iOS 14 App Clips unlock the power of NFC background tags

We first got of taste of iOS 14 App Clips with the slick Titanium Apple Card setup that leverages the background NFC background tag read ability of iPhone XR/XS and later. Jennifer Bailey gave a sneak peek of NFC background tag Apple Pay in May 2019 but the pieces weren’t in place for a rollout.

The first problem was the iPhone lineup. iPhone 8 didn’t fit because only A12 Bionic and later support NFC background tag reading. This was solved with the release iPhone SE with A13 Bionic and the deletion of iPhone 8 from the lineup.

The second problem was the clunky ‘launch an app’ or ‘launch Safari’ problem. This has been a problem for NFC tag solution providers like SmartPlate. User interaction needs to reside on the pop-up sheet on the unlocked screen. The new iOS 14 App Clips framework that works hand in hand with iOS 14 Core NFC to load just what is needed to take care of the NFC tag transaction at hand, is the right solution.

The pieces appear to fit very nicely now: the NFC background tag sheet pops-up ‘while the screen is on’, the right code snippets load in the sheet, the user can Sign In with Apple ID if needed, and pay with Apple Pay. Simple, uncluttered action; no apps, no Safari launch. And we have background NFC tag reading on every current iPhone model.

There are a few flies in the ointment:

  • (1) Face ID in the face mask era is not a great unlock or Apple Pay user experience, App Clip powered NFC background tag reading is gonna rock on iPhone SE with Touch ID.
  • (2) a network connection is required, Apple Pay transactions at the NFC reader works without a network connection but App Clips + Apple Pay transactions need a network connection for the obvious reasons of loading app clip content, and because of this…
  • (3) a weak borderline WiFi connection can jam the above process even with WiFi Assist turned on.

The NFC advantage over QR Codes here is that background tag reading automatically pulls up the App Clip sheet ‘while the screen is on’ while QR Code users have to manually pull up the QR reader app to join the fun.

The combination of App Clips, NFC tags and Apple Pay will be extremely disruptive in markets where NFC and QR payment players are very competitive. Places like Japan. PayPay and Line Pay will lose their edge. If they are smart, they can add NFC tag support in their payment apps. And they can bypass Apple Pay if they want to, though it won’t be as slick. Ultimately they are not wedded to QR codes and have always said they would add NFC if customers want it.

App Clips finally unlocks the power of background NFC tag reading and is the other big Apple Pay development, in addition to CarKey, announced at WWDC20. App Clips puts NFC tags on equal footing with QR Codes for the first time with the added edge of the ‘when the screen is on’ background tag read sheet pop-ups. This will be huge.

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Tokyo Cashless 2020: cashless transaction fees and platforms (Updated)

The tempest in a teacup over Marukame dropping QR Code cashless payments at some restaurant locations turned out to be parent company Toridoll Holdings updating their POS system. QR Code support will return with the same cashless payment lineup supported at all locations.

The brouhaha is a good opportunity to catch up with an issue I have been meaning to blog about for some time: cashless transaction fees. The ever reliable Junya Suzuki did everybody a favor reporting the Toridoll situation with his usual levelheaded expertise. He also puts out a wonderful series called ‘Pay Attention’ that covers Japanese cashless and payment issues with a unique on the ground reporting style.

In a recent installment, “The Cashless Transaction fee paradox” he discusses the complex Japanese cashless transaction fee landscape. Actually it’s complex everywhere because listed transaction fees are not necessarily what merchants end up paying. It’s an ever changing game of negotiation. And it’s a shell game of POS equipment rentals, extra software services and consumable gotchas like paper receipt printer rolls.

As Suzuki san points out there are basic transaction infrastructure processing costs associated with the NTT Data ‘Credit and Finance Information Switching System’ (CAFIS) backbone and gateway. There are newer players such as the SMBC, Visa Japan, GMO co-venture stera payment network that bypass CAFIS altogether. NTT DATA announced a new lower CAFIS fee structure today that reduces processing fees for small transactions and counters the stera move. The lower CAFIS fees should benefit a lot of smaller payment network players.

Let’s make a deal
The real issue is transaction fees. AirPay and other middle range mobile based POS system players like Rakuten Pay and J-Mups all offer similar transactions fees that range between 3.24~3.74%. As Suzuki san explains, this works out to be roughly 0.5~1.0% higher than a cashless transaction in America using Square.

Those fees are not what all merchants end up paying, but real rates are kept secret. Even Suzuki san, who has comprehensively covered the cashless scene for over 10 years, has no hard numbers, just ballpark estimates. In general 3~5% for goods, 5~8% for services. Low margin but large convenience store chains, i.e. merchants with clout, are aggressive and negotiate lower transactions fees with their large sale volumes.

Super low margin businesses like family owned supermarkets get caught in a catch-22 situation where the more cashless is used, the more that transaction fees eat into their margins (razor thin 1% margins for smaller chains). It’s fascinating stuff and you should read the original Japanese article if you have the ability or translation software.

This complexity makes me skeptical of article claims like, “Apple’s arrogance angers Korean card issuers.” The reality is plain old fee negotiation, by any means necessary, to get the upper hand. I suspect the fact that only 30,000 or so Korean merchants out of some 2.8 million are equipped with NFC readers, is the bigger reason for Apple Pay Korea not launching. Nobody wants to buy new POS hardware just for Apple Pay, so it’s back to the negotiation table.

stera all-in-one cashless platform
The stera terminal cashless platform is launching July 6. FNN has a nice overview video of stera and what it hopes to accomplish. All major protocols (EMV, FeliCa, QR) and payment networks are supported in an all-in-one reader. The difference between stera other mid-market solutions is the integration of hardware and software frontend all the way to the GMO internet based transaction backbone and gateway. SMBC and Visa Japan will certainly use stera to promote EMV and Visa Touch, but it’s a smart solution that runs on Android OS so it can be updated and tailored for multiple POS systems. It will be interesting to see what the impact of stera is and how CAFIS based payment solution providers compete with it.

The Transit Platform Argument

A reader asked some very good questions regarding the Suica Transit Platform model and Open Loop:

1) Thinking about this recently – is there a non-techie argument for introducing Suica-type cards in the current day in places with preexisting open-loop infrastructure, wide debit card adoption (even kids), and little overcrowding at ticket gates due to lower volumes?

2) As a tech & transit nerd, I obviously love them, but what could be a convincing, economically sound pitch to a transit operator for creating/adopting an integrated transit&e-money system, given the significant expense and questionable added value?

3) Answers to possible q’s about EMV contactless: 1. 定期券 (commuter passes) & discounts can be tied to card no.; 2. solution for visitors: in-app/paper/multi-trip tickets (like in SG). Obv., Suica has superior privacy & speed, but where speed is not an issue, what’s the killer argument?

I tweeted a response but Twitter is a terrible vehicle for long form discussion. I have many posts on the subject scattered over 2 years, it might be convenient to summarize a few things here.

Any argument for building a Transit Platform or going all in with Open Loop transit comes down to transit company priorities for safe operation, better customer service and long term business goals. A few crucial points to consider.

Whose customer?
A vital point that many people miss in the Open Loop debate is that transit users end up as the bank card customer, not the transit company customer. That might seem like an insignificant difference but ‘owning the customer’ is the whole game and key to growing any kind of business, in our era or any era. Which brings us to the next point because the best way to own the transit customer is…

Cards
Cards are the delivery vehicle for all kinds of service goodies from transit, to points, rewards and all kinds of services. The beauty of a non-bank transit pre-paid card is its flexibility, it can be a simple ticket that customers buy with cash from a station kiosk, it can be linked to an online account with credit cards, extended transit services and beyond. Cards are convenient but not transformative however, until they land on a smartphone…

Digital Wallets
The most powerful card incarnation is the digital wallet transit card with a flexible recharge backend, where any bank card can used, or even cash, and a flexible front-end that can be any flavor of NFC, UWB Touchless or even QR. I say it’s better for the transit operator to decide what payment technology works best for their needs and how to deliver better customer service with new payment technologies, not banks.

Value Capture
Value Capture applies to rail and transit operators with the rights to develop the land around their stations, I include station retail development and operations. Owning a transit + payment card like Suica or Octopus combined with retail opens up a whole new levels of value creation and capture.

It’s also important to remember a few other dynamics, (1) Transit is the golden uptake path for contactless payments, (2) Contactless payments are most successful when a transit payment platform, like Suica, is matched with a mobile wallet platform, like Apple Pay. The key is building better services tied to transit cards that benefit customers and businesses of the entire transit region.

Other Details
Regarding detail questions such as attaching commuter passes to EMV cards and special ticketing, I am no systems design expert but a few things come to mind. First of all we have not seen Open Loop commuter passes because the EMV spec doesn’t store anything locally and there are always security and performance issues to consider when everything is done in the cloud with soft-linked registration to system outside numbers.

The classic catch 22 here is that when the soft-linked number changes on one system, everything attached to it on the other system stops working. This is a constant weakness of the SmartEx and new JR East Shinkansen eTicket service. And what happens if the bank pulls a card mid-transit? These things happen. They are endless headaches when linking to any outside system, for this reason Open Loop sticks with the simple stuff while transit operators keep the more complex stuff in-house. In general the more complicated the fare configuration, the less likely it can be synced with an outside system or be hosted on Open Loop.

For low volume specialty ticketing QR Codes are the easiest step up from paper but they can be printed on ordinary paper for transit users without smartphones and needs to be there. This is why JR East is deploying QR code readers in some gates as they prepare to end mag strip ticketing.

NFC Contactless Passes might sound like a good idea but Apple Pay VAS and Google Pay Smart Tap were designed more for retail in mind, and the transit gate reader system would have to juggle a different protocol that isn’t EMV, FeliCa or MIFARE. It could be done, but judging from my experience of using Apple Pay VAS PONTA and dPOINT cards, QR Codes are faster and likely easier to implement.

In the long run there are no easy solutions. The risk of Open Loop is that it is sold as a general easy ‘fix all’ and mobile solution, which it’s not. This lulls transit operators into complacency instead of improving Closed Loop ticketing systems and extending them to the mobile digital wallets. The bigger and more complex the transit system, the less Open Loop can accomplish.

Relevant Core Posts
The Contactless Payment Turf Wars: Transit Platforms (an intro)
Transit Gate Evolution: Do QR Codes Really Suck for Transit? (a deeper dive into transit cards, gates and technology)
Value Capture and the Ecosystem of Transit Platforms (the bigger picture)
The Japanese Transit Platform Business Model (an outside perspective)

Rethinking Face ID in the Face Mask Touchless Era (Updated)

When iPhone X came out in November 2017, IT journalist Tsutsumu Ishikawa named Suica the Apple Pay winner. What he really meant to say was that Suica Express Transit was the only easy way to use Face ID Apple Pay. It took me a long time to get used to Face ID Apple Pay but now with the COVDID-19 crisis and regulation face masks, the choices are back at square one: (1) yank down the face mask to Face ID anything, (2) use a passcode instead, (3) use Apple Pay Suica set with Express Transit. Yeah, the last one. More people have Express Transit now in China, TfL-land and little bits of the MTA OMNY system but nobody has it for purchases. Except Apple Pay Suica, still the only Express Transit card for contactless payments at stores.

In the sudden era of face masks and plastic curtained checkout areas, dealing with Face ID as little as possible, and using Apple Pay Suica as much as possible, makes life easier and safer: experts in Japan instruct people not to touch face mask surfaces and you don’t want to be yanking down a face mask to use Face ID Apple Pay at close proximity checkout. The interim solution is Apple Pay on Apple Watch which does not use Face/Touch ID at all. But there is that social distance problem: your arm has to reach the reader. That’s the thing about NFC, it’s close proximity technology. So are QR Codes.

The Touchless Distance
When I first saw the NTT Docomo Ultra Wideband Touchless Mobile FeliCa demo I though why would anybody want to pay a few feet away from the reader? Outside of paying while sitting in the drive thru I could not think of a reason. After living with Face ID, face masks and COVID-19 social distancing, I see the reason now at every checkout at every store. I want it. You will too (the 1:20 mark):

And for cars too, CarKey will work like this at some point (0:13 mark):

Touchless Transit Gate vs Facial Recognition
The COVID-19 crisis upends another Face ID related technology fantasy: facial recognition transit gates. NEC is working on face recognition that works with face masks. If anybody can deliver viable face recognition with face masks NEC will certainly be one of the first, but there are cost, performance and privacy issues to consider for transit gates: how fast is the transaction speed, how well does it scale for commuter rush, how do you register faces? Who controls all that transit gate face data and is it stored domestically or data farmed out internationally?

Mobile FeliCa and MIFARE Touchless is the same device level security model we have now with Apple Pay Suica and Student ID, and what we will have with CarKey and shared ‘keys’. UWB is a new hardware layer on top of what already exists, it bridges the NFC infrastructure and contactless payment methods we have now and extends it to the future instead of junking it.

Osaka Metro plans to have face recognition transit gates deployed in time for Osaka Expo 2025. It’s a risky transition plan. Touchless transit gates are the safer bet. Sony, Docomo, NXP, JR East, JREM are doing the necessary hardware and software development with the same embedded secure element security and local processing architecture we have now. Osaka Metro can buy the finished goods from them instead of reinventing the wheel.

Fixing Face ID Shortcomings
On the smartphone side Apple already has the Ultra Wideband U1 chip in iPhone 11. The next step is Apple Pay support as outlined in the iOS 14 Apple Pay post. I hope Apple uses the opportunity of adding UWB Touchless Apple Pay to enhance Face ID with improved technology and controls. Express Card/Express Transit is the Apple Pay method to bypass Face/Touch ID for transit, purchases (Suica) and ID door access (Student ID and CarKey). Extending the Express Card/Express Transit model as much as possible, while keeping the high level of security, is one practical way Apple Pay can address some of the Face ID in face mask era pain points.

Longer term, Face ID has to evolve to securely read faces with face masks reliably. If Face ID cannot be secure, intuitive and face mask user friendly, I don’t see a future for it, or being the iPhone model that customers want to buy. This is why iPhone SE is looking like Apple’s most important product launch of 2020.

Last but not least I don’t see Open Loop transit ever working with Touchless technology. Open Loop will likely remain a NFC only service because EMVCo partners are invested in lower common hardware standards like ISO14443 and plastic cards and probably loath to update them. Certainly they don’t want to lose the plastic card issue business because it’s more profitable than issuing digital ones. EMVCo certainly didn’t see the current situation coming, nor did Apple of course. But then again who did?


UPDATE

iOS 13.5 beta 3 has a Face ID tweak: when it detects a face mask it no longer delays the swipe up Passcode pop up with a 2nd read attempt, it goes straight to Passcode pop up. This small tweak remove a tiny bit of Face ID with face mask stress, but tiny things add up when unlocking iPhone many times a day. But for me Passcode pop up was only one stumbling block, a second bigger stumbling block is Passcode entry via the numeric keyboard.

There is a curious lag between what your fingers are tapping, the feedback click sound and what tap the iPhone actually registers. If you closely inspect the visual tap feedback, it flashes white then fades slowly, while the click just clicks.Taken all together, my brain wants to type fast and tells me the my 2 thumb input is going fast, but the iPhone Passcode numeric keyboard wants me to type slow with 1 thumb. Perhaps it’s just me but I only get correct passcode entry 50% of the time unless I slow way down and type with 1 thumb.

Overall the Face ID with face mask tweak seems more for iPhone unlock, it’s much less useful for Apple Pay. I hope Apple continues to tweak Face ID before iOS 13.5 ships but the reality is Apple can’t do very much in a short time.

John Gruber had an interesting observation regarding another iOS 13.5 beta 3 tweak, this one for Group FaceTime:

methinks a lot of folks at Apple (executives included) are using group FaceTime chats more than ever before lately, and have realized that in practice, especially in larger groups, it’s not a good experience.

Daring Fireball: ANOTHER IOS 13.5 BETA TWEAK: AN OPTION TO DISABLE ‘AUTOMATIC PROMINENCE’ FOR THE CURRENT SPEAKER’S TILE IN GROUP FACETIME

Unfortunately it’s the same for Face ID: Apple is only addressing it because Apple execs are wearing face masks. It’s very frustrating that Apple is only dealing with the Face ID with face mask issue now that it’s on their face. Customers in Asia have been wrestling with it since iPhone X day one November 2017. At any rate I hope Apple puts the experience to good use for a better future version of Face ID.

Open loop wishful thinking trashes Apple Pay Express Transit reputation

The latest OMNY bump in the road perfectly captures the downside of making contactless credit/debit cards a one size fits all solution. As the New York Post piece (via MacRumors) points out, some Apple Pay Express Transit users are being double charged for fares. Perhaps they didn’t know that Express Transit was enabled in the first place, perhaps the iPhone passed too close to the OMNY transit gate reader. It’s a classic “you’re holding it wrong” situation that has nothing to do with Apple Pay Express Transit and everything to do with the current EMV architecture and how banks implement it.

Part of the problem is that OMNY is new, it’s not working across the entire MTA system yet, and open loop EMV bank cards will never replace all classic MetroCard fare options. That job is for the MIFARE based OMNY transit card due in late 2021. Until the system is complete Metro users will have to juggle different cards and deal with a very long transition. Transport for London (TfL) users have had MIFARE based Oyster cards since 2003, contactless credit/debit cards have been ubiquitous since the 2012 London Olympics when open loop was added to the TfL Oyster fare system.

To Biometric or not Biometric?
Open Loop credit/debit cards on transit gates instead of native transit cards always come with banking and credit industry baggage. Even in the contactless card heaven that is said to be London, there are a surprisingly number of gotchas: minimum limits for using cards, max limits that require PIN codes. It’s an endless loop of banks pushing one way and merchants pushing back.

The golden uptake for Apple Pay in Japan was Suica and is the same story everywhere: it’s all about getting rid of coins for transit, coffee, sandwiches, etc. The small stuff. This is the 20,000 JPY prepaid heavenly region where Apple Pay Suica sings and banks so desperately want to shut out all other players and keep all the marbles. But bank cards have an authorization problem: banks set spending limits not the card architecture. The line is always changing, what works today might not work tomorrow. The prepaid Suica architecture itself is the firewall that does away with user authorization because local processing transaction at the transit gate or store reader is all the authorization necessary.

Express Transit was developed for Apple Pay Suica in 2016, it remains the best matchup because the feature is a basic part of the Suica card architecture that is not a bank card. Apple Pay Express Transit for EMV payment cards that appeared with iOS 12.3 is a retrofit job that I predicted would have problems because retrofits are about dealing with baggage, not creating a better long term solution. 7 months later we are already there. This problem isn’t going away, not as long as banks and EMV keep operating the way that they do.