AquaBit Spirals CEO Tomo Hagiwara took up my challenge earlier this year to raise the Japanese Softcream Cashless Index (SCI) to ‘over 5’ in time for the Tokyo Olympics. I figure if mundane softcream stalls are cashless, Japan is truly cashless. Today his company is teaming up with industry heavyweights JR East, Sony and DNP to deliver on that promise and bring inexpensive MaaS (Mobility as a Service) NFC tag payments (via AquaBits SmartPlate) to the masses, and the masses of merchants who don’t want to shell out for NFC reader checkout hardware. It’s the first real NFC challenge to inexpensive, infrastructure light QR Code payment schemes that leverage the established base of mobile networks and smartphones. Small businesses only need to sign up for an online payment service and put a NFC tag sticker on the checkout counter.
Since all NFC flavors (NFC A-B-F) are required for smartphone NFC certification, Read/Write FeliCa tags work on any smartphone with NFC-F even if FeliCa transactions keys for card emulation (Suica, iD, QUICPay, etc.) are not installed. Translation: inbound Android devices can use NFC tag FeliCa payments even if they can’t use Suica.
The one remaining question on the Apple side of the equation is what NFC tag integration Apple Pay has in store. Jennifer Bailey announced NFC tag Apple Pay testing back in May without a delivery date, and no details since. Ideally an NFC tag integrated Apple Pay would use Sign in with Apple to streamline or eliminate 3rd party payments service account signup within an app, and without an app via background NFC tag reading. The more ‘it just works’ integration, the better. Nobody wants to signup for a PayPay-like service on the spot just to buy hotdogs and beer at a stadium game, or softcream.
I suspect there are a few reasons for the brouhaha. The Oyster IC transit card has been around since 2003, open loop EMV contactless cards service started in 2012, Apple Pay support arrived in 2015. MTA on the other hand only started OMNY with very limited open loop transit service in late May. The majority of MTA users still do the MetroCard manual swipe thing. In short TfL users are very familiar with Oyster transit IC cards, contactless bank cards and Apple Pay. They are well aware of the Express Transit difference. The same is true for Apple Pay users in areas like Sydney with a similar transit card system.
MacRumors did a good job of reporting the initial Express Transit on TfL test ramp up before the official debut. Joe Rossignol’s explanation of Express Transit mode support in “parts of Japan” is rather odd though. Which parts does he think don’t work?
The Suica part covers JR East, but since Suica is part of the Japan Transit IC Mutual Use Association this means that Apple Pay Suica works with the PASMO, ICOCA, manaca, nimoca, Pitapa, Toica, Sugoca, Kitaca and Hayaken parts. The Okinawa part will be joining in April 2020. Maybe Rossignol means the parts outside of the blue square mutual transit use area? Most of these are already transit compatible with Apple Pay Suica (the ones with IC arrows pointing at them). This leaves the ones without IC arrows, which will be joining with Super Suica in 2021.
With the exclusion of the soon to join Okinawa OKICA, Apple Pay Suica already covers all the major transit parts in Japan. I have no idea which Apple Pay Suica incompatible parts Rossignol is referring to. The Minobu line? The Oigawa Railway? It is a mystery.
MacRumors reported that Apple Pay Express Transit support is finally arriving, bit by bit, on the TfL system after being announced back in May. I only noticed the piece because somebody threw a link to my site in one of the forum comments and the discussion has some interesting, and deliciously snarky, open loop bank cards for transit vs. native transit card debate.
The ‘Japan has a transit IC card problem’ angle is interesting. Yes, Japan does have a transit IC card problem, if you work for a bank credit card operation that wants to promote open loop, which I suspect is the case in the forum debate. The counter argument presentation-like power points are just too glib: to date no major transit system has junked native transit cards for bank cards, not even Oyster. Transit is a license to print money and the huge transaction volumes in Tokyo alone are mouth watering. The ‘problem’ for bank card players is how to angle for a bigger cut of the action.
Tech analysts love to talk about ‘value capture’. The current cashless payments frenzy in Japan is all about capturing users to sign on with a payment platform then growing the ecosystem with more and more services that users, hopefully, want to pay extra for. Nobody talks about this in the open loop vs closed loop debate. The bank that owns the credit card owns the customer going through the transit gate, not the transit company. Put it this way, JRE POINT that go back into free Suica recharges, Green Car upgrades, etc. are vastly different from bank card points, as are the business platforms they feed customers back into. Moving people are money in motion, who gets a cut and what businesses do with that cut is everything.
It an interesting paradox that Europe and America talk about privatizing public transportation in various degrees but to date only Japan and Hong Kong have built highly successful businesses based on ‘value capture’. The endless open loop vs closed loop debate always comes down to this: you can argue all you want about the parts but in the end it is meaningless. To truly understand things, you have to examine the whole business model, how everything fits together, and how that can benefit everybody while growing and evolving.
As I have pointed out countless times on this blog, Apple Pay Suica is one of the best Apple Pay services that Apple has hosted on its platform so far. The first transit card on Apple Pay remains the best: it combines the speed of the Suica transit card FeliCa architecture, the convenience of the Mobile Suica cloud, and the flexibility of the Apple Pay recharge backend.
This last point is under appreciated. The deal Apple and JR East worked out is the secret sauce: Apple Pay cards in Wallet just work for recharge, from Japan or from abroad, with no extra fees across the board, users earn points for the card of their choice. And users still have the option to recharge with cash if they want to.
Toyota Wallet is built using the PAYCIERGE platform from TIS. The user has a choice between payment with QR/Bar Code in the Toyota Wallet app with Origami Pay or Bank Pay accounts, or payment with a dual mode EMV/FeliCa iD Mastercard prepaid card in Wallet with the backend recharge hosted from Toyota Wallet.
An interesting side note here is that both PayPay and Line Pay have said that FeliCa cards are a possibility. Up until now this has just been lip service. It would be a welcome development if the Line Pay/Yahoo Japan merger produces a FeliCa payment option similar to what Toyota Wallet has done.
Toyota Wallet is still not open in the way that Apple Pay Suica is. All of the ‘recharge’ methods are in the SMBC orbit, even iD recharge credit cards have to be SMBC issue (such as Docomo dCard) Visa or Mastercard to avoid hefty recharge fees. It’s not perfect and remains chained to the SMBC financial ecosystem, but Toyota Wallet does point a way forward that I hope Toyota Finance Corp. continues to improve, and that other payment system operators follow.
Summary The Toyota Wallet flexible backend/flexible frontend development is a step forward for digital wallet possibility. This is the first Japanese wallet app where the frontend technology is a simple user choice, not a straitjacket. It shows the innovation possible in Japanese payments market where the focus is on creative thinking. That this kind of innovation comes first on the Apple Pay platform says all you need to know about Apple Pay being open. Compare this approach to the Europe one where the focus is forcing others to solve problems that Europeans should be solving themselves. That approach is a political one, not innovation.
The German law to force Apple to open it’s “NFC chip” is a confusing one. Why does an EU country with one of the lowest cashless usage rates single out one company’s NFC product in a last minute rider to an anti-money laundering bill? That’s not banking policy, it is politics. Details are few but let’s take a look at what it could mean because when it comes to NFC technology, details are everything.
Background stuff The so called Apple ‘NFC chip’ is not a chip at all but a hardware/software sandwich. The Apple Pay ecosystem as described in iOS Security 12.3 is composed of: Secure Element, NFC Controller, Wallet, Secure Enclave and Apple Pay Servers. On one end is the NFC chip controller front end that handles NFC A-B-F communication but does not process transactions, on the other end there is the Secure Enclave that oversees things by authorizing transactions. The fun stuff happens in the Secure Element middle where the EMV/FeliCa/MIFARE/PBOC transaction technologies perform their magic with Java Card applets.
The A/S Series Secure Enclave and Secure Element are the black box areas of Apple Pay. The iOS Security 12.3 documentation suggests the Secure Element is a separate chip, but Apple’s custom implementation of the FeliCa Secure Element, and the apparent ability of Apple to update Secure Element applets to support new services like MIFARE in iOS 12 suggests something else, but it is anybody’s guess. Apple would like to keep it that way.
So what does ‘open NFC’ really mean? It’s helpful to look at the issue from the 3 NFC modes: Card Emulation, Read/Write, Peer to Peer.
Peer to Peer Apple has never used NFC Peer to Peer and I don’t think this is a consideration in the ‘open NFC’ debate.
Card Emulation Apple limits NFC Card Emulation to Apple Pay Wallet with NDA PASSKit NFC Certificates. This is what the ‘open NFC’ debate is all about. I imagine that German banks and other players want to bypass the PASSKit NFC Certificate controlled Apple Pay ecosystem. Instead, they want open access to the parts they want, like Secure Element, NFC Controller, Secure Enclave, and ignore the parts they don’t want like Wallet and Apple Pay Servers. They want the right to pick and choose.
The success of Apple Pay has been founded on the ease of use and high level of integration from a massive investment in the A/S Series Secure Enclave and other in-house implementations such as global FeliCa, etc. Outside players forcing Apple to open up the Apple Pay ecosystem represent not only a security risk to Apple but also a reduced return on investment. One commentator on MacRumors said it’s like Apple took the time and expense to build a first class restaurant and outsiders are demanding the right to use Apple’s kitchen to cook their own food to serve their own customers in Apple’s restaurant. It’s a fair analogy.
The NDA PASSKit NFC Certificate gate entrance rubs bank players the wrong way as they are used to giving terms, not accepting them. The Swiss TWINT banking and payment app for example is a QR Code based Wallet replacement that wanted the ability to switch NFC off, and got it.
My own WWDC19 Apple Pay Wish List did include a wish for easier NFC Card Emulation, but nothing appeared. It’s certainly in Apple’s best interest to make it as easy as possible for 3rd party developers to add reward cards, passes, ID cards, transit cards, etc. to Wallet. However given that the EU is hardly what I call a level playing field, the fact that bank players and politics go hand in hand in every nation, and the fact we don’t know the technical details of what the German law is asking Apple to do, all we can do is guess. In general, I think Europe will be a long rough ride for Apple Pay. At least until EU bank players get deals they are happy with.