QR Codes and Big Data

After the 7pay QR Code launch and security meltdown, Twitter is full of Japanese tweets asking ‘why do we need QR when we already have fast secure FeliCa services like Apple Pay Suica?’

It’s a very good question. Finding the reasons behind the manufactured QR Code in Japan mania is not easy. On the surface it looks like a strange retro attempt to replicate the success of AliPay and WeChat Pay in the Japanese market and lower operating costs are certainly part of the allure. A close examination of actual QR use boils down to LinePay and using LinePay points to buy stuff on the Line Store (stickers, coins, etc.).

So why is 7-Eleven aiming to trash their FeliCa nanaco card and push their user base to 7pay QR, and why are all the other convenience store chains doing the same? IT journalist Junya Suzuki, Japan’s top reporter covering all things cashless has posted a great explanation: Big Data.

If you have lived in Japan for any length of time you are probably familiar with the T-Point card. A few years ago Doutor, FamilyMart and many other business were pushing T-Points. Now they are not. Doutor dropped T-Point for Docomo d POINT in June, and the arrival of QR FamiPay is FamilyMart kissing T-Point goodbye.

As Suzuki san points out, from the convenience store point of view, the problem with customers using Suica, nanaco or T-Point is that they don’t have personal data attached to them. Anybody can buy a Suica card at a JR station or a nanaco card at 7-Eleven and use it on the spot. The only piece of data going into the system is the card id#. They can’t get your name, phone, etc. and profile the customer.

With QR Code apps and an account signup/sign in, QR Code platform operators get the information they want to profile customers and plug it into Big Data. The customer ends up being the product. It’s not about offering better service or technology. How useful QR Code payment apps are in the long run, or how much they actually end up being used, is anybody’s guess.

Unfortunately the current messy situation is only going to get worse as Japanese bank QR Code platforms start launching this fall. Smartphone users will have to find their own way through a growing maze of QR payment apps and different UIs, each one vying for attention with campaign booty. The freebie startup campaigns will eventually end, The inevitable consolidation process will be painful. There is no doubt however that the 7pay startup fiasco is a tipping point, the reevaluation process has begun.

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Contactless Payment Turf Wars: Apple Card and the Prepaid Innovation of Apple Pay Suica

The Apple Card tag line says it all, “A new kind of credit card. Created by Apple, not a bank.” This is a bank card that’s not a bank card, except that it is a bank card with basic limitations that can never be changed: a bank card is postpay and this chains it to the creaky banking industry that everybody knows and loathes, with predatory fees, credit checks and service nonsense.

To overcome this limitation, and the slow uptake of EMV Apple Pay and Apple Cash, Apple is merging the postpay Apple Card and the prepaid Apple Cash, glued together with Apple Pay into one service. Two is better than one, right? This merge of postpay + prepaid is a long overdue development for the American market that builds on ideas and experience that Apple gained from Apple Pay Suica in Japan.

The credit card drag on Apple Pay adoption
The slow uptake of Apple Pay and other digital wallets in the USA is pointed out from time to time. The eMarketer blog piece in May 2018 predicted stronger growth for In-App loyalty prepaid cards like Starbucks, over Apple Pay and Google Pay. The Starbucks card is like many prepaid loyalty cards that offer points and rewards along with apps that let users add the loyalty card and attach a credit card for easy In-App reloads. It’s an easy entry point for customers to enjoy the benefits of using prepaid cards and get the most out of their purchases.

There are other factors cited for slow Apple Pay adoption rates in America, but I think the basic reasons are simple. During my 4 month American stay in 2018, I was surprised how slow and uneven the Apple Pay experience was at checkout. Pulling out a plain old credit card was often the faster hassle free choice. Either way it’s the same credit card right? It’s marginally move convenient, but not a new service.

That is the problem. Apple Pay and digital wallets are new technology but bank cards carry the combined weight of a creaky, out of date banking industry. Banks operations are retro, analog businesses living in the digital age on borrowed time. Bank cards with all kinds of new technology attached to them are still the same stodgy card services from the same stodgy banks.

The real point of the eMarketer piece is that In-App prepaid cards with postpay credit cards attached on the backend, offer customers a convenient new merged service that is than far better than either by itself, with bank cards limited to a indirect backup role. The prepaid card is the main point of contact between the customer and merchant, not the bank card. And this makes all the difference because it’s where the innovation is.


Japan Transit IC eMoney Transactions for non-transit purchases topped 8 million a day in April 2019

Apple Pay Japan success built with prepaid
Prepaid card use for transit and purchases in Japan dwarfs credit card use, especially with younger people. The major prepaid cards include WAON, nanaco, Rakuten Edy and Japan Transit IC cards (an interesting bit of history is that Suica and WAON were initially conceived to be a single card). Of these the Japan Transit IC card standard occupies a very special category, 255 transit companies form a common interoperability standard which includes Suica. There are more issued Transit IC cards than people in Japan, everybody has one.

File:ICCard Connection en.svg
Japan Transit IC Map, a very cool animated timeline is also available

The core group of 9 major cards (Suica, PASMO, ICOCA, TOICA, Kitaka, manaca, SUGOCA, nimoca, HAYAKEN) also share a common prepaid purse: Transit IC eMoney. The national coverage and scale of the major cards transforms Transit IC eMoney into something special found nowhere else: a de facto national prepaid card standard.

Transit IC eMoney transactions for non-transit purchases topped 8 million a day in April 2019. At current growth rates, transactions should be more than 10 million a day when Super Suica arrives in April 2021 and significantly enlarges the common eMoney purse footprint while unifying it.

The success of Apple Pay in Japan is very different from any other country: it was not accomplished with bank cards, it was accomplished with the Suica transit card with it’s common prepaid Transit IC eMoney purse. The success formula has 2 basic ingredients: de facto national prepaid purse for transit and purchases matched with Apple Pay postpaid bank cards for recharging Suica. Prepaid + Postpay as one service with bank cards limited to the backend for reloading.

The concept is just like In-App prepaid loyalty cards: a prepaid front end with a flexible open ended postpay backend. But this one is much more powerful because it can be used everywhere for transit and purchases. Putting the Suica prepaid card on Apple Pay and Google Pay with their infinitely flexible postpay backend for instant, anywhere, anytime recharge and reloads takes everything to a whole new level of convenience and use.

One of the failures of Apple Cash is that the current version is pigeonholed as a peer to peer service. How different Apple Cash would be if it was positioned like Suica. Apple Pay HOP users are just getting their first taste of new things now, as will Chicago Ventra users when Apple Pay Ventra launches later this year. Unfortunately eMoney is not part of the mix for HOP and Ventra, only transit, nor are they compatible with each other.

A first step towards virtual currency?
I used Suica before Apple Pay arrived and have nearly 3 years of Apple Pay Suica use under my belt. The prepaid + postpay service model matched with transit + purchase eMoney is a combination that is almost impossible to describe to a person who has not lived with it. The daily experience is very different from using bank cards which feel like hard money wrapped in plastic. Hong Kong Octopus card users are probably the only ones who can relate to it, and then only Smart Octopus in Samsung Pay users.

Suica eMoney on digital wallets represents a small step towards virtual currency in a way that bank cards do not. QR Codes serve the same function for China, the first small step away from hard cash. Even though QR Codes payment systems are usually hard wired to bank accounts, they are not run by banks.

None of these schemes are real virtual currencies of course, but they are an important cushion for the mind. The daily use experience prepares people for a future where payments, and the whole infrastructure supporting them, will be completely different from what we have now. It changes old habits, and more importantly, old ways of thinking, just a little. Taking the next step from there is much easier.

A few days ago I wrote:

The Apple Card rollout due this summer is a head scratcher. There are lots of things Apple Card can do in Wallet that other cards, as yet, cannot do. It feels too big and important for just a press release and a new web page. And yet, by itself, it’s too small for a full blown Apple event. I think the Apple Card rollout is going to be a very interesting release for all things Apple Pay.

The new Apple Card + Apple Cash will be the first major postpay + prepaid Apple Pay service for iPhone users in America. The experiment will be fascinating to watch, but Japan remains the world’s most exciting and heady payments market experiment there is.

NFC tag Apple Pay Levels the Play Field with QR Codes

QR Codes has gotten a lot of hype in Japan, partly because merchants want to capture Chinese tourist money with AliPay and WeChat Pay, but also because the lower cost of QR payment systems appeals to small merchants who don’t want to buy or rent expensive NFC enabled POS systems.

Inexpensive NFC tags and NFC stickers are a logical payment alternative to full blown NFC POS systems and QR, but have remained out of the mainstream. NFC tags are great technology but they remain deeply geeky for the majority of users. The key is making NFC tags as friendly, easy and secure to use as Apple Pay. This is exactly what Apple plans to do.

At the TRANSACT 2019 conference Jennifer Bailey announced NFC tag Apple Pay. NFC tag Apple Pay works with or without apps. All the user does is tap a NFC tag and Apple Pay takes care of the rest as shown in the demo video using a SmartPlate NFC tag:

The easiest way to think of it is that instead of tapping a reader to pay with Apple Pay, NFC tag Apple Pay turns your iPhone into the reader. An NFC tag and iPhone is all that you need to Apple Pay at a store.

What does this sound like to you? Yep, this is exactly what QR Codes do and NFC tag Apple Pay is aimed right at the ‘but the store doesn’t need an expensive NFC reader to use QR’ sweet spot that QR Codes have occupied up to now. NFC tag Apple Pay levels the play field, neatly eliminating the QR advantage while offering security that QR Codes cannot match.

However don’t assume that the QR players are chained to QR Codes, it’s an inexpensive and convenient technology for building payment system app services, not particularly sacred. NFC tag Apple Pay also works in an app and this offers Japanese QR Code payment systems such as Line, PayPay, etc., a way to incorporate Apple Pay NFC support in their app, if they choose to do so.

A12 Bionic iPhone XR/XS are the only devices that support background NCF tag reading and the native ability to read tags without an app. The big question in my mind is how Apple plans to implement NFC tag Apple Pay on non-A12 Bionic iPhones.

More NFC coverage on the WWDC19 Apple Pay Wish List.

Suica Tops Contactless Use in Tokyo Area

Another market survey, another few data points. MoneyZine writers Hideyuki Kato and Isamu Saito report some interesting results of 2 different cashless use surveys. As I reported a year ago, Apple Pay has brought a lot of changes to the Japanese payments market but it’s hard to make sense of it due to highly regional preferences: Suica is king in the Kanto area, ICOCA in the Kansai, and so on.

The 1st data point is a survey from Yumenomachi that ranks the different cashless payment methods:

  • Credit cards: 88.4%
  • Transit cards: 49.7%
  • Apple Pay/Google Pay/Osaifu Keitai: 35.4%
  • Prepaid Reward Cards (nanaco, WAON, Edy): 31.7%
  • QR Codes (Line Pay, PayPay, etc): 25.6%

The 2nd data point is a survey from One Compath. This survey reports 56% of the respondents as using cashless more than a year ago, with slightly different ranking:

  • Credit cards: 71.4%
  • Transit cards: 31.7%
  • Prepaid Reward Cards (nanaco, WAON, Edy): 53.0%

The 3rd data point from the same One Compath survey is very interesting but not surprising. It ranks prepaid card use separately for transit and reward cards by prefecture. Transit card use for payments in the Kanto Area (Tokyo, Kanagawa, Chiba, Saitama) is 85%, while prepaid reward cards are the overall winner on a national basis. This is because of the reach of AEON supermarkets and convenience stores in rural areas where people don’t use transit cards or the local transit cards do not support purchases. The next generation Super Suica format is aimed specifically at incorporating these small rural area transit cards so they can be used anywhere as Suica.

One take away is that in the Kanto area Suica is easily the most used contactless card at checkout (Suica issuance is twice that of PASMO). Credit cards lead in cashless, but are still mostly swipe or Chip and PIN at checkout. When prepaid cards are totaled together, credit card and prepaid card use is almost equal. The surveys do not look at average purchase amounts for the different cashless methods. I suspect that Suica and other prepaid card use leads for smaller purchases while credit cards are used for larger purchase items.

We also know from a previous survey by IT journalist Sachiko Watanabe that most iPhone users do not use Apple Pay:

  • Only 27% of iPhone users who can use Apple Pay use it
  • 50% don’t use Apple Pay but are interested in using it
  • 22% don’t use Apple Pay and don’t care about using it

These numbers jive with the 35.4% digital wallet use figure in data point 1. The short summary here is that there is still plenty of opportunity for Apple Pay to grow in the Japanese market, and the Super Suica format in 2021 has the potential to break down the regionality and shake up the market.

WWDC19 iOS 13 Apple Pay Wish List

(Note: iOS 13 Core NFC documentation has been released with NFC tag support for: ISO 7816, ISO 15693, FeliCa, MIFARE and NDEF)

Now that full 3rd party NFC access is reportedly coming with iOS 13 tag support for ISO 7816, FeliCa and MIFARE, does this mean developers get supercharged Core NFC and PassKit NFC Certificates generously handed out like condoms at a gay sex party? Probably not, the only new things in those rumors are ‘full access’ and ‘ISO 7816’, but let’s take a look at some possibilities based on the 3 NFC Forum defined NFC Modes: Card Emulation, Reader/Writer and Peer to Peer.

NFC technology lineup in iOS 13

It’s useful to remember that A12 Bionic powered iPhone is one of the most compelling ‘Global NFC’ devices on the market, with all the important technologies in one package sold everywhere: NFC A-B-F hardware and EMV, FeliCa, MIFARE, PBOC and VAS (value added service protocol) software. Android is fragmented, especially when it comes to FeliCa support.

Apple has invested a lot of time and money to guarantee everything is there and ‘just works’. A12 Bionic added Express Cards with power reserve that support certain NFC transactions without iOS up and running. A12 Bionic also added Background Tag Reading and the ability to read NFC tags ‘out of the box’ without a separate app.

The big frustration for developers has been that iPhone NFC is all dressed up with no place to go. iOS 12 NFC supports Card Emulation and Reader/Writer but severely limits the Secure Element access necessary for Card Emulation with NDA covered PassKit NFC Certificates, while Core NFC is a limited Reader/Writer Mode sub-set.


Card Emulation

New Apple Card Wallet UI
After using Apple Card UI flavored Apple Pay Suica in iOS 12.2 with even more tweaks in iOS 12.3, I feel sure that new PassKit controls for Apple Pay Wallet card customization: detailed transactions, summaries, balance payments, new card options and other UI goodies of the recently announced Apple Card, will be made available for all developers and iOS 13 Wallet cards.

The Apple Card UI and Wallet UI design language in iOS 12.2 and later, is so different from the rest of iOS 12 that I’m surprised nobody in the Apple tech blog space picked up on it. There are lots of useful card options and information that can be piped into Wallet cards from the card provider cloud, instead of sitting in a separate app.

This applies to card artwork as well. Static card artwork in iOS 12 doesn’t do anything and gobbles up precious screen space. The dynamic card art of Apple Card UI can be used to give important information to users while solving the wasted space problem.

Multiple Express Cards in iOS 13 Wallet
There are major Japanese eMoney prepaid cards on Android that are missing on Apple Pay: WAON, Rakuten Edy and nananco. One ‘missing on Apple Pay’ reason is that iOS 12 Apple Pay Wallet lacks a smart way to deal with multiple Express Transit and Express eMoney Cards. Wallet can hold multiple Suica cards but only one of them can be Express Transit. It’s the same for eMoney cards.

This started to change in iOS 12.3 with the addition of Express Transit with Payment Cards. The massive rebuilt of iOS 12.3 Wallet means that iOS 12.3 is basically iOS 13 Wallet already, and the heavy work continues with the temporary removal of Payment Card Express Transit in iOS 12.4 Public Beta.

iOS 13 Wallet will complete the journey, hopefully delivering a vastly improved and unified Wallet UI that elegantly solves the multiple Express Transit/Express Card issue, and eliminates card clash. At a transit gate the user should only have to tap, at checkout the user should only have to select a payment logo on a screen or tell the sales clerk Suica, Mastercard, etc., and pay.

Unified iPhone and Apple Watch Wallet
I do have one more wish for the iOS 13 Wallet UI: please integrate the separate iPhone and Apple Watch Wallets into a single Wallet. It’s incredibly convenient to control all transit card recharge/reload and other options on iPhone instead of fiddling with the tiny Apple Watch screen to recharge a Suica card for example. Suica App manages separate Suica cards on iPhone and Apple Watch incredibly well in one place.

Easy Card Emulation
I am less sure how Apple plans to make card emulation easier for developers:

  • New functions in PassKit that do more
  • Less stringent and easier to obtain PassKit NFC Certificates
  • A combination of the two or
  • Something new altogether

Whatever the approach, I hope it keeps everything secure while making it easy for developers to add all kinds of non-EMV cards to Wallet, the major categories include…

  • Transit Cards: Transit cards have been tricky because up to now each one has been a kind of custom in-house job by Apple in cooperation with the transit company. HOP launched May 21 and Ventra will arrive this summer. Clipper has been rumored for Apple Pay inclusion for some time. Hong Kong Octopus (FeliCa) and Los Angeles area TAP (EMV only?) should arrive shortly after the iOS 13 launch in September. It would be great if iOS 13 PassKit makes it easy to add all kinds of native transit cards like Taiwan EasyCARD and Melbourne Myki (both MIFARE) and more (like Calypso for example) to the mix, with Apple having to do less for a real transit card coming out party. Unfortunately I don’t see Singapore’s EZ-Link card ever joining the party unless iOS 13 PassKit makes it very easy to support customized payment technology like the Singapore only CEPAS.
  • Prepaid Reward Cards: There are lots of these everywhere. In Japan we have: Edy, nanaco, WAON (all FeliCa), Dotour (MIFARE), Ueshima (Mag strip) and Starbucks (FeliCa and Mag strip). Most of these have apps that let users attach credit cards to the backend for online recharge. None of them are on Apple Pay but need to be, urgently, to combat manufactured QR code mania stealth marketing. The challenge for Apple here is the same as transit cards: make it easy for developers to do more, with open API access and easy to obtain PassKit NFC Certificates. I suspect one hold up has been that every single one of these prepaid reward cards wants to have an Express Card option to bypass authentication at the reader. iOS 12 Wallet only supports a single Express card at a time. Hopefully iOS 13 Wallet solves the problem.
  • Regular Reward Cards: There are tons of these everywhere, mostly mag strip. My real wallet has JRE POINT, WAON POINT, Tomod’s, plus a crazy collection of stamp/point cards. How nice it would be if it was super easy for developers to port these to Wallet with NFC capability.
  • ID Cards: This is where ISO 7816 tag support fits in. Contactless Student ID cards in iOS 12 were a MIFARE only custom in-house job, transit cards without transit, by Apple in cooperation with Blackboard. Hopefully Apple will greatly extend ID card support in all NFC flavors for many companies and institutions, for all manner of ‘company only’ Wallet ID cards.
  • VAS: Apple Value Added Service protocol has been around a few years but uptake has been slow, almost as slow as VAS works on NFC readers and POS systems. This is more of an performance issue on the POS side than PassKit, nevertheless anything Apple can do to help increase VAS performance would be welcome. So would VAS working with Express Transit.

Reader/Writer

Android has a huge advantage over iOS because Android apps have the NFC access to do what they want. From RFID Insider:

Below are all the abilities/formats available for writing to a tag:

Business Card
Link/URL
Wi-Fi
Bluetooth
Email
Telephone Number
Geo Location
Launch an Application
Plain Text
SMS

How to Write an NFC Tag RFID Insider

A fully functional Core NFC could do all this, but the important question is how would Apple want to do all this. NFC tags are great technology but they remain deeply geeky for the majority of users. The key is making NFC tags as friendly, easy and secure to use as Apple Pay. This is exactly what Apple plans to do.

At the TRANSACT 2019 conference Jennifer Bailey announced NFC tag Apple Pay. NFC tag Apple Pay works with or without apps. All the user does is tap a NFC tag and Apple Pay takes care of the rest as shown in the demo video using a SmartPlate NFC tag.

The easiest way to think of it is that instead of tapping a dedicated NFC reader to pay with Apple Pay, NFC tag Apple Pay turns your iPhone into the reader. An NFC tag and iPhone is all that you need to Apple Pay at a store.

What does this sound like to you? Yep, this is enhanced Core NFC Read/Write for NFC tags that does exactly what QR Codes do. NFC tag Apple Pay is aimed right at the ‘but the store doesn’t need an expensive NFC reader to use QR’ sweet spot that QR Codes have occupied up to now. NFC tag Apple Pay levels the play field, neatly eliminating the QR advantage while offering security that QR Codes cannot match.

However don’t assume that the QR players are chained to QR Codes, it’s an inexpensive and convenient technology for building payment system app services, nothing more, not particularly sacred. Enhanced Core NFC and NFC tag Apple Pay works in an app and this offers Japanese QR Code payment systems such as Line, PayPay, etc., a way to incorporate Apple Pay NFC support in their app, if they choose to do so.

A12 Bionic iPhone XR/XS are the only devices that support background NCF tag reading and the native ability to read tags without an app. The big question in my mind is how Apple plans to implement enhanced Core NFC and NFC tag Apple Pay on older devices

Peer to Peer

iOS 12 does not support NFC Peer to Peer. I don’t see that changing in iOS 13 if it can’t be part of a new Apple Pay or related service. AirDrop already works well across devices that do not have NFC capability. That’s probably enough real world peer to peer for most people.


Summary

The Apple Pay theme for WWDC18 was ‘move Passes into Wallet, get rid of the QR Codes and replace them NFC.’ The new Apple Card UI improvements in Wallet and NFC tag support suggest the Apple Pay theme for WWDC19 will be: ‘move card functionality out of apps and into Wallet cards with new iOS 13 PASSKit controls, or get rid of apps altogether and replace them will all kinds of NFC enabled cards and NFC tags.’

It certainly makes sense. Apple Pay is NFC for the majority of iPhone users, the NFC thing that people use. Apple devoting iOS resources into making card emulation easier and better for 3rd party developers to add all kinds of cards to Wallet, and migrate functions out of separate apps to the Wallet card itself, will give the most bang for the development buck. NFC tag Apple Pay will finally bring NFC tags into the mainstream while eliminating the remaining advantages of QR Codes. It’s going to be a very interesting WWDC for all things Apple Pay.

We’ll find out at the WWDC19 keynote on June 3 at 10:00 a.m. PDT.

UPDATE
WWDC19 Apple Pay scorecard