In case you are not a DOUTOR regular, you may not have noticed that they recently added QUICPay and iD to their cashless payment options. What’s interesting is that QUICPay and iD are the only way to pay with credit/debit cards. It’s completely contactless, the only swipe-able item is the DOUTOR prepaid store card (which is MIFARE on the reader btw). In other words DOUTOR is all ready for the CASHLESS rebate program that starts tomorrow along with the 10% consumption tax.
But DOUTOR is not listed in the iOS CASHLESS App. 7 Eleven, FamilyMart and Lawson are listed there, but MiniStop is not. What is going on? The CASHLESS rebate program is rolling out in waves. The first cut of 500,000 CASHLESS rebate stores goes online October 1, with successive waves at, hopefully, regular 10 day intervals until everybody is onboard. This keeps payment systems from overloading which I think is smart, as a Japanese friend put it, “It’s the smartest thing the Japanese government has done so far.”
You might notice double listings for CASHLESS rebate stores, one for credit cards, one for QR, one for e-payment cards. This is also a startup limitation. Store listings will be consolidated after the program starts.
There are some interesting startup store differences, DOUTOR and Starbucks are not listed, but Cafe Colorado is, and get this: they have the Odagiri Joe marketed AirPay system in place that takes everything from Suica to credit cards to NFC Pay. The local franchise owner is even excited about putting up his CASHLESS poster tomorrow.
If that’s not cashless progress, what is? Regardless of whether the CASHLESS rebate is ‘a success’ or not, it will be a tipping point. Already I notice a shift in public perception: if a store is cash only, it definitely looks behind the times in the minds of customers.
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.
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.
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.
Year over year contactless payments use in the first slide basically covers the same period of the MMD Labo report but with different questions. The Rakuten data shows Rakuten Pay in the lead, naturally, at 15.2% and Apple Pay in 2nd place at 12.9%. The MMD numbers showed Rakuten Pay at 13% and Apple Pay at 20%. Google Pay only added Japanese payment support in May 2018 so the full impact will take time to play out, the 30% Osaifu Keitai use figure from the MMD report suggests a possible outcome.
As I explained in the earlier post, Apple Pay use is highly regional and tied to Suica compatible transit routes. In major metropolitan areas Apple Pay use is higher than Rakuten but Rakuten has done a good job building an ecosystem of e-commerce, travel reservations and other services that offer members large discounts and points. That’s the reason behind the robust growth from 3.4% and the larger nationwide average use figure.
Apple Pay Suica is the entry point for Apple Pay use, the more incentives that customers have to use Suica the faster Apple Pay use in Japan will grow. Sachiko Watatani pointed out that only 27% of Apple Pay Japan capable device users actually use Apple Pay, that represents a lot of potential users sitting on the fence. The Rakuten Pay growth rate shows that points and discounts are great incentives but Apple Pay Suica, convenient as it is, doesn’t offer that. At least not without going to the trouble of getting the right Apple Pay credit cards for the right points. And even then, as setting up and using the JRE POINT app makes clear, it’s not user friendly.
The next big opportunity for Apple Pay Suica growth is ‘Super Suica’ that will unite transit cards, commuter passes and various transit point systems in a single format for plastic and mobile. Unfortunately this doesn’t happen until April 2021. Until then Apple Pay Japan needs to add the other e-money prepaid cards (WAON, nanaco, Rakuten Edy) and as many point system reward cards to Wallet as possible to keep growing. Not only that but also make them work better together than they do on their own. Think PONTA card with the kinks ironed out.
The ‘thin client’ mobile Android based smart reader handles every payment protocol there is.
Contactless: EMV, FeliCa, MIFARE Hardware: EMV IC, Magnetic stripe QR Codes: D-Harai, Pay Pay, Line Pay, Ali Pay, WeChat Pay, Origami Pay, Rakuten Pay Reward Cards: D-Point, Ponta, Rakuten
GMO Payment Gateway provides the payments processing backend for Royal Gate and Daiwa House Financial handles the business client support side. The product video shows the business target: small cafes, restaurants, boutiques. With the ever-widening rollout of EMV contactless and QR Code payments, Japan is turning into a very interesting and unique intersection point of Western EMV payments, home-grown FeliCa and China market driven QR Code payment schemes.
I don’t think having home grown QR Code payment systems around is a bad thing even though most Japanese don’t use them. The value is that it gives Japanese banks and companies a bargaining tool to use with Apple, Google, Amazon, Alibaba Group and WeChat. Never get in a sword fight without a sword.
Back in the pre-iPhone era Japanese manufactures were busy churning out internet connected, e-wallet capable handsets with high quality cameras (for that time) that most of the western IT media pooh-poohed: ‘nobody needs all that fancy stuff’.
Unfortunately the Japanese IT media paid way too much attention to it all endlessly handwringing over the Galapagos Syndrome of Japanese technology that nobody seemed to need or want. Worse than that, people actually bought the media con. Then something strange happened in 2016 when Apple unveiled FeliCa Apple Pay and went global with it in 2017.
Weak Security and QR Code Chinese payment apps keep transaction records in Mainland China
Device needs be on and screen active
No ‘on the spot’ refunds
Merits of FeliCa (NFC-F) Payments
Works without network connection
Very fast transactions
High security and transaction records stay in Japan
Device can be in battery reserve mode sleep or screen off
On the spot refunds
Fortunately there is one Japanese journalist who is calling it: Masahiro Sano. Sano san’s latest piece on Nikkei notes the irony of Japanese companies falling over each other to roll out useless redundant QR Code platforms because QR Codes are “standard in China” (and nowhere else), while Apple and Google are deploying FeliCa as one more standard checklist item on their digital wallet platforms.
Fake QR Code payment mania confuses customers. Put another way QR Code payment platform apps are about de-centralizing the digital wallet into an ever-growing collection of apps while Apple Pay and Google Pay are about centralizing different technologies into a unified and smooth user experience for payments, tickets, IDs, reward cards and more. Which approach do you think will win in the long run?