HCE Secure Element in the Cloud is pie in the sky

Stefan Heaton’s blog piece “The reason Mobile myki isn’t available on iPhone… yet” is all the proof you need that Google inspired endless nonsense with Android Pay HCE support. This was shortly after the NFC “secure element” wars were over, with embedded Secure Element (eSE) on SIM cards losing out to eSE on smartphone chips. A secure element in the cloud approach seemed like it would solve everything, except that it didn’t.

myki is MIFARE which has never been compatible with HCE. Neither is FeliCa, which Google Pay users outside Japan assumed would work for Suica until they found out HCE-F was dead in the water and lost their shit.

What nobody has said, and I think it’s worth pointing out, is that the Android Pay to Google Pay shift was also a break with HCE and Google providing, or pretending to provide, a secure element strategy for all Android licensees. Instead, Google is focused on Pixel and their own eSE, all other Android licensees and manufacturers be dammed and left to find their own solutions. I guarantee you that, in time, Google will be doing most, if not all, of the same security hoops that Apple does now, for Google Pay card emulation (not host card emulation) for Google Pixel platform eSE access.

So yes, Apple does limit NFC Secure Element (implemented in the A Series Secure Enclave) access with PassKit NFC certificates. But Apple Pay MIFARE is real MIFARE, and Apple Pay FeliCa is real FeliCa. Public Transport Victoria (PTV) can apply for a myki card PassKit NFC certificate just like any developer. And for goodness sake Stefan, stop writing sentences that confuse Express Transit payment cards (EMV credit/debit cards) with regular Express Transit cards (FeliCa, MIFARE, PBOC). Suica is not a credit card and emulating EMV at a transit gate doesn’t automatically make a credit card into a Apple Pay Suica transit card, not by a long shot. If your aim is promoting open loop over closed loop, that’s one thing. Either way, your LinkedIn blog post is not doing your LinkedIn resume any favor.

UPDATE: Yep, myki is coming to Apple Pay, nothing to do at all with HCE support.

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Tweet of the day: I want my Oyster

Reports of the Apple Pay EMV Express Transit option coming to TfL in ‘coming months’ notwithstanding, it does nothing for the many TfL users who need to use Oyster. Oyster card on Apple Pay and Google Pay is kinda like Brexit, endlessly discussed but never decided. TfL would like to get rid of Oyster altogether, I imagine the banks like it that way. Hoping that EMV will evolve and fix things is wishful thinking. Either way a decision has to be made at some point about native Oyster on digital.

Singapore TransitLink Goes EMV

Japanese media reports that Singapore TransitLink has gone all in with EMV contactless for transit with the SimpleGo program starting today, April 4. Mastercard is the first credit/debit card approved for the program with Visa to follow later this year. Using bank cards for transit is what Transit for London (TfL) has been doing for years with other transit systems such as Taiwan MTR adding support recently.

The Japanese report also mentions that EMV contactless cards loaded in Apple Pay/Google Pay/Samsung Pay etc. will work but judging from the Apple Pay experiences during the long beta test period, it is slow and not as reliable as EZ-Link transit cards.

There is no mention of the native EZ-Link transit card being hosted on digital wallets. I suspect that Singapore’s decision in 2009 to dump FeliCa for their own CEPAS technology could make that difficult as CEPAS use is limited to Singapore, and there is no business plan attached to sell the technology in other markets which FeliCa (Sony) or MiFare (NXP) do.

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.

More Apple Pay Octopus

UPDATE: Apple Pay Octopus is coming with iOS 13

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.

Update
It looks like we’ll have to wait a while longer for Octopus on Apple Pay.