installed base will rise as users trade up to the latest and greatest iPhone but the real test will be if Apple Pay breaks the Japanese mobile wallet utilization glass barrier that has stubbornly remained at 20% no matter how many mobile wallet capable mobile devices are sold, regardless of platform. Mobile payments are still too geeky and difficult for most people to bother with.

The arrival of Apple Pay in Japan has already generated excitement, change and opportunity in a static mobile payments market. The JCB QUICPay network has been very aggressive getting new card partners on board the Apple Pay bandwagon, marketing them heavily to steal what they can from NTT Docomo’s iD market lead. It’s great fun reading Japanese twitter user comments about dumping VISA that don’t work with Apple Pay or switching to a QUICPay card to get better mileage out of Apple Pay.

The challenge for Apple Pay Japan will be how much traction it can capture in the two-year run up to the 2020 Tokyo Summer Olympics. It boils down to two essential attack points:

  • More Partners: make the Apple Pay Japan footprint wide as possible.
  • Systems integration: make Apple Pay dead simple ‘it just works’ savvy.

The Japanese payment networks that work currently with Apple Pay are: Suica, iD and QUICPay. Apple needs to add as many transit card systems as they can, along with the major missing payment networks: Edy, nanaco and WAON.

Apple Pay chart 1
The current Apple Pay Japan supported payment/transit systems

Apple Pay Chart 2
This is what Apple Pay Japan needs to look like.
For reference here is a small survey analysis from February 2017 of what payment systems Japanese have:

Transit cards are the easiest way to capture users because the Suica Apple Pay ease of use appeal to commuters, taken nation wide, is a slam dunk entry point: users first sign on to use their commuter pass on iPhone then quickly migrate to using the convenience of mobile purchases.

Systems integration will be the trickier of the two. Apple already deploys the full set of NFC flavors (A/B/FeliCa) on iPhone and Apple Watch but limits them geographically: FeliCa in Japan but not other countries, etc. From a technology viewpoint it should not be hard to make NFC transactions ‘just work’ for Apple Pay Japanese users going abroad and vice versa.

Unfortunately as Horace Dediu pointed out, payments infrastructure is complicated and messy with many moving pieces: banks, credit card companies, merchants, point of sale terminal technology, smartphone platforms and last but not least, the customer.

In Japan for example the customer tells the cashier ‘I’ll pay with Suica (or iD, or QUICPay)’, or selects a payment network on the terminal display screen. Then the customer has to bring up the appropriate Apple Pay card and Touch ID verify it. Some terminals take advantage of Suica Apple Pay Express Transit mode which bypasses Touch ID while other terminals require it. Some terminal readers offer a smooth experience, others do not.

This is not a user-friendly and inviting experience because all too often those messy pieces don’t work as a seamless whole.

Breaking the 20% glass barrier means Apple Pay Japan has to offer a better experience out of the box and across the board without rough edges or gotchas that restrict it to the tech savvy crowd. Suzuki san thinks those fancy new Panasonic JT-R600CR terminals going into McDonald’s and Lawson that handle every conceivable payment method and NFC flavor are a big part of the solution.

I think that’s wishful ‘technology can solve anything’ thinking. Payment technology won’t help much if banks, credit card companies and smartphone platforms do not integrate in a much bigger, and international savvy way. EMV and NFC use the same payment infrastructure, wouldn’t it be nice if it all just worked, all the time, everywhere?

The real solution rests with Apple, or the competition, making all those messy payment pieces fit together and work as one seamless whole. The next two years will be very interesting.

Update 2017-5-11
One thing Suzuki san points out in his piece that I forgot to mention was the automatic selection functionality of the Panasonic JT-R600CR terminals. From his explanation it sounds like the terminal automatically senses and selects your main Apple Pay card, or the most appropriate one for payment transaction.

I have not tested the new Panasonic terminals yet but hope to soon. It should be a smoother and faster experience than it is now. Suzuki san thinks the Japanese payments infrastructure will see a massive rollout of new much smarter terminals in the lead up to the 2020 Tokyo Olympics. Japanese companies want to capture as much ‘inbound’ customer business as they can.

Suica Apple Pay and Green Car Seats

Green Seat and Suica Apple Pay

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The green red LED indicates a vacant Green Car seat all ready for your Suica touch,

One of the cool Suica Apple Pay features shown in the Apple Pay Japan marketing blitz is Green Car “touch and sit” seating. In the JR East ad Ryuhei Matsuda holds his Suica Apple Pay iPhone 7 up to the Suica touch area of the Green Car and boom, he appears all done.

It looks like magic but the actual purchase takes place in the Suica app, which is slightly less cool: input your embark and debark station points, hit the Apple Pay purchase button and you are good to go. The purchase is good for all day between your purchased station points. Get on a train, find an empty Green Car seat red LED spot and touch your iPhone 7/Apple Watch Series 2 device just like Ryuhei Matsuda.

suica app green seat.png
The actual Green Car Suica purchase is little more involved than the ad and takes place in Suica app. Why is an unoccupied seat red and an occupied seat green? Only JR East knows.

All things considered, it’s still cool. Now if I only had a generous travel expense account, I would be all set for JR East train travel bliss.

An Inconvenient Apple Pay Truth

Last week’s Wall Street Journal piece on stalled Apple Pay uptake in the US market is still playing out in the press. Karen Webster’s take on her PYMENTS.COM site is that Apple Pay was all hype. There is a lot of hype, and click bait, in Webster’s piece too. There’s also an all-you-need-to-know bit at the end: statistics were originally presented on March 15th at Innovation Project 2017 by Karen Webster, CEO at PYMNTS.com.

The core bit is her analysis of US payments market data, with a lot of guess-work, and a sexy conclusion that sells the piece:

Here are a few assumptions that we’ve made:

  • We know that stores Apple reports as accepting Apple Pay have $420 billion in annual sales. We come to that number by acknowledging that $392 billion is derived from the stores who are part of the Top 100 retailers — the rest is an assumption based on remaining spend at other smaller merchants.
  • We assume that people using the Apple Pay app in those stores spend, on average, what other consumers spend.
  • Using that $420 billion, we start doing the math:
  1. 1 percent of people have iPhones, and 74.1 percent of those have iPhones that work with Apple Pay, which means that 32.7 percent of people have the right kind of iPhone with the right handsets. Multiply that by $420 billion in sales and that equals $137B of potential sales by Apple Pay users.
  2. We know from our data that Apple Pay is used in 4.03 percent of all eligible transactions. That means that Apple Pay is driving $5.5 billion in transaction volume, exclusive of motor vehicles and gas stations. That’s about .10 percent share of retail spend.

We can push the assumptions around here and there, but no matter how you cut the data, using any number of assumptions — and based on a data set that reflects 2.5 years of consistently surveyed consumers about their Apple Pay usage — Apple Pay’s share of retail spend appears to be really small.

Skip to the wrap up:

The inconvenient Apple Pay truth is that if Apple is really playing the long game, they might have to be willing to pay for it. And, while they’re at it, give merchants some incentive to push it.

Let the next three years of Apple Pay payments begin — without the hype this time.

Hype aside, Tim Cook has admitted that Apple Pay growth in the US “has hit an air pocket,” but for all the negativity in the press right now I agree with Horace Dediu’s take: this is a long, complex and messy transition without easy wins, or sexy press headlines.

Horace Dediu on Apple Pay

 has a great take on recent Apple Pay developments around the world. My favorite bit is the first two paragraphs:

In September 2016 Apple Pay came to support the world’s largest public transit system. It happened through the integration with Japan’s FeliCa and gave Apple Pay access to 160 million daily transactions.

This, along with many other milestones don’t get a lot of attention. Apple Pay is in what could be considered an attritional competition with non-consumption. There are no decisive battles won or lost, only the relentless pressure to make progress against a reluctance to change.

I don’t know why but all the recent Apple Pay news coverage wraps everything in war metaphors. Witness the recent Australia bank ‘battle’ titled “Apple Pay may have won the battle but it may not win the war.

As Horace points out payments infrastructure is extremely complicated and messy with many moving pieces: banks, credit card companies, merchants, point of sale terminal technology, smartphone platforms and last but not least, the customer. So many choices.

Decisive battles make thrilling headlines but the reality of the payments ‘battle’ will be a long and dull slog.

iOS 10.3 Update Improves Suica Apple Pay Express Transit Performance

topMy experience with the latest iOS 10.3 upgrade has been a very positive one. iPhone 7 feels snappier, a completely subjective observation, but another pleasant surprise is nuch improved Suica Apple Pay Express Transit performance at the ticket gate.

Using Suica Apple Pay for over three months I noticed there were always certain dodgy ticket gate NFC readers. Most of the time they worked OK but other times the gate reader didn’t register and Suica Express Transit didn’t activate.

After lots of trial and error I developed a little knack to deal with dodgy ticket gates: put the iPhone screen back to sleep with a touch of the sleep/wake button and wave it over the ticket gate reader again. Worked every time.

I am happy to report that since upgrading to iOS 10.3, I don’t need to use my sleep knack anymore. Every single former dodgy ticket gate now works great with Suica Apple Pay Express Transit.

iPhone 7S Taking FeliCa Worldwide

apple-pay-japan_bigJapanese IT journalist Nobi Hayashi’s recent interview in Pen is a good review of all things Apple Pay Japan. Nobi explains why FeliCa flavored Apple Pay is a good fit for Japan, Suica and Tokyo which he calls “the most advanced payment metropolis there is.”

FeliCa, aka NFC Type F is the fastest of the NFC flavors. The fastest possible transaction speed is critical for stress free public transit. There is nothing else in the world like the JR East Suica and Suica compatible IC transit card infrastructure that can match the speed and quality of service they provide at such massive scale. FeliCa makes that possible.

Nobi also says that worldwide FeliCa support is coming with the next iPhone and anybody can add a Suica card to Apple Pay. As most techies know, Apple uses the same NXP manufactured FeliCa/NFC chip in iPhone 7 and Apple Watch Series 2 worldwide but only activates FeliCa for devices sold in Japan. There has been lots of conjecture why but the exact reasons have never been clear.

Apple Pay Region Speed Bumps
Ever notice that when you change the region setting in iOS your device does a soft restart? I suspect one of the many reasons for this is that Apple Pay and the NFC flavor choice (A/B/F) are not dynamic when loading new cards into the system. You must lock down the region first before adding cards to Apple Pay: USA region for USA issued cards, etc. Otherwise they don’t work.

Nobi has excellent contacts. I think he is on to something and the timing makes sense. It’s a combination of converging elements: iOS 11 will probably be more smart and dynamic changing NFC flavors on the fly, the Ministry of Internal Affairs and Communications regulatory mark engraving will be a thing of the past and those fancy new Panasonic NFC  JT-R600CR readers that can do it all (NFC A/B/F) are not only going into McDonald‘s they are going everywhere.

Worldwide FeliCa
The Japanese government hopes to showcase Japan’s payment technology to the world during the 2020 Tokyo Olympics. What better way than to have Suica ready FeliCa built into every visitors smartphone. JR East vice chairman Masaki Ogata previously said his company  hoped to support “Inbound” customers:

We are putting a lot of effort into supporting inbound (iPhone users). Current support is what you saw announced today, but it would be good to have (Apple Pay) Suica available for inbound users whose numbers are rapidly increasing.

That’s not the only aim however, Japanese companies have lots of FeliCa infrastructure technology and expertise they hope to sell abroad. Seen in that context the purpose of the Apple Pay Japan ad juggernaut becomes clear: Apple Pay becoming a massive success story in Japan helps Japanese companies sell FeliCa expertise abroad.

Apple wins, Japanese companies win. The next iPhone will be important not only to Apple but Japan as well.

 

Line Pay and Suica Apple Pay

Macgeek has another video in his continuing series of using Suica Apple Pay without credit cards. This one details using a JCB branded Line Pay pre-paid card bought at a Japanese convenience store and registering the card in the Suica app.

Apple Pay Japan does not accept pre-paid cards issued from any Japanese credit card issuers but you can get around this using the credit card recharge feature in Suica app that bypasses Apple Pay and charges Suica Apple Pay directly.

I find the initial setup rather cumbersome, but this should be easy if you are a Line user and have enough Japanese ability to create a virtual Suica card and register the Line Pay Card information in the Suica app.