Huawei hopes to steal Japanese iPhone Market Share with Global FeliCa

Huawei released the Mate 20 Pro in Japan November 30 with a clear goal of offering a lower priced smartphone in the Japanese market where carrier subsidies are going away and iPhone XR sales rumored to be so-so. IT Media Mobile reports that Huawei’s Jeff Wang, regional president for Japan and Korea said that, “long-term the Japanese mobile market is becoming a fair and level one” competitively, with opportunities to offer users “revolutionary products.” The remark clearly alluded to the Japan Fair Trade Commission investigation of Apple iPhone sales strategy in Japan which resulted in the call to end carrier subsidies.

There’s just one catch: only the Docomo Huawei P20 has FeliCa, the Mate 20 Pro does not.

Wang said Huawei recognizes the need for FeliCa in the Japanese market and is working to add global FeliCa to all Huawei smartphone models. If this turns out to be true, Huawei will first smartphone manufacturer to follow Apple’s lead in adding global FeliCa. The sooner global FeliCa becomes a boring standard check box item for smartphone manufacturers everywhere the better.

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Pixel 3 FeliCa and iPhone X Suica problem switchers

iPhone X Suica problem switcher
a iPhone X Suica problem switcher

That didn’t take long. A few hours after the Pixel 3 announcement with confirmation of FeliCa models for Japan, iPhone X users like this one are ready to dump their iPhone X Suica problem devices for a shiny new Pixel 3.

Apple doing nothing about the iPhone X Suica problem in Japan is a dangerous proposition that’s gives Google a wonderful business opportunity. The danger is that Apple does not realize that Japanese users are the savviest NFC users in the world: Suica and Osaifu-Keitai smartphones have been around a long time, far longer than Apple Pay Suica. Even if Japanese users know nothing about the iPhone X Suica problem, they immediately and instinctively know a NFC lemon device from a good one.

Forcing NFC savvy Japanese iPhone X users to stumble in the dark and deal with the Apple Support “we have never heard of the iPhone X Suica problem” runaround is terrible short term get-rid-of-the-problem vs. long term vision thinking. I guess it means that Apple is OK giving Japanese business away to Google and that giving away some business is less expensive than fixing a problem. Anyway you look at it I think the current approach is a mistake but especially so in the Japanese market.

iPhone X NFC debacle a golden opportunity for Pixel 3 in Japan

Pixel 3
Pixel 3 leaks have been many from Android Police

Apple pre-order weekend for iPhone XS/XS Max and Apple Watch Series 4 is winding down. There was far less excitement this year in Japan than before. Ming-Chi Kuo is already trimming his iPhone XS exceptions. The local Docomo shop backed this up. The desk clerk said, “We’ve got iPhone pre-orders but it had been quiet this year.”

Reading Japanese reactions on Twitter it’s easy to see that many are waiting to see what Japanese market support Google announces at the Pixel 3 October 9 event. If Pixel 3 comes with Global FeliCa support like iPhone does, the Google Pay Japan flop withstanding, Japanese iPhone X users disgusted by the iPhone X NFC debacle will gladly take switch.

If there is one thing I have learned after 30 years here is that Japanese are very unattached to things. When something better comes along they coolly size the situation and take it. A lot of Japanese in the blog sphere are saying Apple iPhone has peaked out in Japan. If that turns out to be true in the months ahead, Apple has nobody to blame but themselves.

Where will the SE be in Pixel 3?

The Google Pay Japan release was very interesting. Nobody expected Google to ditch HCE-F and simply put an new candy wrapper around the tired UI of the reliable Osaifu Keitai Mobile FeliCa standard that has been around since the dawn of mobile payments. Everybody complained but didn’t bother to ask the essential question: why would Google ditch their own Android API unless they have plans for something else.

Now that Android 9 Pie with Google’s take of the Open Mobile API for NFC payments is going out to all Pixel users, what’s in store for embedded secure elements and Google Pay? Google says that

Android 9 adds an implementation of the GlobalPlatform Open Mobile API to Android. On supported devices, apps can use the OMAPI API to access secure elements (SE) to enable smart card payments and other secure services. A hardware abstraction layer (HAL) provides the underlying API for enumerating the variety of secure elements (eSE, UICC, and others) available.

A variety of SE? For who? For Android OEM’s probably but not Pixel. HCE-F is dead so one assumes the SE on the cloud approach for Google Pixel is probably dead too. We can also assume that the SE on the SIM approach is dead. This leaves eSE on the chip for Google Pixel going forward. If Google is investing in their own IC it makes sense to have their own eSE and implement all the middleware on it (EMV, FeliCa, etc.), just like Apple. In other words will Pixel 3 be Global FeliCa without the Osaifu Keitai architecture.

It’s a great way to differentiate Google Pixel hardware from the Android jungle. This way Google Pixel can do real Global FeliCa and more with Google Pay and leave everybody else struggling with Google Pay lite because they don’t have their own custom eSE and middleware solution or don’t want to license Osaifu Keitai for global Android smartphone models.

If Google chooses this path it might work out well for Pixel but the downside is that Android OEM’s will ignore Google Pay and promote their own digital wallet platforms instead. You can’t have cake and eat it too but Google will always try.

What the Hell is VISA Up To in Japan?

VISA is the least consumer friendly card company in Japan. Period. Mastercard, American Express and JCB are making it easy for Japanese customers to use their cards in mobile wallets (Apple Pay, Osaifu Keitai) both domestically and abroad with NFC Switching. NFC certification requires both NFC-A and NFC-F. Smartphones can do it all, how nice.

Except VISA does not want to play nice, they want to play market politics. Witness VISA’s latest boneheaded move reported by Masakazu Tatara on his excellent EPayments JP site: Visa is pulling the plug on Mobile Visa payWave (NFC-A EMV contactless). The last holdout is Sumitomo Mitsui who will terminate service at the end of December 2018. VISA on the iD and QUICPay (NFC-F FeliCa) contactless payment networks remains in place as does plastic card payWave.

As Tatara san asks, what is VISA up to? His quick review of the Mobile VISA payWave spec is helpful and remarkably similar to the Mobile FeliCa spec.

The secure methods for storing Mobile VISA payWave transaction information are:

  1. A mobile device with an Embedded Secure Element (eSE)
  2. HCE (Host Card Emulation in the cloud)
  3. A “Mobile eSE” SWP SIM
  4. A NFC Contactless Payment Sticker

As Tatara san explains, it is the #3 SIM card option that is really being phased out.  #1 includes Apple Pay and Osaifu Keitai devices. The recently released Google Pay Japan is simply an alternative Osaifu Keitai front end that entirely dispenses with the dead HCE-F. As if this was confusing enough, VISA Japan has not signed on with Apple Pay Japan or Google Pay Japan, nor is VISA payWave compatible with the Osaifu Keitai standard. This leaves #2 and #4 as the only real Mobile VISA payWave Japan options going forward. Good luck with that.

Japanese media has speculated that the Sumitomo Mitsu and Mizuho financial groups want to promote QR Code contactless payments over NFC and the death of Mobile VISA payWave proves that QR is winning the contactless payment turf war. Don’t believe it.

In Japan, aka the contactless payment turf war epicenter, the battle line is stored value vs. credit card with stored value cards the clear winner. This week’s Mizuho Suica announcement is proof of that. There isn’t any money for Japanese merchant support of EMV contactless because most inbound tourist business is mainland Chinese who only want to use QR code contactless AliPay and WePay which Japanese will never use.

So where is VISA going in the Japan market? One guess: the success of Apple Pay Suica and the release of the Global FeliCa iPhone/Apple Watch has VISA at a momentary standstill. Because if Google follows Apple’s lead and releases a Global FeliCa Pixel 3 with NFC switching, things will get very interesting. The more Global FeliCa becomes a ho-hum checkbox feature with every smart device, the more VISA Japan will have to play nice with Apple Pay and Google Pay or risk being shoved aside.

Which brings us back to FeliCa again. To outsiders it looks like the Japanese contactless payments market goes round and round, but it doesn’t. VISA Japan goes round and round playing market politics never moving forward, and that does damage. Last month I wrote:

It would be much better for customers if smart device manufacturers bundled all the major middleware stacks (EMV, FeliCa, MIFARE, China Transit, CEPAS) and simply called it Global NFC. Real Global NFC.

Until the industry does a better job of integrating NFC hardware and the various middleware pieces into a virtual whole, NFC confusion will continue to be a problem.

It would be much better for customers if the credit card industry stopped the contactless payment turf wars and started delivering solutions that help customers instead of sowing confusion.

UPDATE: a reader reports says that payWave on SIM cards is pretty much dead everywhere because the “secure element wars are over.” That’s interesting in light of Huawei offering FeliCa Osaifu Keitai service via Docomo with a SIM card. But that is a Docomo thing more than a Huawei thing.