2021 Outlook: Apple Pay Code Payments and Multi-Payment Wallet Cards

A happy new year to everybody. When reading Junya Suzuki’s year end Apple Pay and contactless history in Japan article, I was irritated by its ‘rah rah for open loop’ ending that seemed to conclude EMV isn’t very slow and tap speed differences don’t really matter. After reading followup tweets with other IT journalists I realized that wasn’t his point at all. What Suzuki san was really saying was the total transit gate experience counts more than any particular technology package (MIFARE, FeliCa, EMV Open Loop, etc.).

Steve Jobs said the same thing about technology and products in the famous, “you have to start with the customer experience and work backwards to the technology,” 1997 WWDC video. In other words, the whole (the product) has to be larger than sum of the parts (the technology pieces that make up the product) to be a success. It’s all about how they integrate as a product into the larger whole ‘vision’ thing. JR East transit gates are great because the total experience is greater than sum of FeliCa, Suica, JREM reader and gate design technology parts added together.

When it comes to payments however it’s not just about technology, it’s also the raw power plays going on behind the scenes. In the same article Suzuki san nonchalantly mentions that NTT Docomo dCard, which SMBC has issued and operated since the very beginning but in open warfare with Docomo these past few years, is dumping SMBC for UC Card group (Mizuho) this year.

There is also constant pressure to eliminate Japanese FeliCa contactless payment networks in favor EMV using the old bait and switch tactic of promoting a proprietary industry standard when the real end game is eliminating local competitors. These are issues that few journalists bother to analyze deeply and also what got Jack Ma in trouble when he blasted the Basel Accords, the traditional banking system, as an exclusive old men’s club that stifles innovation.

Power games in the world’s greatest free-for-all payments market
I’ve said this many times but one of the great things about Japan many western journalists completely miss, is that Japan is the world best guinea pig test market. Especially useful for observing new payment trends at work. The market is a perfect not too big not too small size, super cohesive, and it has a long history of Osaifu Keitai mobile payments with a wide foundation of payment technologies encompassing FeliCa, EMV and QR. And there is lots of money sitting in bank accounts. This unique mix affords the careful observer a virtual front seat on the power games playing out right now after the introduction of QR based payment services like Line Pay, PayPay and dBarai (dPay).

When Docomo unveiled their dBarai app service it confused many users. What was the point of using code payments when Docomo already had dCard and the whole Mobile FeliCa iD network in place for promoting contactless payments? But it wasn’t long before Docomo linked the 2 payment services together. dBarai users can pay using 3 different backend payment choices: direct dCard billing, monthly Docomo billing, a rechargeable stored value dBarai account with cash recharge options via ATM or linked bank account.

From the user point of view it doesn’t matter when they pay with a Docomo code payment app tied and charged to their dCard on the backend, it’s the same monthly bill. But to Docomo it is very different: instead of using the iD or SMBC VISA/MC payment network on the front end, it’s the Docomo dBarai payment network. I suspect Docomo pays less of a transaction cut to the bank because they have the cash flow to assume some of the risk that banks usually assume in establied credit card network transactions. Docomo likely also leverages the daily transaction float. In short the AliPay model. The next logical step for Docomo dBarai will be P2P payments that leverage Docomo’s Mercari connection.

The value of code payments in dBarai isn’t the technology, it’s a expedient tool that Docomo leverages to circumvent the limitations and fee structure of banks and card networks to create their own flexible payment network. This wiggle room is the essential margin that drives QR Code payment empire cashbacks, point giveaways and new services. This is the epicenter of the cashless payment turf wars that pits new mobile payment players against established card and bank networks. And Apple is about to dump delicious chunk bait into this shark tank.

The Toyota Wallet multi-payment model
In the Apple Pay 2020 wrap-up I mentioned Toyota Wallet as the most important trend: a Wallet app that lets users pay with a QR code or with NFC via an instant issue prepaid Apple Pay Wallet card. The Toyota Wallet iD/Mastercard has 2 Apple Pay device account numbers, one for the iD payment network and one for the Mastercard payment network. This is common for most Japanese issue payment cards on Apple Pay but it is less about NFC protocols (FeliCa, EMV) and all about dual payment network support in a single payment card. And it is not limited to Japan. In Australia there are dual payment Apple Pay cards that support both Mastercard and EFTPOS payment networks in a single card.

With Apple Pay Code Payments on the way, possibly with iOS 14.4, we have another option for multi-payment network cards: code payment and NFC payment. Apple Pay Code Payments are thought of as being only for AliPay and WeChat Pay support in China, but they are much more than that.

Apple Pay Code Payments gives mobile payment players the ability to move QR/barcode payments from an outside app and integrate them directly into an Apple Pay Wallet card. In the Toyota Wallet example below, Toyota could simply add another device account number for the QR Code payment network:

This might seem trivial but it’s important to remember some key differences of Wallet payment cards:

  • Direct side button Wallet activation with automatic Face/Touch ID authentication and payment at the reader.
  • Device payment transactions handled by the eSE without a network connection.
  • Ability to set a default main card for Apple Pay use.

If Apple Pay Code Payments are equal with Apple Pay NFC payments, and by all indications from beta screen shots they are and use the same ‘card’ UI metaphor, I think we are in for another wave of Apple Pay market disruption. Instead of NFC vs QR Codes, or Apple Pay/Google Pay vs apps, all of it just red herring fake debate, we can focus on what’s real: the payment network turf wars.

In the Japan market Line Pay, PayPay, dBarai, Rakuten and all other new players will have the tools to create better services tightly integrated in a Apple Pay Wallet card. Docomo for example could incorporate dBarai into dCard with an additional device account number. Mix and match payment networking in one card.

In the payment network world where market share is all, card networks have held too much power for too long, exactly what Jack Ma was complaining about. I see competition as a good thing that encourages innovation and choice, mobile payments are doing that.

Looping back to the open loop beginning of this piece I think it makes sense now to realign the debate points away from focusing on technology (EMV vs FeliCa, NFC vs QR, etc.), i.e. things that can change and evolve, and focus on payment network turf wars, i.e. things that are hard to change until you see the battles lines clearly enough to create a better strategy and get where you want to go.

In the public transit arena it always comes down to this. Moving people quickly and safely by transit, managed wisely, is licensed cash flow from the fare gates. A transit company can keep control of that license to build something of greater long term value for the users and businesses of the transit card region, which can cover the nation. A transit company can give control away to someone else and let them take their cut, but just like Jack Ma pointed out before he disappeared, will there be innovation when going all in with traditional card and bank payment networks?

I still say a transit platform, especially in the mobile era of chaotic opportunity, is the best approach if a company wants to achieve the former: a system where the whole is greater than the sum of the parts. Start with the best customer experience you want to deliver and work backwards to the technology.

Japan Cashless 2020 Retrospect

As we look back on 2020 there are 2 big divides: COVID and cashless. We suddenly found ourselves in a world where all human contact is conducted behind face masks and sheets of clear plastic. Not touching anything not ours is the rule of daily life.

The year started with the Japanese Cashless tax rebate in full swing but the real value of the program, helping smaller merchants to add cashless payments, became clear when the Diamond Princess brought the COVID crisis to Japan big time and real cash suddenly become suspect fomite material. More than anything, COVID fears attached to handling cash drove cashless use in 2020 but are we there yet? Back in July, I said we are. It will be months before official 2020 cashless trend numbers are in, but you don’t need anything more than to ask yourself one simple question:

How much has changed since the October 25, 2016 Apple Pay Japan launch?

Junya Suzuki correctly predicted Apple Pay would be the ‘Black Ships‘ inflection point catalyst for cashless payments in Japan that would change everything. And everything has changed. Cashless is now the first choice that most people want, that most stores want you to use. Cash is the fallback. If grandma want to use it at the supermarket checkout she can take all the time she wants feeding bills and coins into a checkout payment machine. Just one more choice in the every growing payment option menu.

There were other cashless developments in 2020, such as the Yucho Bank security scandal that hit the Docomo Account first, then other online payment services. The end result was that QR Code players (PayPay, Line Pay, etc.) took a hit and for the time being cannot recharge from a bank account. It knocked the wind out of QR Code payment mania that I don’t see returning.

On the transit front the biggest news was the Mobile PASMO Android and Apple Pay PASMO launch. Geographically these only cover the Kanto region but Suica and PASMO combined represent 80% of the Japanese transit IC card market. As Mobile PASMO turned out to be recycled Mobile Suica under the hood, I see it as part of the overall JR East next generation Super Suica that is formally launching in March 2021.

2021 should be an interesting year for contactless payments with Super Suica and VISA Japan finally signing on with Apple Pay. We will see more transit IC card service announcements similar to the Mobile ICOCA one, and if Apple Pay QR Code Payments launch we could see developments in that segment, but 2020 will always be known as the year that Japan finally went cashless.

Opal digital transit card trial for Apple Pay and Samsung Pay

NSW announced a public beta test for Opal digital card in October and rolled it out today for Apple Pay and Samsung Pay. Trial users can register, and if one of the lucky chosen ones, install and use Opal digital on their device. iPhone trial users will need to download the Opal digital app via Apple’s TestFlight developer app.

As this is a trial there are limitations and the one for Apple Pay transit users is huge: no Express Transit. Hopefully this will be fixed before the official launch as Opal digital is a very awkward service without it: users have to authenticate Apple Pay at each transit gate, a real drag for Face ID users with face masks, users also have to be careful of EMV card clash.

Other limitations will not be fixed because of system design. This means there is no ‘add money’ button in Wallet and all card house keeping tasks from recharge to checking the balance can only be done in Opal digital app. This is a pain for iPhone users but a huge pain for Apple Watch users. For some it will mean digital Opal is unusable: Apple Pay Suica • PASMO work without an iPhone app and can be recharged on the go, not so for digital Opal.

The overall service seems to be what I predicted at the Apple Pay Ventra launch: a closed open loop prepaid/debit Mastercard disguised as a digital transit card with the backend account managed by the Mastercard issuer, in this case EML Payments.

Transport for NSW says they expect to officially launch digital Opal in 2021. I will update this post as field report details trickle in from trial users.

Apple Pay Contactless Adoption Outlook 4Q 2020

MacRumors posted an interesting comment Tim Cook made in the 4Q 2020 earnings call

As you can imagine in this environment, people are less wont to hand over a card. Contactless payment has taken on a different level of adoption and I don’t think we’ll go back. The United States has been lagging in contactless payments and I think the pandemic may very well put the U.S. on a different trajectory there. We are very bullish on this area and there are more things that Apple can do in this space so this is an area of great interest to us.

What exactly are the ‘more things that Apple can do in this space’ Tim is talking about? There are two iOS 14 Apple Pay features that haven’t arrived yet: App Clips and Apple Pay QR Code Payments.

App Clips are ‘here’ but you wouldn’t know it. An October 22 tweet announced 2 Tokyo coffee shops offering App Clips, the debut locations for Japan. NFCW reports ExxonMobil’s ‘point and pay’ App Clip with App Clip Code stickers at USA gas pumps though only the NFC tag part is working. ExxonMobil rolled those out the same time as Japan. Ken Nishimura of Coral Capital has an interestingly detailed write up of the Tokyo App Clips launch with a screen recoding of the App Clips order process.

We are cashless…App Clips at Tailored Cafe but the nifty Apple-designed App Clip Code stickers aren’t available in Japan yet (Coral Capital blog)

The problem is that the Apple-designed App Clip Codes aren’t fully ready yet and require a future iOS 14 update (iOS 14.3?) to enable optical code reading, as noted in the iOS 14 web page fine print. Also note the 2 flavors of NFC tag reading iPhones: 1) automatic NFC with reader mode (iPhone Xs and later), 2) manual Control Center NFC scan mode (pre-iPhone XS).

I expect iOS 14 Apple Pay QR Code Payments to arrive at the same time. It only makes sense to enable and launch App Clip Codes + Apple Pay QR Code Payments together as one rollout. The only question is announcement timing. We already have the ‘soft’ App Clips Code October 22 launch in Japan and USA. If Apple holds another event this year, I think there’s a very good chance we’ll hear about it.

UPDATE
iOS 14.3 beta has support for Apple designed App Clip Code scanning. Here is a quick screen recording of the scan process and animation. The App Clip Code is a photo of the ExxonMobile gas pump stickers that launched October 22. The App Clip does not load because the ExxonMobile App is not available in Japan.

Dear Apple and JR East, we need Apple Pay Family Suica

watchOS 7 Family Setup is a bigger deal than many people might think at first glance. Apple Cash Family is just one part of the service with transfers from a parent’s iPhone to a child’s Apple Watch. It’s the most compelling Apple Cash use case I can think of, and Apple Watch for children without iPhone is appealing to parents in a way that iPhone by itself is not.

I’ve always said that if Apple Watch ever gained direct Suica loading with parental controls, Apple could make a killing selling it into the Japanese education market. watchOS 7 Family Setup is almost there for the JP market but needs one more thing: Family Suica.

Next generation ‘Super’ Suica is coming early 2021 and next generation FeliCa is shipping in November. We already have digital car keys in Wallet that can be shared and Mobile Suica will be doing a lot more on the cloud with Super Suica. Apple and JR East have all the necessary new features they need to create an insanely great Apple Pay Family Suica.

The service outline is simple and combines what car keys do in Wallet with digital key sharing and Apple Cash Family does with transfers and limits. A master Apple Pay Suica ID is setup on an iPhone and manages family member Apple Pay Suica on other devices. The master ‘organizer’ would transfer stored fare (SF) via Messages and set spending limits just like Apple Cash Family does. Simple intuitive convenience.

Apple Pay Family Suica also needs transferable commuter passes. That way a parent can set one up for a child, transfer it to Apple Watch and renew it remotely. Transferable commuter passes would also be handy in our COVID teleworking era as working parents might not need a pass every working day. A “hey honey can I borrow your pass today,” thing that plastic transit card users do all the time.

So far nobody has managed to to produce a smartwatch that matches the super convenience of Apple Watch and Apple Pay Suica. If JR East and Apple produce Family Suica, they would effectively future-proof both next generation Suica and Apple Watch in the Japan market.