Someday We’ll Be Together

iOS 12.2 beta 6 has dropped with no sign of Smart Octopus support in Apple Pay from beta code spelunkers like Guilherme Rambo. A source close to the Cupertino mothership also indicated the situation in Hong Kong is “complex.” Live by the rumor and pay the price, it looks like the story sources and my judgement were wrong: Smart Octopus won’t be on Apple Pay when the OS 12.2 update is released at the March 25 Apple Special Event. Nevertheless, I stand by what I wrote back in December:


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.

Smart 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.

Smart 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.

I also have a new prediction that we’ll see Apple Pay Smart Octopus with the next major iOS release iOS 13, in 6 months. Take it for what it’s worth, but I feel confident that we can celebrate some good news at that time.

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Another step for global FeliCa

It’s nice that NXP and FeliCa Networks (all things FeliCa mobile owned by Sony, Docomo and JR East) have collaborated on putting EMV, FeliCa and MIFARE on one chip. The NXP PN81 does it all and is certified for FeliCa too and not just NFC A-B-F:

FeliCa Networks and NXP share the vision to provide global travelers and  mobile phone owners in Japan an integrated contactless experience for payment, ticketing, and other popular use cases towards 2020 and beyond,” said Tomoharu Hikita, president and CEO of FeliCa Networks.

It sounds like global FeliCa for any smart device, something which Apple has been selling worldwide since 2017. Let’s hope Android manufacturers can start offering it too with the NXP PN81.

Dear Tim

Dear Tim

In uncertain and challenging times it’s more important than ever to look for good opportunities. Here is one for the Japanese market. Did you see that news item from JR East about all those old Osaifu-Keitai models being dropped from Mobile Suica in 2020? That’s a few million upgrade opportunities right there.

How about doing a nice little marketing campaign with the Japanese carriers offering a nice trade in price for those old Osaifu-Keitai with a discount on a iPhone XR or iPhone 8? I know, I know, you only want to sell iPhone XR but until the Face ID camera has magic x-ray ability at an affordable price, all those face mask users in Japan will really appreciate a Touch ID iPhone 8 choice. Offer trade in customers free assistance moving and setting up their Mobile Suica accounts in Apple Pay Suica at local Apple Stores. I’m sure it would be a success.

And while you’re at it offer a nice little replacement campaign for those pesky iPhone X units that don’t work with Suica. There are a lot of Japanese customers who would really appreciate Apple reaching out to help and would probably upgrade with a little encouragement and a bug free iOS 12.

Oh and one last thing, offer a similar little iPhone XR/iPhone 8 upgrade campaign in Hong Kong when Apple rolls out Smart Octopus on Apple Pay. With 33 million Octopus card users in Hong Kong I’m sure it would help iPhone sales there too. Apple has a wonderfully unique global FeliCa strategy tucked away in Apple Pay, used wisely it could be a great sales tool.

Love and kisses,

Ata Distance

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.

The Japanese Transit Platform Business Model

It’s about time. Somebody from outside Japan finally took in the big picture of the Japanese Transit Platform model and wrote a business outline of it in English. Egon Terplan of the San Francisco Bay Area Planning and Urban Research Association (SPUR) came to Tokyo and liked what he saw: Falling in Love With the Trains of Japan.

By 2017, Japanese trains carried nearly 30 percent of all rail passengers in the world, more than all of Europe. But unlike many European countries, Japanese rail companies are privatized, with for-profit publicly traded companies running separate rail lines all around the country.

JR East, the largest of the JR companies, carries 17 million passengers per day on 12,300 trains. (By comparison, Amtrak carried just 31.3 million passengers during all of 2016, a record year in ridership; the New York City subway averages 5.5 million daily rides and BART, 430,000.) And JR East’s $26 billion in annual revenue includes no government subsidies.

Terplan then lists what he thinks are the major components:

  1. Allow rail operators to become real estate developers to capture the value they bring to the stations.
  2. Turn stations into major destinations.
  3. Build over tracks to create new land opportunities.
  4. Dramatic reductions in travel time between cities can lead to major increases in rail’s market share.
  5. Interoperable rail cards (Suica, etc.) are key to making rail easy to use nationwide.

Essential points all, but Terplan doesn’t explain the importance of how all the different infrastructure pieces not only integrate (Shinkansen, regular lines, subway, buses, station retail, services, Suica, etc.) but also create a whole that is much larger than the sum of parts, and why. Perhaps he is only outlining the model and will return with a deeper analysis later. I certainly hope so because it’s a great transit model for other countries to adapt and adopt. Hong Kong already has a similar system on a smaller scale as does South Korea and Taiwan.

The last component, nationwide interoperable Japan Transit IC prepaid cards for transit and store purchases aka Apple Pay Suica, is the secret sauce binding everything together into a tight slick business model. That is the missing why and it’s just starting: interoperable features like Shinkansen e-ticketing, commuter passes, local loyalty point systems and hosting everything on digital wallets are still weak points. JR East and Sony are busy creating the next generation ‘Super Suica’ format that aims to integrate everything while reducing costs and taking it to the next level.