Forget the Suica vs EMV open loop soap opera, it’s all about loyalty program banks now

Quick, what’s the number one complaint foreigners had when they couldn’t use their foreign issue VISA cards for Apple Pay Suica recharge anymore? Was it inconvenience? No, it was points. Specifically Chase Sapphire VISA 3x travel points. And what’s the number one compliment that foreigners have about using EMV open loop transit boutiques? Earning reward points. The Chase Sapphire VISA crowd had already moved on from Suica to PASMO back when JR East pulled 3x travel points for 1x shopping points for Suica recharge back in May 2021. Points are where the action is.

Go on over to YouTube and check out Wendover Productions How Airlines Quietly Became Banks. The video neatly explains what industry insiders and analysts have know for some time: flying passengers is a money losing business, the profit is made on selling services with loyalty programs, loyalty programs that are in reality clever financial instruments…loyalty program banks if you will. Reward points are like virtual money, but they can be treated like futures trading in that they will be traded in for certain services at a certain value…at some point. The untaxed reality gap is where all the fun happens: there are ways to earn real money off virtual money without a fixed holding period.

This is why airlines have made loyalty programs into separate subsidiary companies that are worth more than the money losing parent airline companies. The key takeaway: airlines are in the business turning a profit by selling services with attached loyalty programs to passengers riding on money losing airlines. Starbucks does a similar thing with their Starbucks card loyalty program which is also called a massive bank, all that unspent money on all those cards, similar to the Suica float. The Japanese point economic zones, Rakuten, PayPay and NTT docomo dPay have been doing all this for years already.

Is there anybody doing the same thing with rail transit with ridership still reeling in the post-Covid era? Very, very few. How many rail transit companies have a loyalty program similar to what airlines do: earning and using rewards across many different services? You probably can’t come up with one. JR East JRE POINT is a rail transit company loyalty program, the only comprehensive one that exists right now and it will formally joined with a real bank too in 2024 with the launch of JRE BANK. The recently launched JR West WESTER aims to become loyalty program, perhaps even a loyalty bank. Let’s take a closer look at how the comparisons stack up internationally.

Most transit operators around the world don’t offer loyalty programs. JRE and, maybe, MTR are the only ones.

The key difference is that Suica and Octopus are both transit and payments cards, in other words a payment platform. Owning the payments side is key for driving loyalty programs. It’s interesting too that Suica, Octopus and EasyCard used FeliCa and MIFARE that allowed them to build payment platforms that are independent of EMV. Another interesting aspect is that while JR East is a private transit company, Octopus is mostly government owned but doesn’t act like a public transit owned company.

All of the western transit companies are government owned and expected to be ‘public transit’ where making profit isn’t the bottom line. The reason why most MIFARE based transit cards never evolved beyond being transit cards (Taiwan’s EasyCard being the outstanding case) and leave the point reward franchises to the EMV open loop card brands, comes down to local politics of public transit. But is this really in the public interest?

My argument in countless posts over the years is that leaving everything to EMV open loop card brands is giving away a money franchise to the EMV consortium. It leaves money on the table that could have been used to build local transit linked services and infrastructure ecosystem that benefits all transit users and encourages transit ecosystem use.

Japanese ridership and fare income will only go down from here so Japanese transit companies need to be like airlines and earn money from selling service extras. Much better for long term transit sustainability to become a loyalty bank that leverages transit infrastructure loyalty linked services into profit. A close examination of the 10 Transit IC cards gives us a good idea of how open loop support in Japan will play out.

Most of the Transit IC cards have limited point rewards but very few have loyalty programs.

Outside of JRE POINT and WESTER, most of Transit IC cards except for TOICA and PiTaPa have some form of point bonus rewards for riding transit. Most are bare boned, manual affairs that involve a trip to the station ticket kiosk machine to load reward points. Tokyo area PASMO member transit companies have their own point systems, as do Osaka area PiTaPa transit companies which is the problem: despite sharing the same Transit IC card brand, the various point systems have no compatibility or synergy. There are a bunch of point card fiefdoms that cannot evolve into loyalty program platform. PiTiPa is the worst off of all, a failure with a shrinking user base despite being a credit card post-pay transit card.

The smallest transit cards, by user number, without robust point systems are exactly the first systems targeted for open loop by the SBI Holdings backed Japanese open loop Quadrac consortium (Quadrac for backend servers, Japan Signal for gate readers, VISA for sponsorship, SMBC for stera payment processing) : Fukuoka City Transit (hayaken) and Nankai (PiTaPa). They can implement open loop without diluting their loyalty programs because they don’t have any. It’s a similar case with ‘shared’ transit cards like PASMO.

PASMO members TOKYU and Tokyo Metro have stronger point systems silos but those silos do not translate across the PASMO ecosystem. Users can dump earned points into their PASMO card with a point recharge but there is no method for tying point rewards to services across the entire ecosystem. The dilemma for PASMO members, especially Tokyu who footed the bill for building Mobile PASMO, is balancing open loop and closed loop without diluting their PASMO related point business.

Here’s a Q&A that hopefully sums up some basic points of where things go from here.

Q: Will Suica disappear?
A: No. Suica is a loyalty platform and ecosystem, not a transit card.

Q: Will JR East replace FeliCa with EMV as the Suica foundation technology?
A: This is a topic that Japanese IT media loves to dream about like salarymen fantasizing about manga sex they read on the commute home. FeliCa and EMV are proprietary technology packages that come with licensing price-tags. EMV has the added risk that JR East would have to ally with a EMV payment brand to create a EMV white-label closed loop Suica card, like OMNY card. There are other disadvantages: NFC A is the slowest NFC transaction flavor no matter how much backend optimization the Quadrac consortium come up with, and offline payment transaction support is limited because mutual authentication and card balance is done on central servers. Last but not least: JR East owns a nice big chunk of FeliCa Networks along with Sony and NTT Docomo.

Q: Will EMV open loop be ubiquitous across all transit operators in Japan?
A: No, for the business reasons outlined above. JR East, JR West, and probably JR Central will not implement open loop as they want to sell closed loop Shinkansen tickets with loyalty programs. There isn’t any reason to partner with a EMV card brand for a white-label closed loop card when they already own FeliCa and QR closed loop products. There is also the scale problem. Open loop has been pushed by the media as a solution that solves every transit ticketing problem. It doesn’t. The reality is that open loop works best with simple fare structures. Closed loop works much better with complexity and interconnectivity.

In closing, Japan is the only country where open loop is being deployed by private rail transit companies that need to make money. Just as airlines ally and break with different card issuers for their loyalty programs, for business reasons and market politics, expect a similar market dance here. Payment technology, whether EMV, FeliCa or QR is just a means to an end of owning a vertically integrated loyalty program empire. The Japanese payments market will continue to be interesting ride that cannot be experienced anywhere else.

Lax JR Kyushu SUGOCA effort results in a fare evasion problem

I really like YouTuber kenzy201’s latest post regarding the mysterious disappearance of the ¥170 paper ticket button at JR Kyushu Kokura station kiosks. Kenzy’s simple no frills talk style might look boring on the surface but his analysis is keen and enlightening, the kind of analysis we used to get with good journalists who don’t have the time for it anymore. I highly recommend listening to what he has to say here.

When JR Kyushu revealed the reasons behind their elimination of the ¥170 paper ticket option from JR Kokura station kiosks, it shined an uncomfortable light on their operations. Because of poor management decisions over the past decade that continued JR Kyushu’s reliance on paper tickets at the expense of leveraging SUGOCA, the result was 90% of ¥170 tickets sold at Kokura station were being used for fare evasion. Cheap passage to any paper ticket unmanned station on their system. This is because JR Kyushu has a continued reliance on legacy paper tickets instead of increasing SUGOCA transit card coverage and promoting its use, and because of cost cutting there are an increasing number of staff-less stations that are an invitation to paper ticket fare evasion.

As Kenzy points out, JR East Suica and Tokyu led PASMO revolutionized transit in the Tokyo region to the point where legacy paper tickets are hardly used, over 90% of fares are Suica • PASMO, with the old style transit operator interchange paper tickets already eliminated. There are station entrance/exit areas that only accept transit IC. JR Kyushu on the other hand, and despite having their own card and system, have not done much with SUGOCA. It’s a me too transit card without innovation or marketing muscle. The usage area is limited but more than that, JR Kyushu offers almost zero incentive to use it over paper tickets. No JRE POINT or WESTER-like reward point retail/service platform effort to encourage SUGOCA use and sell services, no mobile roadmap.

It’s a huge wasted opportunity that, unfortunately, has resulted in an embarrassing fare evasion problem that won’t be solved by eliminating a few paper ticket fare options. JR Kyushu management, and certainly SMBC group stera transit, may think that open loop will fix the problems, but it will not fix them. A bolt-on thin client like stera transit needs an existing hardware base to work. JR Kyushu has to fix and enhance the SUGOCA infrastructure they already have first.

A JR East EMV Contactless VIEW card without Suica?

Yes. You read that right. A JR EAST EMV Contactless VIEW JRE CARD that doesn’t come with Suica functionality. Just a plain old credit card with a EMV Contactless logo.

Up until now JR East has only offered multifunction VIEW cards that combine a credit card and SUICA into one card. I myself have a BIC CAMERA VIEW card in Wallet and use it all the time but never use the plastic Suica card function because I have Apple Pay Suica. That’s the thing about transit card + credit card multifunction cards, they are a pre-mobile era product that offered the convenience of a credit card with auto-charge Suica in one plastic package.

In the Apple Pay Suica era these multifunction cards are superfluous. Suica App takes care of the auto-charge options, Wallet takes care of the rest. As YouTuber Kenzy201 points out, Mobile Suica is so ubiquitous in Tokyo that it’s a life hack, especially now that Mobile Suica and PASMO high school/junior high school commute passes are bringing a whole new demographic into the mix. If you think 20 million Mobile Suica users is some kind of achievement, wait for a year or two of HS/JHS Mobile Suica commute pass users to clock in. In short JRE CARD is a EMV contactless VISA card for Mobile Suica users. I think it’s the start point of JR East’s transition away from multifunction VIEW Suica cards with more JRE POINT replacing multifunction as the lure.

Apple Pay Suica made all the difference for Mobile Suica growth

The first EMV Contactless VIEW CARD designed for Mobile Suica
Kenzy explains the ‘why now?’. Design wise the ‘numberless’ front is a little more secure and social media friendly (name, number, etc. are on the back), nice but not very important. The real reason are stingy JRE POINT transit rewards with plastic Suica cards, if you want to earn JRE POINT for JR East transit, Mobile Suica is, by far, the best choice. There is also the 3.5% JRE POINT reward when shopping in JRE POINT stores. Combine that with 2X or 4X JRE POINT shopping days and you have a good return. The only down side compared to my trusty old BIC CAMERA VIEW is the annual ¥525 JRE CARD membership fee (free the first year), but since I shop regularly at JRE POINT stores, JRE CARD is a better deal and pays for itself.

And there is the EMV Contactless angle. JR East has already issued the first EMV Contactless VISA VIEW CARD for corporate users without Suica because corporate issue multiple user Suica does not exist. The new JRE CARD VISA is a personal card with EMV Contactless that follows the footsteps of similar recent credit cards from JR West and JR Kyushu…but the ever growing Mobile Suica user base puts JRE CARD in a unique and completely different market position.

Why only single mode EMV?
There are plenty of dual-mode payments cards that combine EMV Touch with iD or QUICPay, why doesn’t JRE CARD offer EMV Contactless + Suica? Kenzy says it boils down to conservative rail transit ‘fail-safe’ operation management. If you examine the EMV Contactless open loop test installments they all have one thing in common: separately well spaced readers, one Transit IC FeliCa, one EMV, one QR. Japanese rail transit operators want the different reader technologies far apart from each other to prevent card clash, misreads and other potential errors. All-in-one readers are always the worst choice with the worst performance.

That’s why JR East doesn’t want to issue a EMV + Suica plastic card. Or so Kenzy says, I agree but also think VISA EMV Contactless support makes JRE POINT an easier sell for signing on merchants and expanding its retail footprint. He also misses the Apple Pay Wallet angle. With plastic JRE CARD you have single mode EMV, but JRE CARD in Apple Wallet is automatic dual-mode EMV + QUICPay. And with Suica already in Apple Wallet, users have the most choices. It’s the one mistake in his fine explanatory video that covers all the in and outs and how JRE CARD connects to JRE POINT Stages coming in October. Basically JRE CARD earns 3X other VIEW CARDS. Well worth watching.

How much does Suica Off-Peak Commuter Pass really save you?

JR East Off-Peak Commuter Pass PR vid

With the new train schedule and barrier-free transit tariff going into effect on March 18, current Suica Commuter pass users like myself who use the JRE POINT Off-Peak Commuter Point Service that ends this month, face a dilemma: does the Off-Peak Commuter Pass offer the same level of JRE POINT reward savings? Let’s face it, in these inflationary and looming tax increase times, pinching every point to yen counts.

It comes down to 3 choices: (1) a more expensive regular commuter pass that is difficult to swallow without the off-peak transit point return, (2) a less expensive Suica Off-Peak commuter pass without off-peak transit points, (3) no commuter pass with repeat transit points.

As my work place pays commuting expenses based on regular non-commuter pass transit fare, going with the less expensive off-peak commuter pass lets me pocket the difference. So my choice basically comes down to off-peak commuter pass or no commuter pass with repeat transit points, depending on which one gives better JRE POINT returns, better purchase price savings, or both.

Here is a comparison of the price increases for my 6 month commuter pass between JR East Asagaya and Tokyu Ikegami. The route is Chuo-Yamanote-transfer at Gotanda-Ikegami. The JR East portion covers 11 stations and 15 kilometers of track. Tokyu covers 12 stations and 11 kilometers of track.

Right away we can see that the JR East fare increase basically adds the barrier-free tariff, a 1.4% increase. The Tokyu fare increase is more than just the tariff, a lot more at 13.8%, likely including electricity price increases, salary increases, and what not. Tokyu also does not offer an off-peak option.

Now that we have the new commuter pass prices for both JR East and Tokyu, let’s run a simulation to find which configuration has the best JRE POINT returns. For the latter I used the very handy JRE POINT simulator, highly recommended for running reward point numbers. Remember, that off-peak and repeat points only apply to JR East fares.

As my work place covers the regular fare price, old and new regular fare difference is set at zero. Off-Peak points are calculated for 6 months based on 2022 returns. Repeat and recharge points are calculated on 20 round trips between Asagaya and Gotanda a month x 6 months for old and new fares. The return is the purchase difference plus JRE POINT with 1 point = 1 yen.

The simulation results are pretty much in line with my expectations. Suica Off-Peak commuter passes do give you the best value, by a little bit, especially when your company is reimbursing you at regular fare rates, which many companies seem to do. You also get the best value when your commute is exclusive to JR East lines as JR East has not raised fare increases, only adding the barrier-free tariff. The return drops when including connecting non-JR East lines but still give the best overall return. One thing is for certain: if you ride JR East lines regularly with Suica and are not registered with JRE POINT, you are throwing money away.

Gird yourself for the March 18 Suica Off-Peak launch because there will be a online crush of people like me, cancelling and refunding regular passes, and purchasing new off-peak passes. And don’t forget that date is also the launch of Mobile Suica passes for high school and junior high school students. Don’t be surprised if Suica App has a meltdown from the stampede. Good luck with simulations and finding the best way to save on transit costs.


JRE POINT Reboot

The JRE POINT website and apps (iOS•Android) received a makeover on August 29. The purpose of the reboot was to increase security with Face/Touch ID login, and add some long overdue features such as removing the single Mobile Suica registration limit. With the new service, account users can register up to 20 Suica cards of any type and also share JRE POINT with other JRE POINT ‘family’ member accounts.

As with all JR East online services that get a reboot, things did not go very well. The first 48 hours were full of glitches and the app basically did not work for many people. After a few update patches things are working for the most part, the JRE POINT iOS app is currently 3.0.4 but still needs some fixes as auto login only works half the time. By far the best new features are the ability to add more than one Mobile Suica card, handy for families, as well as point sharing although it’s rather cumbersome.

From a UI perspective, JRE POINT app is very similar to Eki-Net in that the UI jettisons native iOS and Android controls for a clumsy web UI. The only reason for using the app instead of the web site is to use the JRE POINT barcode at checkout and play the stupid little games for extra JRE POINT. The Face/Touch ID login support is less appealing than you might expect, it’s only used in lieu of the 6 PIN code to access point transaction history, or change login ID and password.

I’ve updated the JRE POINT guide for the new features and UI. Let me know if you find anything missing.