Anybody who has lived in Japan any length of time knows the economic reality here is rarely reported accurately in the western media. The worn out narratives of the ‘lost decade’ (or is it two?), the ‘aging society’, the ‘Japan is so over’ are just too easy for the challenged journalists of our era not to use. Otherwise they might have to actually do research and fact checking.
When some American friends visited Japan in 2010 I took them on a hot spring tour. For the entire trip they marveled at how prosperous things seemed, “the media always says that Japan is in such bad shape. I can’t believe the difference.” I imagine that lots of inbound visitors are surprised by the reality they find in Japan, especially visitors from the West where the worn out narratives are endlessly recycled.
Japan’s economic revival began with the Nikkei stock market revival when the Abe Government took power on December 26, 2014. A nice little Christmas present that keeps on giving. And now Morgan Stanley is taking notice, it even mentions the role of contactless payments in Japan’s continuing economic growth:
Another contributor to growth will come from Japan’s shift away from cash. Just 21% of transactions in Japan are currently cashless, versus an average of 45% outside Japan. “Reducing the cost of cash processing is a key element of productivity reforms,” says Japan Banks analyst Mia Nagasaka, who forecasts that cashless transactions will expand to 30% of the total by 2025.
Although a reduction in cash transactions is good news for the economy as a whole, it is particularly important for banks. As in the U.S. and other markets, Japanese banks stand to save a great deal as consumers switch to mobile banking and paying with credit cards or digital wallets rather than cash. All told, Nagasaka believes that Japan’s megabanks could raise their average return on equity from 6% currently to 8% by 2025 through cost-cutting and technology adoption. Under this scenario, valuations for Japanese banks would improve from 0.6 times book value to nearly 1x—a big leap in an industry that many investors had written off.
With just one year to go until the Japanese sales tax is raised to 10% there are some very interesting implementation proposals the Abe Government is putting on the table. The most interesting one is the ‘cash tax’: when you pay for things in cash you pay a 10% sales tax, when you pay for things with contactless payment you pay 8% sales tax, exactly what everybody pays now.
If the proposals are passed by the Japanese National Diet, it will certainly drive the growing contactless payments wave to tsunami size. Everybody who does not use contactless payments now will certainly start doing so to save 2% at at checkout. The changes will be fascinating to watch. Apple’s global FeliCa move is looking more genius all the time.
And then there is PiTaPa. PiTaPa is the main transit smartcard for non-JR ‘private’ rail companies in the Kansai: Hankyu, Keihan, Nankai and Hanshin. The excellent Japanese Transit IC map graphic on Wikipedia perfectly captures the problem of PiTaPa incompatibility and isolation: the background blue is transit only compatibility, the red is transit and e-money compatibility.
The PiTaPa Story
PiTaPa has an interesting history but not a particularly happy or successful one. It’s the perfect case study of what happens when banks and credit card companies call the shots on transit ticketing system infrastructure instead of letting transit company management make those decisions. It’s also a story of how most Japanese transit companies, except for JR East, failed to see the coming revolution of mobile digital wallet platforms.
The PiTiPa founding members originally planned to build a transit IC smartcard system just like Suica: pre-paid stored value (SV). Then Sumitomo Mitsu stepped in with a seemingly good idea: a Sumitomo Mitsui credit card + transit card post-pay combo card to save transit users from having to recharge the transit card smartcard at all. A credit card transit card for transit and shopping. What could go wrong? The Kansai area is home town for Sumitomo Mitsu, the Kansai banking indsutry Godzilla for over a hundred years, how could transit companies, Sumitomo Mitsu borrowers all, resist?
And so PiTaPa was born in 2004 as a Frankenstein credit card grafted with a transit card appendage that was supposed to do it all, but never delivered the benefits of either one. Sumitomo Mitsui imposed all the hoary old credit card conventions on the shiny new creation: credit checks and spending caps. It immediately shrunk the PiTaPa user base from everybody to people with good credit ratings who passed Sumitomo Mitsui credit checks. Compare this to Suica where everybody from kids to retirees with a ¥1,000 bill can buy Suica card at a station kiosk. That’s the beauty of stored value cards, simple immediate purchase and use.
The original PiTaPa did not sit well with a lot of transit users so a ‘PiTaPa lite’ card with deposits instead of credit checks, without the e-money function, was added in 2007. Unfortunately since PiTaPa was post-pay, PiTaPa didn’t work with the Japanese Transit IC e-money standard and was shunned by payment networks and merchants. Good luck trying to use PiTaPa credit outside of its core transit ghetto at 7 Eleven, other convenience stores or anywhere else.
Japanese customers do not need another contactless payment network solution. Reader #1 is the main one for Apple Pay Suica and credit cards, #2 is PiTiPa only, #3 is WAON only, #4 in back is Rakuten Edy only.
The 7 Eleven acceptance mark collection
If you want to know how well PiTaPa is doing in 2018 all you need to do is check the commuter pass pages of the PiTaPa member railroads: Keihan and Osaka Metro offer ICOCA commuter passes. Not only that but Osaka Metro and Keihan have moved away from PiTaPa commuter passes for general issue and use ICOCA instead.
Osaka Metro uses ICOCA for commuter passes
Nankai uses ICOCA and PiTaPa for commuter passes along with old style magnetic strip passes
Hankyu offers PiTaPa commuter passes along with old style magnetic strip passes
Keihan offers iCOCA commuter passes along with old style magnetic strip passes
The decision to let Sumitomo Mitsui call the shots instead of transit management killed any viable future for the PiTaPa system. PiTaPa uses the same FeliCa technology behind the highly successful Mobile Suica and Apple Pay Suica, but the unique one-off system architecture, limited user base and transaction volume mean PiTaPa will never be hosted on any mobile digital wallet platform. PiTaPa transit partners don’t want to spend resources to build a cloud and host mobile service because there is too much cost for such little return. And Sumitomo Mitsu will certainly never foot the bill to clean up the mess they created.
Now that JR East and Sony have announced ‘Super Suica’ for April 2018 that will incorporate all Japan Transit cards into one card system for transit, e-money and mobile, the PiTaPa participants face a choice: junk the old PiTaPa and get onboard the Super Suica express or be left behind in isolation with no future.
Transit payment platforms
The basic unsolvable problem is that banks and credit card companies want different things than transit companies. Banks and credit card companies want credit checks and caps, transit companies need as many people going through the transit gate as efficiently and safely as possible. These fundamental business differences will never be resolved, there will always be tension. That is why banks and credit card companies should never be in charge of running transit gates. They simply want to take their credit card cut and run, leaving the scene of crime, and the cleanup bill, to others.
You can see the similar things playing out on other transit systems such as Hong Kong’s Octopus system with AliPay and other QR Code ‘virtual banks’ putting pressure on operators to change transit ticketing system infrastructure to suit their needs, all paid by the transit operator of course.
It’s wasteful nonsense and who needs it? It’s last century credit card vs. smartcard, open loop vs. closed loop thinking. Digital wallet platforms like Apple Pay and Google Pay conveniently collapse the differences of open loop vs. closed loop rendering the whole argument pointless while offering a whole new game. Build a transit payment platform instead, in the long run it’s a win-win for transit companies and the banking industry.
It’s very simple: transit companies and a finance industry that stick with the old ways of thinking will miss the major unique new business opportunities offered by transit payment platforms hosted on digital wallet platforms, opportunities that build on transit but also extend it to exciting new places, a transit platform that grows and benefits everyone.
Today, Tuesday, is double JRE POINT day at Asagaya Beans mall. It is also raining which means foot traffic is down. Do you
Offer double Kaldi Coffee points and screw shoppers coming for the free 500 JRE POINT campaign on Friday?Offer double Kaldi Coffee points on Friday so that shoppers get the girl, the gold watch and everything?
The answer of course is #1 screw the shoppers. Kaldi management must have graduated from the ‘dangle the carrot don’t let them eat it’ school of business.
Update: Interested piqued, I asked a Kaldi clerk if coffee double points would be in effect during the 500 JRE POINT Campaign. “We only do it on the 25th of every month, but sometimes on other (unannounced) days, it changes each month.” Other unannounced days…hmm. I then asked a Japanese friend to confirm things, “Kaldi has been doing that a lot recently. They used to have ‘store anniversary sale’ days on actual anniversary days but those are all unannounced now. I guess food imports business is not so profitable these days with the exchange rate so all the sales campaigns are unannounced. Maybe they’ll start announcing them again when they get desperate.”
First YouTube and now Twitter is freezing mainstream conservative commentators. Kazuya’s bogus YouTube purge for ‘spam’ a few days ago, now reinstated after a overwhelming response from online Japanese across the political spectrum, has been followed by Twitter freezing his account. Two attacks this close together is not coincidence. I smell a rat.
The Twitter takedown is particularly bogus: a ‘well known’ lawyer lodged 4 copyright complaints on a Kazuya tweet that URL links to Kazuya’s own YouTube Channel video. In short somebody claimed copyright on content they don’t own. Twitter froze Kazuya’s account anyway. This is somebody hijacking DMCA rules to take down somebody else they don’t want on Twitter. Maybe Twitter wants it that way.
The YouTube purge has already damaged YouTube’s credibility in Japan because they don’t offer real reasons for banning or reinstating Kazuya’s account or other similar conservative commentator YouTuber accounts that are still frozen. YouTube comes across as being completely arbitrary or worse, politically motivated, a huge turn off for many Japanese.
If Twitter doesn’t do a better job of filtering bogus copyright claims and falls into the trap of becoming somebody else’s tool, Twitter credibility in Japan will be destroyed too.
Your choice Twitter.
Now Twitter has been caught engaging in Shadow Banning of conservative Twitter users but changed it overnight when caught by Vice. Meanwhile Kazuya’s Twitter account still remains frozen for unexplained reasons.
The YouTube purge of conservative and right-wing channels as described by Tim Pool earlier this year has hit Japan hard recently with many high-profile and popular channels such as Tsuneyasu Takeda and Kazuya taken down for vague YouTube community violations, spam mostly.
This is not fringe but mainstream commentators who write books, major magazine articles and appear on Japanese TV. Tsuneyasu Takeda is a university professor whose family are descendants from the Meiji Emperor. You cannot get more mainstream than that.
The takedowns are exactly the ‘one strike you’re out purge’ method that Tim Pool describes under the YouTube spam violation policies.
Takeda and Kazuya have both setup new YouTube Channels while their cases and uploaded catalog are ‘reviewed’ but subscriber numbers are way down as you’d expect. Pre-purge Kazuya had 490,000 subscribers, now he has 38,000. If YouTube’s intention here is to disrupt Japanese conservative commentators ahead of Japanese Diet elections due later this year, they certainly achieved that.
Regardless of politics I think YouTube’s purge first review later (if ever) action for dubious reasons is deplorable. This has already thrown a chill on Japanese online communities. Japanese take pride in listening to and respecting opinions of others even if they don’t agree with them. I think a lot of younger Japanese, and bloggers will think twice before trusting YouTube, or Google again.
The Japanese response to YouTube’s purge of the Kazuya Channel was so overwhelming that 3 hours after informing Kazuya that the YouTube review of his channel confirmed that it violated YouTube spam policies, without giving any specifics, and would not be reinstated, he received yet another email stating that the YouTube review found his channel did not violate spam policies and was reinstated. Again without offering any details or explanation. Kazuya thanked his followers in a comeback video but observed that YouTube’s actions may have damaged its reputation in Japan.