The Big Implications of Apple Pay Mizuho Suica Branding

Apple Pay Branding Model
A diagram of how Mizuho plugs into Suica and how it could work with branding schemes like PASMO

Mizuho Suica for Apple Pay raises questions and fascinating possibilities way beyond yesterday’s announcement. Why now and why only Apple Pay? Is this the first of many Suica branded cards coming to Apple Pay?

The announcement was short, small and caught Japanese IT journalists off guard. Nobody anticipated Apple Pay Suica branding just appearing and working with a wallet app update. It’s slick and in true Apple fashion ‘just works’, but journalists missed important points with huge ramifications:

  • Mizuho Suica only exists as a virtual card hosted on the Mobile Suica Cloud, there is no plastic equivalent
  • DNP provides the Mizuho Wallet app backend

Put together this means the Apple Pay Suica branding vehicle is complete and ready to roll. Almost exactly the model outlined earlier.

The only remaining question is how many other transit companies and banks are going to get on? It’s tempting to think that with another Apple Event approaching, Suica’s eight sisters will join the Apple Pay branding parade: PASMO, ICOCA, TOICA, manaca, Kitaka, SUGOCA, HAYAKAKEN, nimoca. That’s probably a long shot but the vehicle is ready and waiting if they decide to join and time is running out if other transit areas want to benefit from the flood of inbound visitors anticipated for the 2020 Tokyo Olympics.

The Apple Pay Japan strategy of focusing on the stored value Suica transit card more than credit cards has been a tremendous success. Transit truly is the golden uptake path for contactless payments, exactly as the recent and widely regurgitated Juniper Research piece pointed out but everybody seemed to miss that point.

None of the other Japanese transit cards are on mobile but everybody building their own cloud infrastructure is out of the question. If JR East, DNP and Apple can coax the other Japanese transit cards to join the Suica branding scheme that finally offers commuter plans and more for everywhere and not just Tokyo, Apple Pay will easily become the de facto mobile wallet for Japan.

UPDATE 1: the Apple Pay Suica branding program is underway, sources say ‘stay tuned’ for more Apple Pay Japan payments and apps in the near future, September and October are the usual suspects.

UPDATE 2: I think one reason why Japanese journalists missed the virtual only Mizuho Suica point is because the Android Mizuho Wallet App release earlier this year also had virtual cards with one very important difference. Android Mizuho Wallet creates virtual Mizuho QUICPay JCB Debit cards not Suica. Mizuho Debit cards are hosted on the Mizuho system just like their credit cards. Virtual Suica branded cards are hosted on the JR East Mobile Suica Cloud, a completely different system with completely different implications.

UPDATE 3: I hate the blog title and am utterly clueless trying to find a better one that exactly captures why this is an important development.


Yes, EMV Contactless Sucks for Transit

EMV Contactless Transaction speed is too slow for transit

It’s fascinating that Singapore’s Land Transport Authority (LTA) dumped the fast FeliCa (rated 200 millisecond transaction but Octopus clocks in at around 100ms) behind EZ-Link cards to roll their own faster CEPAS technology (rated 180ms transaction) but are now letting super slow EMV contactless (500ms plus and counting) on their transit reader infrastructure. It’s like ripping out all the cutting edge transit gate technology and replacing it with clunky old supermarket cash register technology.

Publicly run transit authorities are subject to politics and special interests just like any government agency. This sometimes leads to poor decisions and short term thinking. Transit magnetic cards, followed by contactless ‘smartcards’ were revolutionary and eliminated paper transit ticketing, a no-brainer ‘this is the future’ choice of that time.

The next wave smart device/digital wallet revolution for transit payments happening right now is exciting, messy and confusing. There are established stored value smartcard systems, EMV contactless, Chinese QR Codes, Apple Pay, Google Pay and more vying for attention. Visa, Mastercard, American Express have mountains of sponsorship money in one hand and the ‘big stick’ EMVCo standard in the other.

Transit agencies face bewildering choices: do they stay closed and in control of the ticket validation and chose technology that is best for them, or do they go open and let credit cards be used as tickets and give away control in the name of user convenience? What’s the price of those choices?

The essential question to ask is: what do you want your transit ticketing infrastructure to look like in 10 years and what do you want to build on top of that? Keeping it closed allows a transit authority, or group of authorities to build a transit platform. This ‘best of both’ approach keeps ticketing closed but incorporates all the new digital payment technology (EMV contactless, QR Codes, etc.) in a backup role for easy, anywhere, anytime recharge. This approach leverages the core strengths of each technology and player instead of wasting time and money in contactless turf wars.

Going open makes the credit card industry happy but doesn’t serve transit users or transit authorities in the long run. Credit card companies don’t care about ticketing infrastructure, transaction speed or operational consequences when it is slow or stops all together. If you want proof just look at the state of EMV terminal infrastructure in America. On average it is backwards, slow and full of broken promises that the customer experience will get better soon. If the credit card industry really cared about payments infrastructure, things would be much better and further along than they are now.

It’s worse than first reported, Singapore transit users are complaining of fried plastic contactless credit cards and of card issuers deactivating cards mid-transit for being over limit. This is the price for letting credit card companies manage transit ticketing.

Translink started EMV contactless not everybody likes it

Japan Transit IC Card Daily Transactions Top 7 Million

Japan Transit IC card daily transactions top 7 million

The Japan Transit IC Card Association announced that daily Transit IC card transactions, which include transit, e-money purchases with plastic transit cards, Apple Pay Suica and Mobile Suica, have topped 7 million. The growth curve is a good indication of the power of a transit platform like Suica when matched with a digital wallet platform like Apple Pay.

Intriguing Pieces

It’s very odd when you consider that global FeliCa iPhone 8 is the only smartphone in the world that you can use out of the box to add a Suica card and use SmartEX to ride the Shinkansen with just iPhone 8 and Apple Pay Suica. You do not need a Mobile Suica account like any other smartphone because Apple built Suica functions and connectivity into Apple Pay.

That is unique and interesting but why did JR Central go out of its way and devote resources to support JR East and Apple Pay Suica when their own TOICA transit card only exists as a plastic one? It doesn’t make sense: all the elite EX-PRESS business travelers who use the JR Central Shinkansen regularly will dump TOICA and go all in with Apple Pay Suica. Companies invest resources for a reason, something is going on.

It is also very odd that PASMO registered the Mobile PASMO trademark on Apple Keynote day as the first step before anything else including, it seems, creating a plan. Clearly a branding trademark is on PASMO’s mind. Let’s look at these intriguing pieces from a branding perspective.

The Apple Pay Suica diagram looks like this:Apple Pay Suica Diagram

Apple invested a lot of time and effort to add global FeliCa and emulate all the Suica FeliCa functions in Apple Pay and on iPhone hardware. As Japanese IT journalist Junya Suzuki pointed out in his Mobile PASMO piece, all the Japanese transit cards are compatible on the outside but on the inside there are differences in how they use the FeliCa chip and add service extras.

Implementing all those differences and service extras in Apple Pay and on iPhone hardware is a lot of work for Apple. There is also the problem of a PASMO building their own mobile service with limited financial resources. And there is very little time until the 2020 Tokyo Olympics.

PASMO’s trademark move suggests the solution is simply going to be a branding one:

Apple Pay PASMO Diagram
PASMO would have to host commuter pass and credit card accounts on the JR East Mobile Suica cloud. Apple and JR East would simply brand the PASMO information.

Start with a basic service that offers the 2 big things Japanese users want most:

  • Commuter passes
  • Credit card loyalty points

JR East started simple by dropping EX-PRESS Shinkansen options from the Suica App until JR Central had iPhone Apple Pay Suica interoperability in place. JR Central is doing the same with the browser only simplistic SmartEX JP registration process.

This model can work for iOS apps too. JR East could host a PASMO app in addition to their Suica app:Apple Pay Apps Diagram

The evidence so far suggests this is how Mobile PASMO will play out. It provides an easy model for PASMO and the other transit cards to get on board Apple Pay quickly then add back service extras over time. JR Central cooperation with JR East and Apple Pay Suica is another sign that things are warming up on several fronts.


The Mobile PASMO Front Line

Junya Suzuki digs into the technical and financial challenges facing PASMO bringing Mobile PASMO to market. He was kind and tweeted me right after meeting with PASMO-Seibu Railway officials that the trademark registration was just that. I suspect plans are farther along than a trademark application but for now, let’s take PASMO’s word.

The most fascinating thing to me is the numbers. As of March 2017 (6 months after the Apple Pay Suica launch) the breakdown for Suica cards is:

  • 64 million total Suica (plastic and mobile)
  • 4.4 million Mobile Suica, about 7%

Even though the Japanese market is just reaching the 1 year mark of Apple Pay Suica, and 11 years of Mobile Suica service on other mobile phone, there is a long way to go.

PASMO is far smaller, the last reported figure from 2014 was about 20 million. Current estimates are 25 million. At the Mobile Suica rate that translates to a little over 1 million potential Mobile PASMO users.

The financial challenges of building a viable mobile service infrastructure from a far smaller user base are clear. The obvious solution, and likely outcome is a service deal with Mobile Suica. But this has technical challenges as well.

Suzuki san lays out all the FeliCa details that I will only outline. All the major IC Transit cards are compatible with each other through the Congress of Japan Railway Cybernetics (fancy name for a committee of the Japan Railway Engineers’ Association). However there are differences in the way each transit card uses the Secure Element and Application layer of the IC card FeliCa chip. These are basically the extra services offered by different transit cards. PiTaPa for example offers both pre-paid and post-pay fare transaction services the other transit cards do not.

In short PASMO would have to lose the service extras they offer customers to work on Apple Pay via JR East’s Mobile Suica backend. Any service start window depends on how much PASMO is willing to give up to get on Apple Pay. The one feature that customers really want for Mobile PASMO is commuter passes. Fortunately this appears to be the easiest feature to port.

My vote is going the SmartEX way of starting as quickly as possible with a barebones service then build up from there. Suzuki san thinks Mobile PASMO is cannot start in 2017 and 2018 is highly unlikely. I am a little more optimistic and think we could see Mobile PASMO in 2018.

Let’s face it, 2019 is cutting it awfully close if PASMO wants mobile service in place for the 2020 Tokyo Olympics.