Contactless Payment Turf Wars: EMV closed loop transit dumb cards

  1. Contactless Payment Turf Wars: Transit Platforms
  2. Contactless Payment Turf Wars: PiTaPa Pitfalls
  3. Contactless Payment Turf Wars: Why Oyster is missing from mobile
  4. Contactless Payment Turf Wars: Tapping the potential of TAP
  5. Contactless Payment Turf Wars: Apple Card and the Prepaid Innovation of Apple Pay Suica
  6. >Contactless Payment Turf Wars: EMV closed loop transit dumb cards

Prepaid transit smart cards are micro bank accounts on a card. What started as plastic in the mid 1990’s first transitioned to the cloud based mobile digital card era with Mobile Suica in 2006. Transit cards on mobile digital wallets are much more powerful and malleable than their plastic forebears, and occupy a coveted position in the mobile payments market. Credit card companies and banks spend enormous resources and effort to capture this transit fare business.

Background
Many smart cards use FeliCa and MIFARE. The technology has been on the market since 1994 and one of the reasons for platform popularity and longevity are the rich application development environments they offer (Calypso is also popular but limited to transit applications).

Developers can design a card architecture as ‘smart’ (like Suica) or as ‘dumb’ (like iD) but they are all smart cards because they contain an IC chip. In Japan FeliCa powers not only company ID cards, but also transit cards (Suica, PASMO, etc.), bank payment cards (iD, QUICPay) and rechargeable prepaid eMoney cards that anybody can buy and recharge at convenience stores (WAON, nanaco, Edy). Mobile FeliCa has been in place since 2004.

Smart/Dumb card architecture depends on use case, system processing cost efficiency and need. In a transit fare system, a dumb card use case is slower centralized processing, like waiting at the store checkout for card verification to clear. A transit smart card use case is instant locally processed stored value to keep people moving through the gates because centralized processing isn’t up to the task. This is why transit cards have used the stored value local processing model…until now.

Open Loop 1.0
EMV contactless credit cards arrived on the payments scene starting in 2007 but uptake was slow. Since EMV contactless uses the same NFC A as MIFARE based transit cards, the big EMVCo members (VISA, Mastercard, American Express) came up with a great marketing idea: use EMV contactless credit cards as a transit card. Thus EMV open loop transit was born.

EMV Open Loop 1.0 transit that debuted on Transport for London (TfL) Oyster system in 2014 filled mutual needs for TfL and bank card companies. Despite the success of Oyster, TfL wanted to reduce plastic card issue and management costs:

The current Oyster system, though very popular, is expensive and complex to administer. Contactless bank cards use existing technology, responsibility for issuing cards would lie with the banks rather than TfL, and the operating costs should be lower.

The Future of Ticketing London Assembly (2011)

In 2017 there was a push to nudge people away from their Oyster cards and towards contactless. One announcement rang out all over London’s tube stations: Why not use your contactless bank card today? Never top up again, and it’s the same fare as Oyster.

How Long Does The Oyster Card Have Left? Londonist (2018)

Using bank cards in place of MIFARE Oyster cards accomplished that and because MIFARE was late to the mobile party TfL management decided decided their mobile strategy would be Apple Pay and Android Pay EMV card support. Meanwhile the bank card companies captured transaction fees from mundane transit fares at the gate, got the benefit of using the float instead of TfL, and got people into the habit of using credit cards for tiny purchase amounts. Our parents thought buying coffee with a credit card instead of small change was ridiculous because credit cards were reserved for ‘serious purchases’. Not anymore.

TfL Open Loop was judged a big success and got rave reviews from tech journalists around the world who hailed it as the future of transit ticketing: time to dump those proprietary transit smart cards and go all in with ‘open standard’ EMV open loop if you want the latest and greatest transit fare system. This gave transit agencies and the governments that run them the wrong idea that EMV is a cure all transit fare system solution.

1.0 shortcomings
The problem is that EMV is not an open standard, it is owned and managed by the proprietary EMVCo that is wholly owned by the major credit card companies. EMV is a ‘one size fits all’ payments technology created for the needs of credit card companies and banks. It was never designed as a transit fare solution and will never evolve to incorporate transit needs. Experts agree:

A universal truth is that each transport market is highly unique. While EMV may be the best solution for some, the reality is that a standardized deployment of this model is not best suited to everyone.

Transit systems shouldn’t confuse open loop pay with EMV

The U.S. has been a tough market for transit agencies to deliver successful open-loop systems into, as banks have not been in step with these ambitions.

Is now the time for open-loop transit in the United States?

There is no escaping the basic reality that EMV is a slow dumb smart card. It works well for what it was designed for: store purchases where card transaction latency is not a problem while the checkout terminal communicates with the bank system that has your account information.

Transit fare systems don’t have your bank account information on file, and there are limits with what the backend transit fare system can do when an anonymous bank card number appears on gate reader where long transaction latency is unacceptable. There are tradeoffs: the card gets verified but the transit bill gets settled long after the transit. This is why EMV open loop 1.0 only works for simple or flat fare structures. The result was a 2 layer fare system on London Oyster, Sydney Opal and Chicago Ventra:

  • Plastic and digital EMV open loop dumb card with basic fare transit for users with approved bank cards
  • Plastic transit MIFARE smart cards covering all fares including special fare discounts, commuter passes, etc., for everybody else

Oyster, Opal and Ventra wanted to add mobile support across the board but this meant supporting EMV and MIFARE. All of these are managed by Cubic Transportation Systems who worked with the bank card companies and came up with a new product to solve the dilemma: EMV closed loop transit dumb cards.

Open Loop 2.0
Apple Pay Ventra is this new EMV closed loop mobile transit card product, the launch gave us a first glimpse of the 3 layer fare system:

  • Plastic and digital EMV open loop dumb cards with basic fare transit for users with approved bank cards
  • Digital EMV closed loop dumb cards that cover regular fares and commute passes with special fares to be added later
  • Legacy plastic MIFARE transit cards for everybody else

It’s still a mixed EMV and MIFARE environment but MIFARE is limited to legacy plastic transit cards that can be bought with cash at station kiosks. But we can be sure that MIFARE will be phased out at some point.

The Apple Pay Ventra model is being used for digital Opal trials on Apple Pay and Samsung Pay, and is on tap for digital Oyster and digital OMNY. A basic outline:

  • The transit card is actually a EMV Mastercard prepaid debit card issued by 3rd party bank
  • The Mastercard as transit card is ‘closed loop’ and can only be used for transit and nothing else
  • The user must create an account to use the digital card. The transit account and prepaid/debit information is centralized and managed by the card issuer, nothing is stored value
  • All digital transit card management and housekeeping (adding or transferring cards, recharge, checking the balance, etc.) must be done in a separate app (Ventra App, Opal App, etc.), nothing can be done directly in Wallet
  • Express Transit is not part of the native EMV card architecture and has to be added as part of broader open loop support on the backend fare system by the operator and Apple, this is why Express Transit is missing in the initial test phase of digital Opal: the current Opal fare system does not support it

As this is an EMV bank card dressed up as a transit card, it is still limited by EMV card architecture and bank card network protocol. In place of local stored value it uses the bank card account model. On mobile this means all card housekeeping is in the app, users can’t create, transfer or recharge transit cards directly in Wallet like Suica, PASMO, SmarTrip or TAP. Direct reload/recharge in Wallet is not supported because the EMV format itself does not support local stored value. Apple Watch users can’t recharge EMV transit cards without the iPhone app. And like all cloud dependent services everything stops when networks goes down.

Mobile Suica does an excellent job of balancing and combining the strengths of local processed stored value performance, usability and reliability with the power of cloud attached services. It’s the gold standard of what a transit payment platform on mobile can achieve: leveraging transit card micro accounts to attach services and build business instead of giving it away to banks. Digital Opal testers familiar with Suica notice the difference and missing features:

Open Loop 3.0?
For centralized cloud proponents, including Junya Suzuki, the ultimate dream is having one cloud based account using facial recognition for all payment and transit needs. Cubic and centralized account proponents are already looking to speed up London transit gates beyond slow EMV card technology with barrier free face recognition transit gates:

according to CUBIC…their ‘fastrack gateless gateline’ concept, which is currently conducting small user testing, eliminates physical barriers to form an extended corridor-like gateway that between 65 and 75 users can walk through in a minute, whilst their faces are being scanned and synced for payment with their smartphones

Facial recognition to be your future ticket on the London Underground

The joke here is that, (1) JR East achieved those over 60 people per minute walk through levels with FeliCa based Suica cards and open barrier transit gates long ago, (2) the COVID face mask era is a huge challenge for face recognition systems, (3) Touchless transit, Express Transit on steroids, is already in the works.

Personally I think the Ultra Wideband Touchless approach that leverages personal biometric authentication from the user’s smartphone secure enclave instead of having it hosted on somebody else’s cloud system is the safer and more practical way to go. Privacy advocates will agree.

Speed is safety
Tap speed matters more than even in the COVID era

The next installment of the Contactless Payment Turf Wars
If nothing else closed loop EMV transit dumb cards reveal how bankrupt the ‘open loop is open’ argument really is. All Cubic and the card companies did was swap MIFARE for EMV, neither of which are open. And tap speeds are slower than ever with EMV the supermarket checkout protocol, so now we need Face ID transit gates to speed things up.

It’s fake debate. The real debate is online centralization for fare processing where everybody is forced to have a mobile account whether they need it or want it or not. And once everybody is forced to have an account to use transit the next step is forcing facial recognition.

The short term lesson here is that when transit agencies let banks and card companies run the transit fare concession they will never be free of them: there’s too much private money to be made off of running the backend services attached to public infrastructure. The long term lesson is that the mobile digital wallet solutions for Ventra, Opal, Oyster and OMNY are not about transit user convenience and all about convenience for misguided transit operators and their subcontractors.


Reader Questions
Instead of answering questions or comments via Twitter etc., I’ll answer here for the benefit of all readers.

Q: Not being able to recharge within Apple Pay has nothing to do with EMV vs. stored value though, right? If anything, that should be easier (just move money between accounts).

A: It’s true that MIFARE stored value transit cards such as HOP Fastpass force users to recharge via the app. The point of the piece is that EMV transit card features are defined by the EMV format, bank card protocols and how it’s all implemented on digital wallet platforms. In short, bank issuers control the feature set on the backend. I have yet to see a recharge button on any EMV prepaid card in Apple Pay Wallet, I suspect we’ll always see most operations limited to bank issuer apps, even for transit.

C: The open loathing of banks and credit card companies is honestly quite nauseating (but understandable, considering what Japanese banks are like, apart from the credit card companies).

A: Banks and card companies have an important place in transit, but card company ‘one size solves all’ open loop marketing is misleading and profitable mischief. A good transit fare system is all about balance, flexibility and incorporating innovation such as mobile wallets, for the benefit of transit users and safe operations. Bank cards for example are a wonderfully convenient recharge backend, this is where they shine and add real value to the transit user experience.

But swapping out a native transit fare system with an outsourced bank card account system and tech package that the transit company doesn’t ‘own’ is asking for trouble. How much is the long term cost when it doesn’t solve everything as promised? Who really benefits: the transit user, the transit company, or the system partners and consultants?

These are the questions I think people should be asking and discussing. Hopefully my posts outline the issues clearly so people can discuss them to find the best fit long term solution based on local transit region conditions.

C: Looks like Apple/Google Pay presents the card as a debit card to eligible terminals, which would explain why physical cards can’t be used in their current form.

A: Yes the NSW Transport Minister calls it ‘cross-pollinating platforms”: NSW government set to announce the trial on Tuesday, which will begin mid-year and run until December. Commuters will be able to pay for Uber, Lime Bike, Ingogo Taxi or Manly Fast Ferry with their digital Opal card.

Huawei Pay Octopus: global NFC = custom eSE

Huawei Pay Octopus launched on December 9, the second digital Octopus 2020 launch after Apple Pay Octopus on June 2. The device list is interesting: Huawei Mate 40 Pro, P40, P40 Pro, P40 Pro+, P30, P30 Pro, Mate 30, Mate 30 Pro, Mate 20, Mate 20 Pro, Mate RS Porsche, Mate Xs, Nova 7 5G. A wide range of Huawei models sold in Hong Kong have global NFC support, at least on the smartphone side but does not include the G2 Pro smartwatch.

In Japan the only Huawei models with global NFC/Mobile FeliCa/Osaifu Keitai support are the P20 and P30 and only with a Docomo sim. Huawei Pay is not supported in Japan. The Huawei Pay Octopus device list tells us what we suspected all along: Huawei Pay is global NFC capable but Huawei kneecaps it so they can sell devices via Docomo. Huawei Pay can turn things on and off because, just like Apple Pay, Huawei has a custom embedded Secure Element (eSE), so does OPPO and so will Xiaomi in 2021.

The gist of all this is that Google’s Android Pay era HCE and HCE-F technology lost out to eSE long ago. As FeliCa Dude said, ‘it’s all eSE or nothing now,’ to which I would add, ‘it’s all custom eSE + XX-Pay or nothing now.’

So where does Google Pay fit in this scheme? It doesn’t. And it could be one of the things Google hopes to address with their own SoC, but a custom eSE is probably a long shot. That is unless Google is serious about making global NFC Google Pay work seamlessly on Pixel and Fitbit devices by dumping Osaifu Keitai and going all in with a custom eSE. If Google persists in wanting it both ways, limited NFC Google Pay for everybody and global NFC Google Pay in Pixel for Japan only so they can sell via Docomo etc., expect more of the confusing Android global NFC support mess we have now.

Opal digital transit card trial for Apple Pay and Samsung Pay

NSW announced a public beta test for Opal digital card in October and rolled it out today for Apple Pay and Samsung Pay. Trial users can register, and if one of the lucky chosen ones, install and use Opal digital on their device. iPhone trial users will need to download the Opal digital app via Apple’s TestFlight developer app.

As this is a trial there are limitations and the one for Apple Pay transit users is huge: no Express Transit. Hopefully this will be fixed before the official launch as Opal digital is a very awkward service without it: users have to authenticate Apple Pay at each transit gate, a real drag for Face ID users with face masks, users also have to be careful of EMV card clash.

Other limitations will not be fixed because of system design. This means there is no ‘add money’ button in Wallet and all card house keeping tasks from recharge to checking the balance can only be done in Opal digital app. This is a pain for iPhone users but a huge pain for Apple Watch users. For some it will mean digital Opal is unusable: Apple Pay Suica • PASMO work without an iPhone app and can be recharged on the go, not so for digital Opal.

The overall service seems to be what I predicted at the Apple Pay Ventra launch: a closed open loop prepaid/debit Mastercard disguised as a digital transit card with the backend account managed by the Mastercard issuer, in this case EML Payments.

Transport for NSW says they expect to officially launch digital Opal in 2021. I will update this post as field report details trickle in from trial users.

VISA Touch Transit Boutiques

VISA Japan announced VISA Touch support on Kyoto Tango Railway, most media outlets simply ran edited versions of the VISA Japan press release. The infrastructure uses a slightly modified stera store reader platform, which VISA has a hand in. Willer Inc. is hailing this as the first ‘VISA Touch’ solution on Japanese train systems but they ignored the fact that stera VISA Touch was already announced for Ibaraki Transit highway bus service back in July.

Japanese journalist comments on Twitter were fun to read with the ‘let’s just dump FeliCa and Suica already and go all in with EMV’ supporters club checking in as usual. Nobi Hayashi asked good questions regarding real user convenience. Junya Suzuki said he plans a trip to investigate the new service, his next ‘Pay Attention’ column promises to be a good read.

Just what kind of end user are these VISA Touch transit installations targeting anyway? Let’s do a quick profile:

  1. VISA Touch JP plastic cards are being issued in Japan but they are new and few and dwarfed by the number of Transit IC cards (Suica, PASMO, ICOCA, etc.) that can be bought by anybody at any station kiosk machine with cash. Apple Pay Japan users cannot use it because VISA JP refuses to support Apple Pay JP FeliCa/EMV dual mode NFC switching. This service is not targeted for domestic transit users.
  2. Both of these VISA Touch installation transit areas market heavily to inbound tourists, neither of them support Transit IC cards.
  3. VISA Touch is not compatible with PBOC Union Pay cards technology, the installations also support QR Code AliPay and WeChat Pay for inbound Chinese tourists

The short summary is these installations are for inbound tourists with VISA Touch contactless credit cards, a transit boutique for marketing purposes more than real use.

Japanese media is quick to dismiss FeliCa as a technical failure in the face of EMV but I think that is the wrong analysis. Looking back it’s easy to see a huge mistake was that the big push for Mobile FeliCa credit cards on smartphones was not matched with an equally big push for plastic credit cards with FeliCa support.

And the big EMV push instead of FeliCa has not worked out so great either. Instead of making a technology agnostic unified push for NFC contactless, EMV bank card interests pushed their own agenda. All that did was provide a big opening for domestic QR Code payment players like Line Pay and Pay Pay which they took and continue to take.

What I find fascinating is that the mainstream Japanese IT media has not written much about the Super Suica 2 in 1 card strategy or rollout plans. Low cost transit IC card infrastructure sharing that delivers consistent and seamless transit service on mobile and legacy plastic while offering local area branding and services is a compelling vision that I don’t see bank card companies matching.

The challenge for JR group companies (JR West, JR Central, JR Kyushu, etc.) is working with JR East to offer Super Suica 2 in 1 card solutions in their own regions, because if they do not we’ll see more VISA Touch transit boutiques.

Dear Jane, we fucked up, sincerely MTA

The piecemeal MTA OMNY rollout is a lesson how not to do a transition from old system to new system. A case where poor design, poor management choices and unanticipated user interaction, each insignificant in isolation, snowball into a nagging long term problem.

The problem goes like this:

(1) Apple Pay Express Transit is opted in by default and iPhone users don’t always know it’s on. They don’t care about using Apple Pay credit cards on OMNY anyway because fare options are limited and OMNY isn’t installed everywhere and won’t be until at least the end of next year. They use good old MetroCard and put iPhone away in the right pocket or purse carried on the right shoulder.

(2) When the user gets to a OMNY fare gate they swipe MetroCard with its peculiar forward swipe motion on the reader which is located above and behind the OMNY NFC reader, which is positioned low and angled at pocket level. As “MetroCard sucks, it may take several (forward) swipes to enter”, the user leans into the gate while doing this and boom: OMNY reader activates iPhone Express Transit and charges fare without the user knowing it.

Default opt in Express Transit has been with us ever since Apple Pay Suica arrived in 2016. But transit cards are not credit cards and everything was fine. Things got sticky when iOS 12.3 introduced EMV Express Transit that uses bank issued credit/debit/prepaid cards for transit on Apple certified open loop systems. Currently these are Portland HOP, NYC OMNY and London TfL.

HOP and TfL don’t have problems with Express Transit. Both systems use contactless exclusively. HOP has stand alone validators, not gates. TfL gates have the NFC reader located on the top. OMNY on the other hand will have MetroCard swipe cards around for years to come: the OMNY transit card replacement is still in development with no release date. With the slow transition pace and current gate design expect the OMNY Express Transit problem to be around until MetroCard is dead, and OMNY is complete with the new tap only card.

In retrospect MTA should have done it this way: (1) rollout out the OMNY card MetroCard replacement first and add open loop support as the very last thing, (2) design better OMNY gates in two kinds, dual mode NFC + swipe, and single mode NFC only. This way MTA stations could do what JR East stations do: start with single mode tap only express gates on the edges and dual mode gates in the middle. As the transition progresses the dual mode gates get fewer and pushed to the sides with single mode gates taking over.

Apple could help by keeping automatic Express Transit opt in only for native transit cards (Suica, SmarTrip etc.). EMV Express Transit should always be a manual opt in. I understand Apple’s perspective: they want to present Apple Pay Express Transit as a seamless one flavor service, not good/better/best Express Transit flavors. The reality however is that the current technology powering EMV open loop fare systems isn’t up to native transit card standards. Apple can’t fix that.

Unfortunately MTA has taken the dumb path of blaming Apple instead of fixing their own problems. New York deserves a world class modern transit system, OMNY is an important step in building one. MTA management performance so far doesn’t inspire much confidence. Let’s hope they focus on the rollout and deliver it without more delays or problems.