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.

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Jennifer Bailey Lifted the Apple Pay Skirt at TRANSACT…a little

Everybody knew that Jennifer Bailey was giving a keynote at the TRANSACT 2019 conference but finding any evidence of it was damn hard. Fortunately I came across a tweet from Steve Moser delivering some of goods: NFC tags and stickers for Apple Pay with no apps, NFC tags and stickers for Apple Pay with apps. We already saw that coming but it’s nice to know that Apple’s NFC tag strategy is centered on Apple Pay, it makes the most sense for most users, ‘NFC is Apple Pay’ is the easiest thing to understand. WWDC19 is certainly looking to be a fun show for all things Apple Pay Wallet.

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Apple Pay Express Transit Comes to America with HOP (U)

(Note: Apple Pay HOP launched on Portland TriMet May 21, details below)

The October 2016 launch of Apple Pay Suica in Japan was an important one with several ‘firsts’: FeliCa (the Ferrari of NFC) was the first non-EMV contactless payment NFC technology on Apple Pay, it was the first appearance of Express Transit cards on a digital wallet platform from outside of Japan that worked without Touch ID/Face ID and supported the full feature set (commuter passes, etc.) of regular plastic Suica smartcards. The success of Suica on Apple Pay remains the fullest expression and gold standard of what a virtual transit smartcard on mobile can be, with transit, e-money, lightning fast performance and Apple Map integration rolled into one.

Express Transit arrived in Beijing and Shanghai in 2017 with the iOS 11.3 addition of PBOC payment technology to Apple Pay, but the cards remained in beta up until iOS 12.3 (more China transit cards were on tap for iOS 11.4 but pulled before release), are not yet interoperable in other transit areas, require a China UnionPay debit card for recharge instead of any Apple Pay card, and cannot be used for e-money purchases.

iOS 12 added MIFARE support which is the technology used for contactless Student ID cards that launched in September 2018. Student ID cards are basically Express Transit cards called ‘Express Mode’, without transit, that open door locks and come with e-money services. The arrival of MIFARE in iOS 12 laid the ground work for transit cards to launch on Apple Pay in America.

The addition of Portland TriMet Apple Pay HOP that launched May 21, and Chicago Ventra (coming later this year) marks the first time that iPhone users in America have the opportunity to use Apple Pay Express Transit en masse. Even snotty TfL users don’t have that and it looks like they never will. iPhone users have already used EMV contactless Apple Pay credit/debit cards for transit in Portland and Chicago for some time, so why did Tim Cook go out of his way to mention them at the Apple Special Event on March 25? It’s the Express Transit card thing, best captured by Suica on Apple Watch in this tweet:

Native Express Transit vs EMV Contactless

Using Apple Pay Suica in Japan for instant transit and store purchases nationwide without using Face ID/Touch ID spoils a person for using anything else in Wallet. I use Apple Pay credit cards to add money to Suica and little else. In Japan entire ad campaigns are built around Express Transit:

With Apple Pay Express Cards on Apple Watch you can do this too, this is how you sell Apple Watch in Japan

I spent the summer of 2018 in Salt Lake City learning just how slow and bumpy the average Apple Pay EMV American checkout experience is. Checkout terminal infrastructure is creaky with poorly marked tiny NFC hit areas and little or no user feedback. Invariably I heard, “try it again” or the ultimate punchline, “You’re holding it wrong.” No wonder in-app payments are bigger than standard Apple Pay in America. Things are rough on the system backend too: UTA unceremoniously dropped Apple Pay EMV contactless support while I was there.

Native Express Transit cards like Suica and HOP on Apple Pay fully reproduce the slick user experience of plastic transit cards adding much more functionality and convenience: anytime, anywhere reload/recharge with Apple Pay, changing transit options via an app, while doing away with small but important Apple Pay EMV stress points such as using Face ID/Touch ID and dealing with multiple Wallet cards. Chicago Ventra support offers some insight on the current state of EMV transit without Express Transit:

  • Get your device ready, first, for fastest entry
  • “Card clash”: touch only your desired payment method
  • Multiple credit cards: always use the same card on the same device on Ventra readers

Another downside of EMV contactless is that it’s a very dumb smartcard that cannot support various point to point fare structures (student, senior, commuter passes, etc.). EMV is also the slowest payment technology out there. It was created by a credit card consortium for leisurely check out at a department store, not for daily crush of commuters zipping through transit gates at rush hour. EMV transactions are always slower than a transit card at the gate with none of the functionality or benefits. The differences between native transit virtual cards and EMV are nicely captured on the HOP page.

HOP card on Apple Pay and Google Pay

iOS 12.3 added a EMV Express Transit option for payment cards (credit and debit cards) to be used like a transit card on open loop transit systems that support it. At present TriMet is the only system that supports Apple Pay EMV Express Transit. As the iOS 12.3 Wallet Express Transit option setting makes clear, there are transit cards and there are payment cards. Express Transit payment cards are sort of like transit cards, except they’re not.

Payment cards are owned by the bank, not the transit company or the customer. That means conditions for both transit company and customer to use it. Service can be turned off without notice, such as Singapore transit users stranded mid-trip with canceled cards. Transit cards however are owned by the customer, the prepaid balance you put in them is yours. Anybody, even without a credit card or credit rating to their name, can get a transit card.

I’ve always questioned the purported wisdom and convenience of letting banks directly on transit fare gates. It’s a devil’s bargain as Chicago Ventra found out with their own Mastercard branded debit card experience. Predatory banks and fees will never go away. My position is that it’s a better long term business opportunity for transit companies to limit bank cards to the backend for adding money to transit cards on digital wallets, where they really shine, and focus instead on building better services tied to transit cards that benefit customers and businesses of the entire transit region, aka a transit platform business model.

Building a Future: interoperable transit cards and e-money

There is some interesting discussion regarding Express Transit vs EMV on the MacRumors site. Most people see the convenience of Express Transit without Face ID/Touch ID, some don’t. Heavy travelers in particular prefer one EMV card thing to ride transit anywhere rather than juggling different transit cards. It’s a trivial issue on digital wallets but they have a point. It is exactly a key issue explained by Egon Terplan in his article Falling in Love With the Trains of Japan: nationwide interoperable transit cards.

It took Japanese transit companies a decade to make their transit cards interoperable with each other through incremental upgrades on backend systems and IC smartcard issuance. This is much easier to achieve with digital wallets attached to cloud backends, and since most transit fare card systems in America are designed and/or operated by the same company, Cubic Transportation Systems, interoperable transit cards shouldn’t be that hard to do. It doesn’t take much imagination to see the usefulness of a HOP prepaid card that works on Chicago Ventra, NYC MTA, LA TAP, and vice versa.

This usefulness can be vastly expanded with the addition of an e-money service that frees the prepaid card balance for other uses outside of transit, a transit card version of John Hopkins J-Card or DukeCard e-money that works nationwide is a powerful thing. It is hard to explain just how powerful and transformative simple things like Apple Pay Suica Express Cards can be unless you experience them first hand. The simple ‘it just works’ success of Suica is built on layers of infrastructure where each new layer adds functions that strengthen the whole.

Now that transit cards are finally arriving on digital wallets in a big way this year, with Apple Pay and Google Pay delivering some of those advantages to smartphone users, I hope that America can experience it and be inspired to build regional interoperable transit platform businesses over time.

Looking ahead, New York MTA OMNY EMV contactless service launches May 31, with Apple Pay EMV support arriving in July. LA Metro has said they expect Apple Pay EMV support for the TAP fare system later this year as well. Neither system is expected to support Apple Pay Express Transit at launch.

Meanwhile Hong Kong iPhone users are fervently hoping for Smart Octopus on Apple Pay with Express Transit now that the Smart Octopus on Samsung Pay exclusive is apparently over. iOS 13 might be a Apple Pay Transit coming out party for many. That would be great fun.

Last but not least here are some Express Transit card tips and other things I have learned from 2 years of daily Suica use.

  • HOP and Ventra use the same MIFARE technology as Student ID cards, Express Transit device specs are the same: iPhone 6S and later, Apple Watch Series 1 and later. iOS 12.3 or watchOS 5.2.1 are required to use Apple Pay HOP.
  • Express Transit only works while Face ID/Touch ID is active. Express Transit stops working when Face ID/Touch ID is disabled. Be careful if you wear a face mask on your commute or put iPhone X, XS, XR in a tight pants pocket. It is easy to disable Face ID without realizing it with a rude passcode request at the transit gate. Face mask users can mitigate this by turning off Raise to Wake. If you still have problems the last resort is turning off Face ID for unlocking iPhone, be sure leave it on for Apple Pay.
  • Express Transit on Apple Watch is great, depending on which wrist you use, but in winter when wearing layers of clothes, iPhone is faster to whip out at the gate. iPhone is also free of left wrist vs. right side gate reader issues. As one reader points out: “Apple Watch works great for Express Transit except it’s on the wrong wrist in many cities. I’m a broken record at this point but a smart band would be a terrific addition to the lineup (and would solve this problem).”
  • iPhone X users need to be aware of the iPhone X NFC problem which can cause endless gate errors with Express Transit. You may need Apple to replace it, never an easy thing.
  • iPhone XS/XR users can finally put the Express Cards with power reserve feature to good use, it is cool and assuring knowing that you have 5 hours of reserve power to clear the final destination gate.

UPDATE

Apple Pay HOP launched on TriMet May 21. Loading HOP differs from Apple Pay Suica in that direct plastic card loading to Wallet is not supported and a HOP account is required. HOP is similar to Suica in that the plastic card is deactivated when it is added to Apple Pay Wallet, only one card can exist one device at any time: the same Apple Pay HOP card cannot be on both iPhone and Apple Watch.

New iPhone users with iOS 12.3 or Apple Watch users with watchOS 5.2.1 can download the HOP Fastpass App and add a virtual HOP to Apple Pay Wallet with a $3.00 fee. Plastic HOP users can add their card to Apple Pay Wallet with the HOP Fastpass App. There are TriMet video explanations for new users and existing plastic HOP users.

TriMet supports 2 kinds of Express Transit. Apple Pay HOP Express Transit is exactly the same as a plastic HOP card. It’s just as fast and supports the full range of fares. EMV Express Transit allows a payment care (credit/debit) to be set for transit but uses slower EMV mode and only supports standard Adult fare.

Last but not least some local news coverage of “the first time in America” use of Apple Pay Transit that explains the details:

“first time in America” for Apple Pay Transit

Have a Good Cashless: 2019 Contactless Payment Trends in Japan and Beyond

Happy New Year! May 2019 be a great year for everybody. It will certainly be a very interesting one for contactless payments and Apple Pay: now that Apple has officially acknowledged that smartphone sales have peaked out, expanding services like Apple Pay and growing service revenue, is more important than ever. Contactless payments in Japan will be fascinating to watch as various payment networks and technologies vie for market share in an already crowded market that is heating up before the 2020 Tokyo Olympics.

If you don’t know anything about Japanese contactless payments, here is a handy intro presentation video Going Cashless in Japan made by Michael Sunderland during his internship at Tokyo FinTech Association. It’s not fancy or deep but covers the basics well such as why cash is so important in Japan. One important observation is that every country has its own money culture, so there will never be a ‘one size fits all’ solution. As I have always said, people don’t go cashless and use contactless payments like Apple Pay for buying a couch or a TV, they start using Apple Pay for coffee, sandwiches and train tickets, then migrate up from there. Here are some trends to keep an eye on in 2019, a year that may see some real progress in going cashless.

The 10% Consumption Tax
The #1 issue this year for Japan is the October 1 consumption tax hike from 8% to 10%. The Japanese government is still working on the details but the shape of it looks messy and stimulating. It has the potential to kickstart a cash to cashless transformation leading up the 2020 Tokyo Olympics and beyond. There are 2 main components of the package:

  • Point rebates for purchases made with cashless payment effectively reducing the tax down to 5% depending on the type of store. For example a customer who purchases items with Apple Pay Suica would pay the 10% consumption tax at the cash register but receive 5% back as JRE POINT.
  • Subsidies to smaller businesses and merchants to subsidize contactless payment equipment (readers, POS systems, etc) leading up to the 2020 Olympics.

JiJi News reported a preliminary list of 14 companies supposedly under consideration by the Ministry of Economy, Trade and Industry (METI) to carry out the point rebate program with more to come. Here is the initial list with comments for each section.

Credit Cards
Mitsubishi UFJ NICOS
Sumitomo Mitsui Card Co
UC CARD Co
JCB

Trend: The Kyash Visa prepaid card was easily the most innovative product from the credit card side in 2018 in a market already full of prepaid cards, the biggest advantage being person to person transfers that other mainstream prepaid cards do not, as yet, offer. Meanwhile Visa JP is busy sending mixed signals: they offer dual function EMV contactless/FeliCa plastic cards but still refuse to provide NFC switching services on Apple Pay and Google Pay for outbound Visa card users, a service that Mastercard, AMEX and JCB are providing. 2019 will probably be a holding pattern but could see some big gains with NFC Pay (EMV contactless) with major retail chains. Apple Pay can gain some traction by adding JCB branded Line Pay prepaid cards that are available in convenience stores and popular with younger customers. 

E-money/Prepaid Cards
WAON
nanaco
Suica
Rakuten Edy

Trend: Unless Apple Pay finally offers the remaining top-tier prepaid cards that are already on Google Pay (WAON, nanaco, Edy) there won’t be much action. JR East will roll out a Shinkansen e-ticket service for all Transit IC cards in April, the JR East version of SmartEX. Outside of that I don’t see anything new this year or even 2020. At least not until the Super Suica format arrives in early 2021 which will unify all the Japan Transit IC cards and get them on mobile.

QR Codes
Origami Pay
Line Pay
PayPay

Trend: Everybody and their uncle setup a QR Code payment system in 2018, creating smartphone apps and frantically building payment platforms like prospectors in a gold rush, all based on capturing merchants supposedly attracted by the allure of low transaction fees and minimal hardware investment. This will continue in 2019 and Japan will have “a QR Code payment app for that” for just about everything from convenience stores (FamiPay) to vending machines. Like prospectors of old the majority will end up bust. The real question is will Japanese customers actually use QR Codes again. The PayPay security meltdown poisoned the well already and merchants aren’t happy either: PayPay has mistakenly (?) listed business as accepting PayPay when they don’t, leaving customers irate with merchants when they really should be angry with PayPay. It’s a new form of blackmail. Last but not least don’t expect METI to add Chinese QR Code AliPay or WeChat Pay to the point rebate list.


Transaction Processing
Rakuten
Coiney
Square

Trend: Subsidized payment terminal hardware for smaller businesses is a good start but real change will require the right balance of lower processing rates and ease of integration/operation. Right now there are far too many POS systems that require double entry, once for the cash register, once for the cashless payment terminal. This must be eliminated and the entire transaction process ruthlessly streamlined for smaller businesses. Rakuten, Coiney, Flight Holdings, J-Mups and many others are marketing low-cost, easy to use payment terminals but they need to do a better job of making everything work together as a seamless whole.

Apple Pay
Apple can grow Apple Pay use in Japan by filling the gaps in the top-tier prepaid card lineup: WAON, nanaco, EDY, and work to get 2nd tier prepaid cards like Dotour onboard which don’t exist on digital wallets yet. Cards like Dotour would play very well as one year exclusive deals. There are big opportunities with Value Added Service (VAS) reward cards beyond Ponta as well such as T-Point and JRE POINT. Google Pay is well ahead of Apple in the reward cards area and they need to catch up.
Apple Pay VP Jennifer Bailey recently said that Apple Pay is doing well in Japan and has identified customer loyalty programs, access (contactless passes, hotel key cards, etc.) and transit as key growth areas worldwide. Smart Octopus will be arriving on Apple Pay soon thanks to Apple’s global FeliCa strategy and the expired Samsung Pay one year exclusive. The soon to open Hanoi Metro will also use FeliCa IC cards. Taiwan’s EasyCard and South Korea’s T-money are MIFARE based cards that could be added Apple Pay now that the technology is supported in iOS 12.The opportunities are there, it’s simply a matter of how aggressively Apple goes after the business.

PAYGATE Station Android based smart payment reader

It’s rather unusual that a company would hold a press conference for a payment terminal but Daiwa House Group subsidiary Royal Gate Inc did just that last week for their new PAYGATE Station smart reader. Japanese IT journalist Satoshi Tanaka covered the rollout for IT Media.

The ‘thin client’ mobile Android based smart reader handles every payment protocol there is.

Contactless: EMV, FeliCa, MIFARE
Hardware: EMV IC, Magnetic stripe
QR Codes: D-Harai, Pay Pay, Line Pay, Ali Pay, WeChat Pay, Origami Pay, Rakuten Pay
Reward Cards: D-Point, Ponta, Rakuten

GMO Payment Gateway provides the payments processing backend for Royal Gate and Daiwa House Financial handles the business client support side. The product video shows the business target: small cafes, restaurants, boutiques. With the ever-widening rollout of EMV contactless and QR Code payments, Japan is turning into a very interesting and unique intersection point of Western EMV payments, home-grown FeliCa and China market driven QR Code payment schemes.

I don’t think having home grown QR Code payment systems around is a bad thing even though most Japanese don’t use them. The value is that it gives Japanese banks and companies a bargaining tool to use with Apple, Google, Amazon, Alibaba Group and WeChat. Never get in a sword fight without a sword.