I think we are witnessing the QR Code tipping point in Japan. After yesterday’s 7pay ‘latest in a series of QR Code payment system security meltdowns’, IT journalist Tsutsumu Ishikawa tweeted, “It’s time to promote FeliCa for Japanese cashless.” Ishikawa san also retweeted Twitter user S: “QR is so over,” who goes on to say that the low bar QR Code entry point only resulted in incompetent players setting up payments systems. The resulting mess and confusion ends up destroying the very cashless migration momentum the industry worked hard to create.
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 Apple Pay and digital wallets are new technology but bank cards carry the combined weight of a creaky, out of date banking industry.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.
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.
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.
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.
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.
The short story Text strings added in pass.json files enable new card options in the new Apple Card/Wallet UI to be unveiled at WWDC19. New PassKit functions to add Wallet card options directly instead of using apps, are some of the new Apple Pay features that Apple will promote at WWDC. Some new options such as EMV Express Transit also work on iOS 12.3 Wallet which has lots of new changes under the hood for Express Transit and Apple Card.
New strings discovered within the pass.json files of Apple Pay card files make mention of new ‘Transit Network Identifiers’ options, as well as new passUpgrades/open loop options – which would provide an equivalent solution for Apple Pay customers… You’d be able to set your preferred EMV card (again, Visa, Mastercard or American Express) to use for ‘Express Transit’ – no need to authenticate, just tap your iPhone or Watch at an Opal reader.
Tap Down Under iOS 12.3 to bring EMV Express Transit support to Apple Pay
Nice find Beau!
The “equivalent solution” he mentions is the recently added Samsung Pay Transit Card feature for Sydney area Opal transit fare system. The user can select a regular EMV Samsung Pay bank card to use for transit without having to unlock the device or authenticate the card at an Opal transit gate.
What it is and what it isn’t
Let’s get this out of the way: this is not Suica Express Transit. As the new iOS 12.3 Wallet option explanation makes clear, there are transit cards and there are payment cards. It does not work like Suica or other transit cards whose entire transaction architecture is built on instantaneous prepaid self contained secure express transit settlement without network connections.
Apple Pay Suica works the same everywhere, while Samsung Transit Card is a special mode only for transit through Opal gates with regular old EMV everywhere else. It’s a workaround hack for a EMV weakness on smartphones that mimics transit smartcard operation, though it is much slower at the gate than native FeliCa and MIFARE smartcards (watch the video), and because EMV is not a smartcard, does not support different kinds of fare structures (commuter, senior, student, point to point, etc1).
The strings that Beau found appeared on indicated that backend system support was already in place with card providers and Apple Pay iCloud servers in early May. The strings list iOS 12.3 and watchOS 5.2.1 as the minimal system requirements.
A low key approach makes sense for Apple because EMV Express Transit is a service that bank card companies can switch it off at will. They ultimately control it, Apple does not. The feature does not magically work on any ‘open’ transit system because many moving pieces have to be tied down and in place before it can work: agreements between card companies, Apple and transit agencies, along with transit fare backend system support that in western countries is usually outsourced to large companies like Cubic or Thales.
iPhone XR/XS Express Transit with power reserve works with EMV transit but is a potentially confusing user experience: users will want to use it like a plastic payment card and forget that it’s only for transit. And because it removes a layer of security for cards tied to bank accounts, with no safety net like a transit prepaid card, EMV Express Transit will be a security concern for some users.
I have doubts how Apple can successfully market EMV Express Transit when it completely depends on various outside companies in various regions to work successfully. If anything goes wrong at the transit gate, and it will, Apple catches the blame, never the bank card company. What’s the marketing angle when even Samsung is not heavily promoting EMV Transit Card and how far can the service be extended to other transit systems?
Personally I agree with @elevtechlift that EMV Express Transit is a ‘nice, but’ option. It sounds nice, but distracts everybody from the real job of improving transit service with better gates and innovating transit payment technology. Better for Apple to focus on innovating things they control: move Apple Pay forward with features like Express Card with power reserve on Apple Watch, and get developers to add more options and all kinds of NFC enabled cards to iOS 13 Wallet. Hacks that hide EMV weak points and play market politics by sabotaging ISO/IEC 10373-6, hacks that card companies can switch off at any moment, are a waste of time and resources. Improving EMV on transit is a job for EMVCo, not Apple.
At any rate, WWDC19 is shaping up to be an interesting show for all things Apple Pay.
UPDATE Instead of writing a new post I rewrote this one a few times. EMV Express Transit is just one more Wallet card option. The heavy reworking of Wallet to make new options possible along with new Apple Pay features and Wallet UI for iOS 13 are the real story.
>Contactless Payment Turf Wars: tapping the potential of TAP
The recent MacRumors report that the Los Angeles Metro Transit Access Pass card is coming to Apple Pay was not entirely new information, the Source blog and Curbed reported back in May 2017 that TAP was coming to smart devices with a system upgrade:
Cubics (sic), the company handling TAP technology, is developing Nextlink, a “cloud-based connection system,” that will link the existing TAP fare infrastructure to an upcoming mobile payment app. The app is expected to be released, “as early as 7-9 months from the start of development.”
“Metro’s TAP card system is getting a major upgrade” Curbed May 2017
As Curbed explains it, Cubic is developing a backend cloud system that enables online transit accounts with credit/debit cards attached to TAP cards for anywhere anytime mobile recharge with the eventual goal of TAP cards being hosted on mobile devices. In other words it sounds just like Mobile Suica, the world’s first contactless transit card system on mobile, which has been around since 2006 and on Apple Pay since 2017.
The MacRumors Apple Pay information was new but also vague and unclear:
MacRumors can confirm that LA Metro, the transit agency that manages integration of the TAP card system in the Los Angeles Area, said it is working with Apple to support mobile payments for iPhones, with rollout scheduled for this fall…and eventual support for Android phones with NFC, although the timeframe for the latter is unknown.
The process is similar to using Apple Pay for in-store payments. Depending on the iPhone, that means double-pressing the home button or side button, authenticating with Touch ID or Face ID, and holding the device near the card reader. Apple Watch payments are also activated by double-pressing the side button.
Cubic is the 800 pound gorilla of public transit gate and fare systems in America, Europe and Australia with long and profitable history of creating and operating fare systems. Cubic builds client IC transit card systems with MIFARE technology, which has made MIFARE a de facto standard in those regions. As Cubic literature says, “Over 60% of public transit rides in the US, UK and Australia are taken using Cubic systems.”
So far Cubic has not hosted any client transit card on digital wallet platforms like Apple Pay or Google Pay. Instead of native digital cards Cubic and clients have chosen ‘open loop’ EMV contactless credit/debit cards as their digital wallet strategy. Transit for London (TfL) went open loop in 2012, other Cubic operated systems such as Opal and Vancouver Compass have added it as well. The New York MTA and Cubic plan the same strategy for replacing the venerable New York Subway Metro Card.
There are huge business model and operational differences between the 2 approaches but from a Apple Pay user viewpoint the difference boils down to an Express Card-like experience (Suica, China Transit, Contactless Student ID cards) for going through a transit gate versus a Touch ID/Face ID credit-card-at-cash-register experience. That’s because EMV contactless was originally designed for cash registers, not transit gates. EMV contactless is a slow and very stupid smart card.
The MacRumors piece suggests that TAP on Apple Pay is Cubic TfL flavored EMV contactless, not native TAP Express Cards. But if TAP on Apple Pay turns out to be a native express card, it could be one of the largest express card deployments outside of Asia. In America and Europe there are only 4 native transit express cards on a digital wallet platform, all of them Google Pay only: Portland HOP, Las Vegas Monorail Network West Midlands Swift and Transport for Victoria Myki.
What’s fascinating to me is that smaller agencies like Transport for Victoria (TFV) are accomplishing what the mighty Cubic has not by launching native transit cards on digital wallets. Why? One possible explanation is that TFV understands the value of acquiring and managing online accounts while TfL dumps them in the Thames along with Oyster in favor of bank cards. I think we can look at LA Metro’s digital TAP rollout in the same way: if LA Metro is going to the trouble of building a cloud backend to migrate from plastic card management to online account management, does this mean they understand the business value of it? After all Apple, Amazon, Google, FaceBook and every other online business understands the value of online accounts with attached credit cards for building platforms, why not transit companies?
The Transit Platform Difference
One building block of a transit platform that follows the Japanese business model is migrating from plastic transit cards to a mobile account acquisition cloud backend that connects the customer transit card with credit/debit cards for anytime anywhere mobile recharge. The next step is loyalty reward goodies and bonus points with preferred cards, or better yet house brand cards. JR East Mobile Suica for example plugs and plays with a huge variety of cards but offers JRE bonus points for recharging with a JR East View card. Major retailers at major stations issue branded View cards with store points in addition to JRE points both of which help drive transit use and station area retail traffic.
The next crucial step is interoperable transit cards (TAP, EZ Rider, Compass, etc.) that are key to making transit easy to use statewide and eventually nationwide. This can only happen if there is good business planning and development behind the transit account acquisition process, and a management that understands the importance of how all the different infrastructure pieces need to integrate: California High-Speed Rail, regular lines, subway, buses, station retail, services, Mobile TAP, etc. The business vision has to create a whole that is much larger than the sum of various infrastructure parts.
Unfortunately this kind of business development and promotion comes hard for government run transit authorities. Egon Terplan of the San Francisco Bay Area Planning and Urban Research Association (SPUR) came to Tokyo and studied the business model:
By 2017, Japanese trains carried nearly 30 percent of all rail passengers in the world, more than all of Europe. But unlike many European countries, Japanese rail companies are privatized, with for-profit publicly traded companies running separate rail lines all around the country.
JR East, the largest of the JR companies, carries 17 million passengers per day on 12,300 trains. (By comparison, Amtrak carried just 31.3 million passengers during all of 2016, a record year in ridership; the New York City subway averages 5.5 million daily rides and BART, 430,000.) And JR East’s $26 billion in annual revenue includes no government subsidies.
I have lived in Japan since 1984 and am lucky to have witnessed the amazing transformation from Japan National Rail, dingy stations and paper tickets punched at the gate, to JR, Apple Pay Suica, constantly upgraded infrastructure and stations stuffed with and surrounded by all kinds of retail and delicious food. The transformation and integration continues and not only infrastructure.
The choice between keeping TAP transit card accounts ‘in-house’ and closed loop on Apple Pay/Google Pay vs. EMV contactless open loop may sound trivial, but the decision will reveal whether LA Metro values transit online accounts as a business resource to build on, or a giveaway to banks and credit card companies. It comes down to what the famous Japanese daimyo Uesugi Yozan (a favorite of John F. Kennedy by the way) had to say about government and economic planning: always plan 50 and 100 years ahead. Think and plan for the generations to come.
Update: edit updated with NFC Forum Public Transportation Workshop and Super Suica information
Note: For simplicity and convenience I have migrated and merged older Octopus related posts here. All new Octopus related developments will be posted separately.
I assumed the Octopus Coming to Apple Pay post would be ignored in the end of year rush period. However the timing perfectly coincided with an Octopus Cards Limited press conference where the CEO demurred any Octopus tie-up with Apple and the post got much more attention than I ever anticipated. Obviously there are lots of iPhone users in Hong Kong who want Apple Pay Octopus. A few readers were confused by the situation and asked for some clarification.
First of all the source who correctly predicted last years Smart Octopus on Samsung Pay launch tipped me about the Apple Pay launch. That in itself was enough for me but here’s the thing: if Octopus Cards Limited (OCL) is really serious about expanding Octopus use on mobile platforms, taking the next step of getting Octopus on Apple Pay is the only way to achieve that.
Digital Wallets like Apple Pay and Samsung Pay are the most tightly integrated NFC software and hardware digital wallet platforms out there with integrated FeliCa, but Apple is the only one to implement the necessary Secure Element on their own A Series/S Series hardware with FeliCa Networks keys, and sell the package globally. All the major NFC technologies are standard on Apple Pay: NFC A-B-F, EMV, FeliCa, MIFARE, VAS.
Octopus on Google Pay might look nice on paper but it can’t achieve anything of scale yet because of the highly fragmented nature of Android: to date hardware manufacturers have yet to produce an answer to Apple’s global FeliCa iPhone and Apple Watch, even though everybody’s smartphone has a NFC A-B-F chip. Not even Google has pulled it off. Huawei says they are planning to add global Felica but it will take time.
OCL is playing coy because majority shareholder Hong Kong MTR has added QR Codes and EMV contactless to the transit gate mix removing the exclusive Octopus Card franchise, but the technology and market politics don’t mesh. On one hand you have a fast, established and ‘open’ in-house contactless payment system (as in anybody can buy a plastic Octopus card and ride) basically run by public transit companies. On the other hand you have slow and ‘closed’ contactless payment systems (as in only people with certified credit cards and bank accounts can ride) run by major outside credit/debit network companies chipping off money from both customers and transit companies.
In this context putting Octopus on Apple Pay isn’t just adding a card to a digital wallet platform, it is also a statement of who ultimately controls, operates and benefits from the public transit gates. It’s more about market politics than technology, in other words another battle in the contactless payment turf wars. The outcome will be fascinating to watch but determines whether Octopus will remain a great transit payment platform for Hong Kong with a future, or not.