Recharge your recharge, the winner/loser debate doesn’t mean shit in the post-Apple Pay Japanese payments market

I love articles like this one. It’s fun examining how the writer, freelancer Meiko Homma, takes old news bits, worn-out arguments and weaves them into a ‘new’ narrative with a titillatingly hot title: “QR Code payments won the cashless race, Suica utterly defeated.”

Her article trots out some QR Code payment usage data from somewhere, the PASPY transit card death saga that illustrates the increasingly difficult challenge of keeping region limited transit IC cards going, the fact that Suica only covers 840 stations out of a total of 1630, all while conveniently ignoring recent important developments like the Suica 2 in 1 Regional Affiliate program, and big updates coming in early 2023: Cloud Suica extensions and the Mobile ICOCA launch.

It has the classic feel of ‘here’s a headline, now write the article’ hack piece passing as industry analysis we have too much of these days. The Yahoo Japan portal site picked it up and the comments section was soon full of wicked fun posts picking apart the weak arguments.

I’ve said it before and say it again: the winner/loser debate doesn’t mean shit in the post-Apple Pay Japanese payments market. PayPay for example, started out as a code payment app but has added FeliCA QUICPay and EMV contactless support along with their PayPay card offering. Just like I predicted, these companies don’t care about payment technology, they just want people to use their services. My partner and I actually see less PayPay use at checkout these days and more Mobile Suica. Why?

The great thing about prepaid eMoney ‘truth in the card’ Suica, PASMO, WAON, Edy, nanaco, is they are like micro bank accounts coupled with the backend recharge flexibility of mobile wallets (Apple Pay, Google Pay, Suica App, etc.). PayPay, au Pay, Line Pay and similar Toyota Wallet knock-off payment apps with Apple Pay Wallet cards, are deployed as mobile recharge conduits that smart users leverage to put money into different eMoney micro bank accounts and get the points or instant cashback rebates they want to get at any given campaign moment. This is where the action is.

And so we have recharge acrobats like Twitter user #1: step 1 recharge PayPay account from Seven Bank account, step 2 move recharge amount from PayPay Money to PayPay Bank, step 3 move recharge from PayPay Bank to Line Pay, in Wallet app recharge Suica with Line Pay card. Or like recharge acrobat Twitter user #2: Sony Bank Wallet to Kyash to Toyota Wallet to Suica.

Phew…none of this involves transfer fees so it’s up to user creativity to come up with the recharge scenario that works best for them. Does it count as PayPay use or Line Pay use or Mobile Suica use? Does it matter?

It’s not about winners or losers, it’s about moving money around. Mobile Suica is extremely useful because of it’s recharge backend flexibility, thanks to Apple Pay and Google Pay (which does not support PASMO yet). This is the case for US citizens working in Japan who get a great return of their Suica or PASMO recharge right now using US issue credit cards because of the exchange rate. This is something visitors to Hong Kong cannot do with Apple Pay Octopus as the OCL recharge backend is far more restrictive than JR East. The biggest gripe users have with Suica is ¥20,000 balance limit.

In the weeks to come we’ll be sure to see hand wringing articles debating the future of Suica, open-loop, etc.,etc., because let’s face it, IT media journalists need something to write about in these challenging times where everything has to be sold as winner/loser, black/white, 0 or 10, and nothing in-between, to get any traction at all. As for me, I think it’s far more interesting, and real, to observe how users are using all these nifty mobile payment tools.

UPDATE 2022-07-04: Thoughts on the KDDI network outage
That was fast. No sooner had the “QR Codes won the mobile payments race” article appeared when major Japanese carrier KDDI experienced a nationwide mobile network meltdown on July 2 JST, lasted a full day with a very slow, still in progress, recovery affecting more than 40 million customers. Suddenly social media channels were full of people complaining that QR Code payments didn’t work, assuming that Mobile Suica and other NFC mobile payments stopped too. Which was not the case though a few fake posts claimed, or just ‘assumed’ people were stranded inside stations. Fortunately there were numerous online articles setting the record straight.

It’s a lesson that people soon forget in our attention span challenged social media era. We saw plenty of QR Code payment downsides in the 2018 Hokkaido Eastern Iburi earthquake that knocked out power and mobile service across Hokkaido. At the time some fake Chinese social media posts claimed AliPay and WeChat pay ‘still worked’ in Hokkaido at the time, of course they did not.

Mobile payment disruptions happen with every natural disaster and war. Good and safe practices don’t come easy when smartphone apps lure us down the easy path without spelling out the risks. It’s a lesson we have to learn again and again, that while network dependent code payment apps have some benefits, they also have limits and security risks. One size does not fit all, NFC and code payments each have their place and role to play in the expanding mobile payments universe. The key is understanding their strengths and weaknesses.

Who’s afraid of big bad code payments?

I have lots of respect Bloomberg reporter Gearoid Reidy, but a recent Twitter exchange he had with Craig Mod about code payment apps vs NFC reminded me that no matter how long westerners reside in Japan and appreciate the culture, our western cultural ‘winner or loser’ take on things too often gets in the way of truly understanding what’s going on. The Japanese take complexity in stride and are very adept at dealing with situations that drive us westerners crazy.

This is especially true when the debate is about that contentious intersection of contactless payments and technology: EMV is the winner FeliCa the loser, code payments are the winner NFC is the loser, and so on. As fun as that debate can be at times, the black and white distracts westerners, and even some Japanese from analyzing the gray to find out what’s driving the narratives and why.

My take has always been that Japan is the best place to observe trends first before they happen elsewhere. This is what Gearoid half jokingly calls ‘j a p a n i f i c a t i o n’. It’s real and has nothing to do with liking or disliking Japan. Either way, too many dismiss the opportunity to learn ahead of the curve. My take has also been that the crazy kaleidoscope of Japanese payment choices is coming to your country too. We got a taste of that with the announcement of the Australian national QR payments and rewards platform called eQR.

The standard Japanese market debate point of code payments vs NFC assumes the China Alipay model. China didn’t have the mobile NFC contactless payments infrastructure that Japan had, so the Alipay code payment model makes sense there. In Japan it does not, which is why Gearoid and Craig are scratching their heads in public. Code payments in Japan are all about leverage, big data, and carriers. Leverage in that carriers like NTT docomo keep the dBarai accounts in-house and use the float for their own purposes instead of letting banks and credit card companies earn interest on dCard accounts. That’s why they encourage users to use dCard to recharge the code payment dBarai account instead of using the card directly.

It’s a similar situation for SoftBank and PayPay, though I suspect it has more to do with deficit financing funnery that SoftBank Holdings is so adept at. Heaven help us, and all those Vision Fund supporters, if it comes crashing down. PayPay has been helpful though at shining a bright light on Japanese payment networks and the various service fee structures from CAFIS on down. VISA JP has suddenly seen the light and proposes to do something about it…perhaps.

Code payments are just a tool in the swiss army knife payment wallet app, like Toyota Wallet, insurance and leverage. We saw that in action when Apple Pay first launched in America and Walmart answered with CurrentC. We’re seeing again with eQR in Australia and it will keep happening when merchants or banks or payment service players need a tool to bargain a better percentage. Heck even Apple Pay is flirting with the idea of adding code payments to Wallet, though I think their hesitancy to do so means…it’s just a bargaining tool for Apple too.

So you think this is a Japanese only phenomenon? Think again.