Farewell FeliCa Octopus, save the last tap for me

During the 2019 Apple Pay Octopus saga one thing was clear: Octopus was living on borrowed time. On the eve of the Apple Pay Octopus launch:

Octopus Cards Limited (OCL) has been slow extending the service to include mobile. Instead of putting early effort into digital wallet support for Apple Pay/Google Pay/Samsung Pay, OCL wasted time and resources developing the niche Mobile SIM product which didn’t pan out. This lag coupled with the rise of AliPay and WeChat Pay QR Code payment empires put enormous pressure on OCL to do something…

With so much traffic and business from the mainland, OCL owner MTR is looking to add QR Code Open Loop transit support (paywalled link)…MTR gates will eventually look like the ones in Guangzhou with PBOC/FeliCa/QR Code readers supporting Octopus, China T-Union, AliPay/WeChat Pay. At which point I say OCL doesn’t have a viable transit platform business anymore.

I hoped the success of Apple Pay Octopus would buy it time, but on August 28 the South China Morning Post published a story where OCL CEO Sunny Cheung says they will join the China T-Union initiative for seamless transit integration between Hong Kong and China. He to goes out of his way a few times in the interview to say how ‘old’ NFC technology is:

Cheung said internet users’ criticism of Octopus being a tech laggard died down in June after people were allowed to add their Octopus account to Apple Wallet on their iPhones. Cheung, who admitted he was stung by the criticism, regarded Octopus’ breakthrough on the iPhone as one of the best times of his stint with the company. “This was one of my biggest challenges,” he said. “The breakthrough helped refresh Octopus’ image even though it is still using NFC technology.”

Hong Kong’s Octopus aims to spread tentacles with contactless card for paying fares in mainland China

Obviously Sunny thinks that QR Codes are cutting edge. He is retiring and doesn’t care about criticism of his disastrous OCL tenure, or scalping inbound tourists who want to use Apple Pay Octopus.

Hard Reality
China has ruthlessly weeded out MIFARE and FeliCa transit cards and replaced them with the slower PBOC 2.0/3.0 China T-Union standard, aka the supermarket checkout spec. Octopus will eventually get the same China T-Union lobotomy.

Doing so means OCL and China transit authorities can replace the Sold Octopus•Lingnan Pass that is plastic only and covers 20 Greater Bay Area cities. If OCL went deep instead of cheap Octopus would go ‘dual mode’: a single card with separate NFC protocols and currency purses: NFC-A/China T-Union RMB and NFC-F/Octopus HKD. In this scenario Hong Kong Octopus remains on FeliCa with the rest of China on PBOC China T-Union.

Unfortunately OCL will likely go cheap instead of deep…. a single protocol China T-Union PBOC 2.0/3.0 card that works everywhere, and on mobile, for all mainland transit and for mainlander transit in Hong Kong. There is also the plastic card issue business angle to consider. Read FeliCa Dude’s Octopus on iPhone 7 post paying special attention to the Octopus plastic card issue steps that he outlines. The Hong Kong powers that be would like that profitable franchise sourced locally or in mainland and not from Sony.

‘One country two systems’ was an illusion, Hong Kong is being force fitted into China. Nothing is sacred, there are no hold outs. It may take a few years, but as MTR transit gates and OCL store readers are gradually replaced with newer models, those readers will all have dual mode FeliCa/PBOC support. And when everything is ready, MTR and OCL will simply turn off FeliCa. FeliCa based Octopus has had a great run that influenced transit fare system development around the world. Enjoy it while it lasts.

Update

Jason Tjong tweeted that a dual protocol mode Octopus card is in final testing stages. It will be interesting to see the hardware and card architecture details. Hard to say what it is at this point, Sold Octopus•Lingnan Pass replacement, Greater Bay Area transit card, the new Octopus? A transition step away from FeliCa though a digital wallet version seems unlikely at get-go nevertheless.

The Apple Pay monopoly debate: are we really comparing Apples with Apples?

Ruimin Yang’s detailed and thoughtful post, “Apple Pay monopoly, are we really comparing ‘Apples’ with ‘Apples?“, outlines the entire Apple Pay system architecture, how it compares to other digital wallet platforms, (Google Pay, Samsung Pay) and what ‘open vs closed’ means in the whole ‘Apple Pay is a monopoly’ debate. I highly recommend it if you have any interest in digital wallet payments.

As Yang explains, ‘open’ is not easily defined and the options are not easily implemented, especially when it comes to Apple’s highly customized and constantly evolving Apple Pay platform built around their A/S series chip Secure Enclave and Embedded Secure Element. Apple has spent a lot of time, money and effort in building the Apple Pay brand as the high benchmark standard for secure, private and easy to use digital wallet transactions and services. It is not your standard off the shelf NFC + Secure Element package.

It is telling that Germany, a country with one of lowest rates of credit card use and whose banks fought to keep Apple Pay out, is pushing for ‘open NFC’ the most. It sounds like an across the board move but it’s really aimed at Apple Pay.

This is European business politics in the age of digital wallet wars: mobile payments and digital wallets have disrupted everything and the traditional players, banks and card companies i.e. the real gatekeepers, are doing everything they can to keep the upper hand by using the open NFC argument to force their own branding on Apple’s platform in place of Apple Pay.

In the European tradition, regulation is invariably the go to strategy for keeping the status quo. I still think Junya Suzuki has it right: the EU would never demand the same thing of Samsung or Huawei that they are demanding from Apple. In other words, politics.

Previous coverage:
What does open Apple Pay NFC really mean? (11-17-2019)
The Apple Pay EU antitrust investigation (6-20-2020)

Apple Pay PASMO and the coming transit IC card rush to mobile

Mobile PASMO was announced in January 2020, launched on Android Osaifu Keitai in March and will land on Apple Pay with the iOS 14 update this fall. As early as April Apple was already dropping hints that Apple Pay PASMO was on the way.

9 months is a quick turnaround for announcing and launching an entirely new mobile transit service across 2 digital wallet platforms: Android (Osaifu Keitai) and Apple Pay. It sure beats Cubic Transportation Systems who have yet to get Apple Pay Ventra out the door more than a year after it was first announced in March 2019 on the far less complex Chicago transit area.

While many Apple Pay users in Japan are happy to have PASMO, there is always that nagging question: if I already have Apple Pay Suica that works nationwide, what’s the point of Apple Pay PASMO? All the major transit cards are cross compatible, the only difference is commuter passes…and reward points. As FeliCa Dude so astutely explained in his excellent Reddit post, Mobile PASMO is a boondoggle, the result of JR East and PASMO Association failing to cooperate and mutually host commute plans…and points.

All Japanese transit cards are slightly different versions of Suica. There could easily be one national transit card and Japanese users absolutely would love having it, but ICOCA, TOICA, manaca, SUGOCA, Kitaca, nimoca and Hayaken want to hang on to commuter passes…and points. The good news is that (1) Mobile PASMO got off the ground in a very short time, (2) JR East is providing Mobile Suica cloud assets. I suspect Mobile Suica is likely hosting Mobile PASMO as well but whatever deal they cut is hush-hush.

Suica growth, the CASHLESS tax rebate effect, COVID and all that
Junya Suzuki beat me to the punch today with an excellent piece that covers the Apple Pay PASMO announcement and several recent Suica trends including the recent addition of Suica to Square. The most important one to me is the July 2020 edition JR East factsheet Suica section: “Number of e-money available shops”. The number of Suica ready stores increased 50% YOY by 324,000 in the March 2019~March 2020 fiscal year with store growth outside of station areas increasing the most.

This is a direct result of the CASHLESS Tax Rebate program which provided merchant subsidies for cashless infrastructure. That program ended June 30 but there is talk in government circles of implementing a similar program to boost the economy and drive cashless use in the COVID era.

JR East factsheet Suica Section

Suzuki san points out what I have said in other posts, Mobile Suica growth from the October 2016 Apple Pay Suica start point is remarkable: 9.3 million users as of March 2020. And the growth rate is accelerating. Smaller and less expensive mobile devices like Apple Watch with Apple Pay Suica and Garmin Suica make the mobile transition attractive for a wider number of users.

JR East factsheet Suica Section

With restricted travel in the COVID era every single transit company in Japan is facing tremendous pressure to reduce costs. Moving away from high cost plastic transit cards with cut and past Mobile Suica IT assets and next generation Suica card architecture will be the easiest way to do that.

The rush to mobile
It starts now. Apple Pay PASMO marks the start point of a transit IC card rush to mobile digital wallets. Mobile PASMO is rebranded Mobile Suica. With next generation aka Super Suica coming in 2021, at the very least I think we’ll see similar arrangements from JR West ICOCA, JR Central TOICA and other major transit IC cards. With the addition of MaaS NFC Tag Suica, we’ll see a faster, wider uptake of Mobile Suica and sister services for payments everywhere.

And for those Open Loop advocates out there Junya Suzuki has some surprising analysis regarding the Japanese transit scene: despite some limited installation such as Okinawa Monorail, he does’t see transit companies going in for Open Loop in any big way. Mag strip paper ticketing will gradually be eliminated as next generation transit gates go into service over the next few years but mobile transit cards and paper QR Codes will be the replacement, not Open Loop.

As I have said before, the whole ‘Open Loop vs Closed Loop aka EMV contactless bank cards vs Native IC transit cards’ debate is pre-mobile plastic era out of date thinking. Mobile wallets and apps have tossed that whole game out the window for good. Why do you think QR Code payments and UWB Touchless are coming to Apple Pay in iOS 14? It’s a whole new crazy game. Better get used to it.

Japan Cashless X-Day

Anybody care to chart the Japanese cashless transformation?

Now that the CASHLESS Rebate program is over with transaction rates reportedly going back to ‘normal’ (an estimated 1% rise over rebate program rates), JP media outlets report that some smaller merchants might go back to cash to keep profit margins intact. Real transaction rates are always hush-hush but QR payment rates recently revealed in connection with the Japan QR (JPQR) unified code scheme give us an idea what goes on behind the curtain:

NTT Data already lowered basic CAFIS transaction rates in response to the stera payment co-venture from SMBC-Visa Japan-GMO. As the JPQR transaction rate chart makes clear, banks and payment players have plenty of transaction rate wiggle room. The Japanese government is pushing cashless. If necessary the push will become shove for lower rates and yet another cashless program but where do things stand right now?

July 2020 is the proverbial “X-Day” crossover point: Japan is cashless now, even though the transformation is uneven, ongoing and very messy. On the customer side cashless is the mindset and survival behavior for many Japanese, even for older folks who under normal circumstances would prefer using cash until they day they die.

Faced with the reality of handing money that carries the risk of infection, people are going cashless instead especially with contactless smartphone payments. Junya Suzuki was right all along: Apple Pay turned out to be “the black ship of payments” catalyst that finally nudged Japan from cash to cashless. That and COVID.

Market analysts will undoubtably demand chart data that clearly explains and quantifies the transformation before declaring a ‘winner’ but they have a long wait. That’s because the cashless transformation is sloppy with huge regional variations, all happening right before us. But all of this is an afterthought and our priorities are different now, getting accurate market survey information of any kind in the current environment is extremely difficult.

The Tokyo Olympics was supposed to be the event heralding the cashless era but the COVID crisis has forced much more change very quickly. Evidence is best found in the countless little rituals of daily life that have evolved and are not going back. Merchants who do go back to cash face the risk of fewer customers: when offered a choice people choose cashless.

This realization hit me yesterday when my partner complained about his Docomo dPAY points taking a hit because the Summit supermarket staffer tapped a wrong payment button on the new POS cashless menu options added on July 1. He wanted to pay with iD. A year ago he never used iD, dPAY or Apple Pay and never wanted to, but life changed.

These days I hear contactless reader sounds everywhere, FeliCa chirps and EMV beeps are common as clear plastic sheeting and foot position floor stickers at checkout. And just when posting this the Ministry of Land, Infrastructure, Transport and Tourism announced that Japanese Expressways will be going cashless only with ETC. If there’s anything that defines this sea change it is this: it’s not a ‘victory’ over cash that the media sometimes depicts, nor does it feel like progress. In the COVID era it merely feels like survival.

iOS 14 App Clips unlock the power of NFC background tags

We first got a taste of iOS 14 App Clips with the slick Titanium Apple Card setup that leverages the NFC background tag reading ability, now called NFC with reader mode, of iPhone XR/XS and later. Jennifer Bailey gave a sneak peek of NFC background tag Apple Pay in May 2019 but the pieces weren’t in place for a WWDC19 rollout.

The first problem was the iPhone lineup. iPhone 8 didn’t fit because only A12 Bionic devices and later support NFC background tag reading. This was solved with the release of A13 Bionic powered iPhone SE and deletion of iPhone 8 from the lineup.

The second problem was the clunky ‘launch an app’ or ‘launch Safari’ to do anything. This has been a problem for NFC tag solution providers like SmartPlate. User interaction needs to reside on a task focused pop-up sheet while the screen is on. The new iOS 14 App Clips framework that works hand in hand with iOS 14 Core NFC to load just what is needed to take care of the NFC tag task at hand, is the right solution.

The pieces appear to fit very nicely now: the NFC background tag sheet pops-up ‘while the screen is on’, the right code snippets load in for a simple focused task, the user can Sign In with Apple ID if needed, and pay with Apple Pay. Simple, uncluttered action; no apps, no Safari launch. And we have background NFC tag reading on every current iPhone model.

There are a few flies in the ointment:

  • Face ID in the face mask era is a lousy unlock and Apple Pay user experience, App Clip powered NFC background tag reading is gonna rock on Touch ID iPhone SE even though it was designed for Face ID.
  • A network connection is required, Apple Pay transactions at the NFC reader work without a network connection but App Clips + Apple Pay transactions need a network connection for the obvious reasons of loading app clip content, and because of this…
  • A weak borderline WiFi connection can jam the entire process even with WiFi Assist turned on.

The NFC advantage over QR Codes here is that background tag reading automatically pulls up the App Clip sheet when the screen is on while QR Code users have to manually pull up the QR reader app and scan a code to join the fun.

The combination of App Clips, NFC tags and Apple Pay will be extremely disruptive in markets where NFC and QR payment players are very competitive. Places like Japan. PayPay and Line Pay lose their edge. Smart QR payment players can adapt and add NFC tag support in their payment apps. And they can bypass Apple Pay if they want to, though it won’t be as slick. Ultimately they are not wedded to QR codes, PayPay and Line Pay have always said they would add NFC if customers want it.

App Clips finally unlocks the power of background NFC tag reading and is the other big WWDC20 Apple Pay development in addition to CarKey and Apple Pay QR Code AliPay payments. App Clips puts NFC tags on equal footing with QR Codes for the first time with the added edge of the ‘when the screen is on’ background tag read sheet pop-ups. This will be huge.


UPDATES

October 22 2020: The first Japanese iOS App Clips for ordering via NFC tags and QR have started at Kitasando Coffee and Tailored Cafe.


UPDATES

Apple Pay Code Payment + App Clip Connection: App Clips and Apple Pay Code Payments belong together
Apple Pay Contactless Payment Adoption 4Q 2020 Outlook: App Clips and App Clip Codes start rolling out in Japan and USA
Using App Clips at Kitasando Coffee