Why VISA Refuses to Join Apple Pay Japan

Apple Pay Wallet has an interesting animation that shows you exactly which card brands are supported in the selected region. The Japan region shows you: Suica, American Express,  Mastercard and JCB. No VISA. But wait, you can use JP issued VISA cards on Apple Pay with QUICPay and iD payment networks right? Yes but only on QUICPay and iD not for in-app and online purchases. This is why JP VISA cards don’t work for Apple Pay Suica Recharge in Wallet.

Apple Pay Japan VISA cards are ‘backdoor’ indirect support because VISA is required to support QUICPay and iD customers and licensees from previous agreements. To date VISA has yet to sign on officially with Apple Pay in Japan even though VISA issued a comment that they ‘hope to support Apple Pay Japan soon’ when the service launched in October 2016.

I have long suspected that VISA simply does not want anything to do with Apple’s support of the Global NFC standard put in place by the NFC Forum and GSMA/GCF in 2017. It’s not only Apple either. VISA refuses to support Docomo iD/NFC for Android Osaifu Keitai users abroad which Mastercard does. VISA simply wants to bide time until NFC Pay/EMV contactless support in Japan is everywhere and then simply ignore FeliCa (NFC-F) all together.

In short, it’s a power play to bypass FeliCa payment networks and grab a larger share of the cash register processing fee with payWave.

reddit user FeliCaDude has written extensively and authoritatively on all things FeliCa smartphone for a long time. His take on VISA’s Tokyo Olympic strategy matches mine, he also explains why Google’s HCE-F strategy for Google Pay in Japan is a dead-end:

If you want to talk about the Olympics, what you will see instead is more Contactless EMV terminals and Japanese issuers starting to issue Contactless EMV cards. That is the only thing acceptable to Visa and their huge piles of sponsorship money.

Google also has no interest in anything other than Android Pay. Their strategy will be to ride Visa’s coat-tails and wait for additional Contactless EMV deployment, at which point they will tie up with a major issuer and start Android Pay service in Japan. Currently what they have is a marketing sham that builds a thin veneer over Osaifu-Keitai. HCE-F cannot be used to emulate existing FeliCa-based payment systems because of the system code restrictions and lack of secure key storage.

Read the original posts on reddit, they are well worth your time. In Japan, aka the contactless payment turf war epicenter, the battle lines are stored value vs. credit card with stored value cards the clear winner so far. Let’s not forget there isn’t any money in Japanese merchant support of EMV contactless because most Inbound tourist business is mainland Chinese who only want to use QR code contactless AliPay and WeChat Pay.

It’s a shame but not suprising that VISA wants EMV contactless and payWave to be the only game in the world but that is just their business model. For transit systems there are better business models out there. Global NFC (A-B-F) is just a platform to build new kinds of business models on. Diversity is strength, and offers better business opportunities in the long run. Who cares about NFC flavors when smart devices take care of it all. It’s as simple as that.


Supply Chain Risk

Now that President Trump stuck a national security fork into it and ended Broadcom’s hostile bid for Qualcomm, it’s a good time to put politics aside for the moment and consider supply chain risk.

Japanese governments officials mention supply chain risk from time to time: who and what country makes the components and writes the software controllers that go into our smart devices and where the final products are assembled. How secure are all those components from all those places and what’s the risk? More than a few people have wondered if the NSA and other security agencies knew about and exploited the Spectre and Meltdown flaws and if Intel designed them on purpose.

It’s not only the hardware side either. In light of Apple handing over iClouds keys to the Chinese government software services also fall under supply chain risk: who holds the keys to our cloud data and digital wallet transaction records, where is it stored, how secure is it.

Huawei’s Jeff Wang, regional president for Japan and Korea gave an interview to IT Media in late 2017 for the Mate 10 Pro rollout. When asked if future Huawei models would incorporate global NFC, Wang said yes but explained that Huawei needed to build up their cloud service first to “support FeliCa”. In other words Suica and FeliCa credit card payment network support will be tied to Huawei Pay. It goes without saying that all the transaction data from Huawei Pay will be stored in China with the crypto keys held by the Chinese government. The same goes for QR Code contactless AliPay and WeChat Pay. Japanese are well aware of the risks:

Demerits of OR Code Payments

  • QR requires a good network connection
  • Slow transaction speed
  • Weak Security and QR Code Chinese payment apps (AliPay, WeChat Pay) keep transaction records in Mainland China
  • Device needs be on and screen active
  • No ‘on the spot’ refunds

Merits of FeliCa (NFC-F) Payments

  • Works without network connection
  • Very fast transactions
  • High security and transaction records stay in Japan
  • Device can be off (Android only) or screen off (Apple Pay Suica, Mobile Suica Android)
  • On the spot refunds

AliPay, WeChat Pay and Huawei Pay will never be taken up by Japanese customers no matter how much carriers or banks extol them or competing Japanese QR payment services, but they are not aimed at Japanese customers anyway. They are about capturing Inbound Chinese business leading up to the 2020 Tokyo Olympics.

It’s a given that Apple assesses and manages supply chain risk like all risks, but you can be sure it will never be discussed in the Apple Supplier Responsibility report. With so many supply chain eggs in the mainland China basket that is too risky, even for Apple.

Apple Pay Japan Adds J-West Cards, ICOCA Next?

J-West Joins Apple Pay

JR West joined Apple Pay on March 12 with their J-West VISA, J-West Mastercard and J-West JCB credit cards. The cards are on the QUICPay payment network (the spiffy updated Apple Pay on QUICPay page is worth a glance).

Will the JR West ICOCA platypus join the JR East Suica penguin on Apple Pay?

Now that JR West is playing nice with Apple Pay the big question is Apple Pay ICOCA next? Definitely maybe, especially if the Apple Pay China Transit signs spotted in iOS 11.3 beta 4 point to easier transit card support.

I have posted about ICOCA getting ready for Apple Pay, here and here, but so far there is no sign that JR West has the necessary cloud service in place yet for that to happen although SMART ICOCA is the beginnings of one. Then again JR West has much deeper pockets than say PASMO. They can certainly afford to cut a data deal with JR East Mobile Suica or build their own.

Contactless Payment Turf Wars: Transit Platforms

Transit is a kind of holy grail for contactless payments, it’s the biggest driver, the golden uptake path to bigger things. That’s why the credit card industry promotes NFC Pay/EMV contactless on transit systems which have traditionally been closed ticket systems.

NFC Pay on transit achieves two goals for credit card companies: it increases credit card use while capturing processing fees from transit operators under the guise of saving them money. The credit card industry benefits from all that ticketing infrastructure without having to invest anything themselves. Think of it as putting the fox in charge of managing the chicken coop. From the American Express “Contactless in Transit” PDF:

How does the American Express transit solution help Merchants optimize payments in the transit industry? It reduces the cost of handling cash and maintaining proprietary fare systems.

Visa and Mastercard make similar claims. This is an interesting contradiction because lower cost internal payment processing is cited as the advantage for closed loop stored value smartcard systems.

Industry experts and journalists such as Junya Suzuki like to discuss transit payment systems as being a battle between “Open Loop vs. Closed Loop” contactless payments. EMV contactless is portrayed as being open “good” vs. Stored-value/prepaid transit SmartCards (Suica, Oyster, etc) as closed “bad”. This is entertaining but the whole debate is a setup: smartphones destroy the distinctions between the two. Digital wallet cards like Apple Pay Suica and Smart Octopus on Samsung Pay merge ‘open’ and ‘closed’ into a seamless whole that’s more convenient flexible and powerful than either one on its own.

The Japanese IC Transit Card Model: Scale, Compatibility, Regionality
Open Loop really only has one advantage: scale. Japanese IC Transit cards neatly sidestepped the Open scale advantage when they merged under a single interoperable compatible Transit IC SmartCard standard in 2013. Contactless prepaid SmartCard e-money use took off from there.

JR East does a good job of creating loyalty point programs for JR East area merchants tying them into the Suica e-money network. Other Japanese transit companies do the same for their regional Transit IC cards. When Hong Kong officials complain that the city is missing the contactless payments QR code gold rush in mainland China because of the success of Octopus, that only proves how deep the Japanese/Hong Kong IC transit card model has penetrated beyond transit into payments and the general fabric of daily life.

When a smartcard system achieves the level of success and everyday use like Suica or Octopus it isn’t just a smartcard system anymore, it’s a platform.

Keeping it Closed and Building a Platform
What’s fascinating but rarely discussed is that Suica and Octopus are the only transit smartcard systems that have built transit and e-money contactless payment economies of scale, in other words a platform. They are the only native transit stored-value smartcard systems hosted on smartphone payment platforms like Apple Pay and Samsung Pay. And they are both based on FeliCa. In fact when you compare Suica and Octopus with other transit cards, their success is completely at odds with what western experts call success:

  • The systems are closed loop stored-value SmartCards
  • The systems are based on “non-standard” FeliCa
  • They limit credit cards to a backup role for recharging

For these reasons western experts, especially in the UK, dismiss Japan and Hong Kong as ‘outliners’ but that misses the point. Success deserves attention and study, not highbrow ridicule camouflaged as analysis. As said before, Japan is the world’s greatest guinea pig test market, a unique place to identify and analyze new tech trends, and how to adapt them for use in other markets.

Oyster cannot be used as e-money
Inbound UK visitors notice the difference
Speed is safety
By staying Closed JR East controls and optimizes their system for maximum speed, security and safety.

JR East and Octopus Holdings Limited have also evolved their platforms adding new services and features. Technology aside, there are essential core concepts that can be applied to any closed transit smartcard system for long term benefits that build a transit platform not just a ticketing system.

  1. Keep it Closed
  2. Transition from transit only to transit + e-money use (Suica, Octopus, EZ-Link. etc)
  3. Nationwide transit smartcard interoperability
  4. A matching mobile service to create and manage online customer accounts and attach credit cards for over the air recharging via smartphone apps (Mobile Suica, Smart Octopus)
  5. Native card digital wallet support: Apple Pay Suica, Smart Octopus on Samsung Pay, etc.
  6. Promote transit region and local retail with loyalty points and campaigns linked to smartcard + credit card combinations

These concepts transform a transit smartcard system into a platform on which transit operators can build all kinds of services and new infrastructure tying transit and retail together in new powerful ways. Reimagine Oyster or NYC MetroCard as transit platforms and the possibilities are endlessly exciting. The transit smartcard system positioned as a platform is the essential concept most people don’t see or understand. They only see a ticketing system. Visitors to Japan can see the transit smartcard as platform in action where Apple Pay is taking it to the next level.

The Open vs. Closed Debate is Over
Apple Pay Suica is a unique matching of a transit smartcard platform hosted on a major digital wallet platform, the most successful matchup in the world right now that deserves a case study. The standout feature of Apple Pay Suica is that the huge and growing list of Apple Pay credit cards from around the world simply work for recharging Apple Pay Suica on the go. Anyone from around the world with a global NFC iPhone X / 8 / Apple Watch 3 can simply add Suica and use it in Japan.

JR East ties in all kinds of local retail partner points and promotions which in turn drive customers to Apple Pay Suica and more credit card use. Apple Pay Suica in turn is driving Suica use and general Apple Pay use far more than credit cards on their own.

It’s this mix and match flexibility of the Apple Pay + Suica approach that neatly collapses the open closed debate. Customers use the card they want to earn the loyalty points that work best for them with loyalty points from both transit and credit sides. Recharging my Apple Pay Suica with a BIC CAMERA View CARD  (JCB) for a year earned me over ¥15,000 worth of BIC CAMERA store points. I never purchase iPhone cases with money anymore, I use points. Apple Pay Suica and credit cards benefit each other and drive use of both.

This works in many different configurations which is the appeal for customers, the approach benefits both the transit operator and the credit card companies letting each focus on building their own platforms instead of wasting time and resources on turf wars. It’s an intriguing win-win model that can be adapted and applied to other transit markets.

One thing is clear: for smartphones more so than it was with plastic smartcards, transit is the golden uptake path for contactless payments but the combination is most successful when a transit platform matches up with a smartphone one.

McDonalds Japan Finally Activates NFC Pay on March 13

A year after McDonald’s Japan announced full global NFC support the final piece of the contactless payment puzzle falls into place on March 13 when they activate NFC Pay contactless payments for Visa, Mastercard, American Express and JCB. The full press release is here.

It’s nice that the big NFC Pay contactless logo on the reader finally means something for Inbound customers who want to use it. Japanese Apple Pay users can also have fun playing with the iOS 11 Apple Pay NFC switching feature without going abroad.

But what about all those Inbound Chinese mainlanders who use nothing but WeChat and AliPay QR codes for contactless payments? They spend far more in Japan than those stingy inbound westerners. I predict McDonald’s Japan will add a QR payment option at some point and it will see far more use than NFC Pay.