5G Contactless Payments Part 1: Fast QR vs Ultra Wide Band enhanced FeliCa and MIFARE

Payment empire players envision a brave new world of 5G enhanced contactless payment solutions, seen in recent moves by JR East and other major Japanese transit companies to replace expensive legacy mag strip ticketing with lower cost QR Code ticketing. 5G flavored QR Code and ‘Touchless’ Ultra Wide Band (UWB) Mobile FeliCa solutions were also on display at last months Docomo Open House 2020. How can it be that Docomo is developing Ultra Wide Band Mobile FeliCa and QR Code solutions?

The endless push pull of ‘this contactless payment works great for me’ that drives somebody else crazy is endless fascinating. We have more choices than ever: digital wallets, plastic cards, face recognition, NFC, QR Codes, etc. 5G and UWB promise to mix things up even more.

Ultra Wide Band enhanced FeliCa and MIFARE Apple CarKey?
The evolution of EMV, FeliCa, MIFARE and other similar protocols as they transition from plastic smartcards to digital wallets devices opens up opportunities to include other radio technologies like Ultra Wide Band and Bluetooth in addition to NFC. Ultra Wide Band Touchless FeliCa on display at the Docomo Open House was all about cars, not Touchless walkthrough transit gates that will appear in a few years.

Touchless FeliCa makes great sense as a ‘NFC car key’ that utilizes UWB for operation at greater distance and better accuracy when needed. Touchless makes even more sense as a ‘keep phone in pocket’ touchless payment method for drive thru purchases. The addition of UWB into the mix makes smartcard protocols much more useful than just NFC. I would certainly welcome a smartphone UWB powered Touchless FeliCa replacement that ditches the need for automobile ETC cards and readers on Japanese expressways.

How UWB enhanced FeliCa would fit with Apple’s new CarKey feature said to be coming with iOS 13.4 is unknown but iPhone already supports FeliCa. UWB touchless support for iPhone 11 and later models is a logical evolution. Sony and Docomo are developing the technology with NXP which certainly means that MIFARE will also support UWB enhancements. The long history of FeliCa and MIFARE as keycard solution providers is a natural fit with Apple CarKey. NFC is the only protocol that has been discovered in iOS 13.4 beta CarKey framework so far but I would not be surprised if UWB code references turn up at some point.

5G Cloud vs Local Processing
The Docomo Open House also showcased a QR Code transit gate with 200 millisecond (ms) transaction processing but the real star was the speed of 5G. 5G powered cloud processing promises to upend the current advantage of locally processed prepaid stored value cards…cards like Suica.

The basic promise of 5G is that IT system designers finally achieve a nirvana of everywhere, always available, big pipe central processing without wires, the big cloud. The original Suica card design effort back in the 1980’s had to leverage local processing because central processing wasn’t up to the task of handling massive transaction volumes of a Tokyo-Shinjuku-Ikebukuro station at peak rush hour. This is why Suica cards are stored value by design, the FeliCa technology behind the card design delivers 200 ms and faster transaction times for local processing at the transit gate. What happens when 5G promises, in theory, to deliver 200 ms central processing?

Kill mag strip paper tickets first then Suica?
As Junya Suzuki points out in his article ‘Is QR the future of Suica?‘, transit QR Codes on the complex Japanese transit network only need be a unique local passkey with everything else, verification, transaction, etc., done in the 5G cloud. The same concept applies for facial recognition systems where the registered face is the unique local passkey. With the power and speed of 5G, Suzuki san argues that the need for Suica-like local processing falls away. In his scenario all Suica needs to be is a unique passkey that can lose stored value functions.

I understand his point, Suzuki san comes from an IT system background, as a journalist he has covered JP transit payment system developments for a long time. For low traffic stations a Suica-lite 5G cloud based network makes sense and does away with the expensive hard wired transit gates. Just one year ago JR East said they are building a cloud networked Suica to cover all non-Suica areas.

However the old Tokyo-Shinjuku-Ikebukuro station peak rush hour central processing crunch problem remains. I’m not convinced super fast 5G enabled cloud processing is going to solve that problem any better or cheaper than Suica does now, and reliability is a complete unknown. We also have the next generation ‘Super Suica’ format and FeliCa OS coming in the next 12 months, the design goals here include a flexible, modular cloud friendly architecture and lower costs. Next generation Suica coupled with a flexible local processing~cloud processing backend may be a compelling solution that finally delivers a practical inexpensive Suica infrastructure to the little end of the line station which only gets a few trains or buses a day.

New JR East Suica / QR Code transit gate for Takanawa Gateway station

JR East, Hanshin and Osaka Metro are testing QR Codes and facial recognition ID ticketing to replace mag strip paper. As Junya Suzuki points out, mechanical paper ticket transit gates are more expensive to install and maintain than IC transit card gates but the real expense is mag strip paper recycling costs. Mundane but not surprising. The more important long term question is this: do transit companies keep the current more expensive cash base paper ticket fare vs less expensive IC card fare structures in place, or do away with it when QR Codes replace mag strip tickets? I don’t think we’ll see an answer to that question for a few years.

There is no doubt that 5G will enable new payment possibilities, and a lot of debate. But I don’t see 5G cloud completely upending and replacing the need for local processing and stored value cards. Both are evolving, both have their place. It doesn’t have to be, and should not be a one size fits all solution. Each approach has strengths that can be complementary and build a better stronger system.

For me it comes down to one simple thing. My Apple Watch can be buried under multiple sleeve layers but Apple Pay Suica works great going through rush hour transit gates every time. It’s the best argument for UWB enhanced FeliCa and MIFARE touchless transit gates and stored value local processing I can think of. QR can never match that, nor can face recognition…think face masks during an epidemic or pollen season.

In the next installment I hope to explore 5G and the evolution of digital wallets.

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New JR East eTicket service launches March 14

JR East is launching their new eTicket service starting March 14 via the eki-net app for iOS and Android, a refresh for the venerable online eki-net service will be coming as well. The new service is more of a start line than a new start. The eki-net app and website are what we have not changed much these past few months, the change will a gradual ramp up to replace both the old-style online eki-net Shinkansen ticket service and the current Mobile Suica Shinkansen eTicket service, and migrate to ticketless transit on JR East lines with the major JP transit cards. As anticipated the basic concept is similar to the JR Central SmartEX service and app that registers any major transit IC card for Shinkansen eTicketing. JR East is taking it a few steps further with regular express train eTickets but it’s not clear yet how or if this works outside of Suica.

The proof will be in the pudding when new eki-net Shinkansen reservations start on February 14. We should also expect a new Suica App updated for the new eTicket system that includes both Shinkansen and hopefully, regular express trains. Let’s hope it’s the nice valentine present JR East wants it to be.

The Good

  • new eki-net membership is free
  • All major transit IC cards (ICOCA, Toica, PASMO, etc.) can be registered and used for eki-net Shinkansen eTicketing
  • All JR East Shinkansen ticketing and regular express trains ticketing are covered but it’s not clear yet how regular express eTickets work with Mobile Suica
  • Narita Express eTickets are finally easy to reserve and use with Mobile Suica
  • Multi-person eTickets purchases
  • Major credit cards/debit cards accepted (confirming, if non-JP issue cards are a problem this will go in the Bad/Ugly slot)
  • The iOS eki-net app supports Face ID/Touch ID login
  • It appears that JR East will not be following the JR Central approach of different services with different discount

The Bad

  • The new eTicket service is still called eki-net
  • Account creation and updating can only be done online, not in the eki-net app

The Ugly

  • Since the new service has not started yet eki-net app is the same old eki-net online service in a smartphone app with a better UI. The app is not multilingual which does not bode well for a multilingual Suica App in time for the Tokyo Olympics, but we’ll see how things pan out when the new backend system goes online

Apple Maps 2.0 not coming to Japan for Tokyo Olympics

Apple finally delivered Apple Maps 2.0 for all users in the United States, one month past their original ‘end of 2019’ deadline. The press release showcases the new details and includes a Eddie Cue quote about what’s next for Apple Maps 2.0: “We look forward to bringing this new map to the rest of the world starting with Europe later this year.” Europe later this year doesn’t jive with Apple’s earlier WWDC19 promise to deliver a Tokyo Olympics ready Apple Maps. When it comes to all things Apple Maps, a promise is the plastic twisty for tying up the garbage bag of broken dreams.

Since Apple only made that promise to a few Japanese journalists instead of English language media, perhaps it doesn’t matter. If they are serious however, Apple can still deliver a limited sub-set of Apple Maps 2.0 features that would be very useful for iOS users in time for the July 24~August 9 event.

Real-time transit
Forget the the real time label nonsense, Google Maps is far better delivering real important Tokyo transit details from the same suppliers that Apple does not: station platform numbers, optimum car exit positions, crowd status, and last but not least refreshable transit search results. No more dead data. Better Tokyo area public transit information is the single most important and useful map item that Apple needs to improve.

Apple can also improve the service with better transit integration between iPhone and Apple Watch. Apple Watch would be far more useful with turn by turn like notifications for transit. The current version of Apple Watch transit goes off the rails whenever iPhone Apple Maps is in the background.

Indoor Maps
Apple Indoor Maps are limited to airports and malls, nice but not very useful. Major stations like Tokyo, Shinjuku, Ikebukuro, Shinagawa, etc. must be added as they will major travel points during the Olympics. These areas are the Godzilla of indoor mapping: they are massive, insanely dense structures. Google Maps and Yahoo Japan maps don’t do it particularly well, but at least it is there and Google Maps has multi-lingual support which Yahoo Japan Maps does not.

The most reliable inbound smartphone transit combo for getting around Tokyo during the Olympics remains Apple Pay Suica and Google Maps.

Assumptions

Social media is great for exchanging bits of information but terrible when it comes to conveying context. ‘Most of my friends’ and ‘outside of greater Tokyo’ are poor generalizations and not very useful because they belong to specific, and unexplained, use cases. I often find that people coming to Japan from large continents assume the country is small, which it’s not, and that all Japanese do everything the same, which they don’t.

It’s probably true that I place too much importance on Suica, but that’s because I use it so much. I live in Tokyo, my workplace sponsored commute pass is Suica, most of my daily purchases are with Suica, most of my points and Cashless rebates are Suica. I am plugged into Apple Pay Suica with a View/JCB card setup with auto-charge.

My Suica life is good but what about people living outside the Suica commute region, or inbound longer-than-short-term visitors without Apple Pay cards? The Apple Pay country list is short with many Latin America and Asia Pacific regions still missing, Mexico and India for example. No Apple Pay credit/debit card means Apple Pay Suica is a side grade because it’s still tethered to cash only station recharge kiosks and 7 Eleven ATMs.

Credit card recharge makes all the difference. A true upgrade from plastic Suica that is strictly one way. Once there you never want to going back. It’s the upgrade that will free users from huge lines at station recharge kiosks during the Olympics, and just plain common sense at huge crowd events like Tokyo Comic Con. The Suica + Rakuten alliance and Super Suica will bring massive changes to Japanese transit card universe but the majority of benefits will only apply to mobile use.

I don’t care if people stick with plastic Suica or migrate to Mobile Suica on Apple Pay/Google Pay/Osaifu Keitai. Plastic transit cards are small, convenient, don’t require a battery, but they come with limitations and issuance is a major cost factor for operators. All I care about is that people have hardware choices and the opportunity to go mobile with their local region transit card. Having options is a good thing, let people decide for themselves.

What will Apple do about the 10% iPhone sales drop in Japan?

The writing was on the wall when Docomo dropped the price of iPhone XR shortly after it went on sale. Shortly after that Tim Cook explained the Japanese market situation in the 1Q 2019 earnings call:

In Japan, iPhone purchases were traditionally subsidized, bundled with carrier contracts. Today, local regulations have significantly restricted those subsidies as well as related competition. We estimate less than half of iPhones sold in Japan in Q1 this year were sold via subsidy.

One year later Apple announced record earnings for Q1 2020 but Japan iPhone sales with down 10% y/y. Luca Maestri only explained the situation at the end of the earnings call, answering the very last analyst question:

So Japan was down 10 percent during the December quarter. It was primarily due to iPhone performance, which was challenged because there were some regulatory changes that took effect on the 1st of October, where essentially the regulators decoupled the mobile phone pricing from the two year contracts and they’re capping the maximum amount of carrier discounts that can can be made. At the same time, I would say that within a more difficult macro environment, iPhone did incredibly well during the quarter. Six of the top seven selling smartphone models in Japan during the December quarter were iPhones. So it was a very strong performance by iPhone in a difficult environment. Also in Japan, we had very strong double digit growth from services, stronger than company average, and very strong double digit growth in wearables, also stronger than company average. So we feel very good. You know, Japan is is a country where historically we’ve had great success. The customers are very loyal and very engaged. And we have a very strong position there and we feel we have a very good momentum.

Six Colors

I don’t think Japanese iPhone customers will stay loyal and engaged if Apple sticks with the same old sales strategies now that the era of carrier bundling is over. A new approach is needed. Maestri alluded to one clear advantage remaining for Apple in the Japanese market: Apple Pay Suica on Apple Watch, an advantage no other device manufacturer has matched yet. That advantage along with the golden opportunity of the Tokyo Olympics this year are market opportunities which Apple is not taking advantage of.

I said it before: Apple Pay Suica on global NFC iPhone/Apple Watch is a great way for inbound visitors to get around town during the Tokyo Olympic games this summer and Google Pay Suica is still not available for inbound Android users. It’s weird Apple isn’t marketing that.