The Transit Platform Argument

A reader asked some very good questions regarding the Suica Transit Platform model and Open Loop:

1) Thinking about this recently – is there a non-techie argument for introducing Suica-type cards in the current day in places with preexisting open-loop infrastructure, wide debit card adoption (even kids), and little overcrowding at ticket gates due to lower volumes?

2) As a tech & transit nerd, I obviously love them, but what could be a convincing, economically sound pitch to a transit operator for creating/adopting an integrated transit&e-money system, given the significant expense and questionable added value?

3) Answers to possible q’s about EMV contactless: 1. 定期券 (commuter passes) & discounts can be tied to card no.; 2. solution for visitors: in-app/paper/multi-trip tickets (like in SG). Obv., Suica has superior privacy & speed, but where speed is not an issue, what’s the killer argument?

I tweeted a response but Twitter is a terrible vehicle for long form discussion. I have many posts on the subject scattered over 2 years, it might be convenient to summarize a few things here.

Any argument for building a Transit Platform or going all in with Open Loop transit comes down to transit company priorities for safe operation, better customer service and long term business goals. A few crucial points to consider.

Whose customer?
A vital point that many people miss in the Open Loop debate is that transit users end up as the bank card customer, not the transit company customer. That might seem like an insignificant difference but ‘owning the customer’ is the whole game and key to growing any kind of business, in our era or any era. Which brings us to the next point because the best way to own the transit customer is…

Cards
Cards are the delivery vehicle for all kinds of service goodies from transit, to points, rewards and all kinds of services. The beauty of a non-bank transit pre-paid card is its flexibility, it can be a simple ticket that customers buy with cash from a station kiosk, it can be linked to an online account with credit cards, extended transit services and beyond. Cards are convenient but not transformative however, until they land on a smartphone…

Digital Wallets
The most powerful card incarnation is the digital wallet transit card with a flexible recharge backend, where any bank card can used, or even cash, and a flexible front-end that can be any flavor of NFC, UWB Touchless or even QR. I say it’s better for the transit operator to decide what payment technology works best for their needs and how to deliver better customer service with new payment technologies, not banks.

Value Capture
Value Capture applies to rail and transit operators with the rights to develop the land around their stations, I include station retail development and operations. Owning a transit + payment card like Suica or Octopus combined with retail opens up a whole new levels of value creation and capture.

It’s also important to remember a few other dynamics, (1) Transit is the golden uptake path for contactless payments, (2) Contactless payments are most successful when a transit payment platform, like Suica, is matched with a mobile wallet platform, like Apple Pay. The key is building better services tied to transit cards that benefit customers and businesses of the entire transit region.

Other Details
Regarding detail questions such as attaching commuter passes to EMV cards and special ticketing, I am no systems design expert but a few things come to mind. First of all we have not seen Open Loop commuter passes because the EMV spec doesn’t store anything locally and there are always security and performance issues to consider when everything is done in the cloud with soft-linked registration to system outside numbers.

The classic catch 22 here is that when the soft-linked number changes on one system, everything attached to it on the other system stops working. This is a constant weakness of the SmartEx and new JR East Shinkansen eTicket service. And what happens if the bank pulls a card mid-transit? These things happen. They are endless headaches when linking to any outside system, for this reason Open Loop sticks with the simple stuff while transit operators keep the more complex stuff in-house. In general the more complicated the fare configuration, the less likely it can be synced with an outside system or be hosted on Open Loop.

For low volume specialty ticketing QR Codes are the easiest step up from paper but they can be printed on ordinary paper for transit users without smartphones and needs to be there. This is why JR East is deploying QR code readers in some gates as they prepare to end mag strip ticketing.

NFC Contactless Passes might sound like a good idea but Apple Pay VAS and Google Pay Smart Tap were designed more for retail in mind, and the transit gate reader system would have to juggle a different protocol that isn’t EMV, FeliCa or MIFARE. It could be done, but judging from my experience of using Apple Pay VAS PONTA and dPOINT cards, QR Codes are faster and likely easier to implement.

In the long run there are no easy solutions. The risk of Open Loop is that it is sold as a general easy ‘fix all’ and mobile solution, which it’s not. This lulls transit operators into complacency instead of improving Closed Loop ticketing systems and extending them to the mobile digital wallets. The bigger and more complex the transit system, the less Open Loop can accomplish.

Relevant Core Posts
The Contactless Payment Turf Wars: Transit Platforms (an intro)
Transit Gate Evolution: Do QR Codes Really Suck for Transit? (a deeper dive into transit cards, gates and technology)
Value Capture and the Ecosystem of Transit Platforms (the bigger picture)
The Japanese Transit Platform Business Model (an outside perspective)

iOS 14 Apple Pay: going the distance with Ultra Wideband Touchless and QR

It’s that time of year again to look into the WWDC crystal ball and see what changes might be in store for Apple Pay. 2019 was an exciting year with the important Core NFC Read-Write additions for ISO 7816, ISO 15693, FeliCa, and MIFARE tags. Since then we’ve seen iOS apps add support for contactless passports, drivers licenses, retail and manufacturer vicinity NFC tags, transit ticketing, badging, and more. Some expectations ended up on the cutting room floor. The NFC tag Apple Pay feature that Jennifer Bailey showed back in May 2019 has yet to appear. Apple Pay Ventra and Octopus transit services slated for 2019 and iOS 13 failed to launch, as of this writing, still delayed.

Predicting anything in 2020 is risky business because of the COVID-19 crisis. iPhone 12 might be delayed, iOS 14 might be delayed, features brought forward, pushed back…all plans are up in the air. Some developments are clear, but timing is opaque. What follows is based on: (1) NTT Docomo announcement of Ultra Wideband (UWB) ‘Touchless’ Mobile FeliCa additions and JR East developing UWB Touchless transit gates, (2) CarKey and the Car Connectivity Consortium Digital Key 3.0 spec, and (3) Mac 9to5 reports of AliPay coming to iOS 14 Apple Pay.

Going the distance
The NFC standard has been around a long time, long before smartphones, conceived when everything was built around close proximity read write physical IC cards. The standards have served us very well. So why are NTT Docomo and Sony (Mobile FeliCa) and NXP (MIFARE) adding Ultra Wideband + Bluetooth into the mix?

UWB + Bluetooth delivers Touchless: a hands-free keep-smartphone-in-pocket experience for unlocking a car door, walking through a transit gate or paying for takeout while sitting in the drive thru. It’s the same combo that powers Apple AirTags. UWB Touchless delivers distance with accuracy doing away with “you’re holding it wrong” close proximity hit areas necessary when using NFC. With Touchless your iPhone is essentially a big AirTag to the reader,

For Apple Pay Wallet cards it means hands free Express Card door access, Suica Express transit gate access and payments that ‘just work’ by walking up to a scan area or car. As Junya Suzuki pointed out recently, UWB Touchless is passive vs. the active NFC ‘touch to the reader’ gesture, as such it will live on smartphones and not on plastic cards. Those will remain limited to NFC which does not require a battery.

Secure Element evolution and digital key sharing
The addition of UWB Touchless however means that the Secure Element, where transaction keys are kept and applets perform their magic, has to change. Up until now the Secure Element worked hand in glove with the NFC controller to make sure communications between the reader are secure and encrypted. For this reason an embedded Secure Element (eSE) usually resides on the NFC controller chip.

Apple chose to put a Global Platform certified Apple Pay eSE in their own A/S series chips. The arrangement gives Apple more control and flexibility, such as the ability to update Secure Element applets and implement features like global NFC. The addition of UWB Touchless in FeliCa and MIFARE means both smartphone and readers need new hardware and software. Apple already has UWB in the U1 chip on iPhone 11. Mobile FeliCa software support could be coming with the next generation ‘Super Suica’ release in the spring of 2021 that requires updated FeliCa.

Recent screen images of a CarKey card in Wallet…with Express Mode can we call it Suicar?

The arrival of UWB Touchless signals another change in the Secure Element as shown in middle CarKey screen image: digital key sharing via the cloud where the master key on the smartphone devices ‘blesses’ and revokes shared keys. Mobile FeliCa Digital key sharing with FeliCa cards and devices was demonstrated at the Docomo Open House in January, also outlined in the Car Connectivity Consortium (CCR) Digital Key White Paper. An interesting aspect of the CCR Digital Key architecture is the platform neutrality, any Secure Element provider (FeliCa, MIFARE, etc.) can plug into it. Calypso could join the party but I don’t see EMV moving to add UWB Touchless because it requires a battery. EMV will probably stick with battery free NFC and plastic cards.

Diagram from Car Connectivity Consortium (CCR) Digital Key White Paper

The QR Code Equation
There is another possible eSE change for Apple Pay. If the 9to5 Mac AliPay for Apple Pay iOS 14 rumor is true, it represents a huge change for Apple Pay which has strictly limited payment transactions to NFC. The whole identity of Apple Pay is NFC cards vs. Wallet which can hold both cards (NFC) and passes (NFC or QR/Barcodes).

A few weeks ago a reader asked for some thoughts regarding the AliPay on iOS 14 Apple Pay rumor with a link to some screen/mockup images on the LIHKG site. Before getting to that it’s helpful to review some key Apple Pay Wallet features for payment cards: (1) Direct Face/Touch ID authentication and payment at the reader, (2) Device contained transactions without a network connection, (3) Ability to set a default main card for Apple Pay use.

The images suggest a possible scenario implementing AliPay in iOS 14 Apple Pay:

  • AliPay has a PassKit API method to add a ‘QR Card’ to Wallet.
  • Wallet QR Card set as the main card is directly activated with a button double-click for Face or a Touch ID authentication and dynamic QR Code payment generation in Apple Pay.
  • Direct static QR Code reads activate AliPay Apple Pay payment.

If Apple is adding AliPay to the ranks of top tier Wallet payment cards, they have to provide a way in. The new “PKSecureElementPass” PassKit framework addition in iOS 13.4 could be just that. Instead of PassKit NFC Certificates, the additions suggest a Secure Element Pass/certificate. Secure Element Certificates instead of NFC Certificates, or better yet completely decouple the Secure Element from NFC so that there are 2 kinds of certificates: a Secure Element Pass for Secure Element transactions, and a NFC Certificate for non-Secure Element NFC use such as VAS passes which pull everything off a JSON server. In the long run Apple has to provide finer definitions and distinctions for NFC and UWB access instead of one big black box that PassKit NFC Certificates have been up to now.

The burning question here is does AliPay have a Secure Element Java Card applet performing transactions with keys and no network connection? If so we have QR Wallet payment cards. Direct Apple Pay Wallet QR integration with would open up things for 3rd party (non bank) payment players. QR integration with separate access controls for the Secure Element and NFC/UWB hardware frontend might also help Apple skirt NFC monopoly allegations that got Apple Pay in trouble the Swiss government.

Dual Mode and flexible front ends
The addition of QR and UWB with NFC for payments opens up a long term possibility suggested by Toyota Wallet. The current app lets the user attach a QR code app payment method and/or a NFC Wallet payment method to an account. It’s intriguing but clunky. Wallet QR Payment support would allow Toyota Wallet to move the entire payment front end to Wallet and let the user choose to add one or both.

It’s the latter that interests me most. Instead of having separate NFC and QR payment cards from the same issuer for the same account, I’d much rather have one adaptive Wallet card that smartly uses the appropriate protocol, QR, NFC, UWB for the payment at hand. Ultimately I don’t believe that payment players need or want to anchor their services to specific technologies like QR or even NFC. AliPay may have needed QR to start they payment business, why not offer NFC and UWB if it’s there as a front end choice? It’s all virtual.

Capable, flexible, smart. This is what digital wallets should do, things that plastic can never achieve. Let’s hope Apple Pay Wallet makes it there someday, and that payment and transit providers are up to the mix and match challenge in the Touchless era.

Apple Wallet Docomo d POINT contactless rewards card launching February 18

Apple Japan recently tweaked the Apple Pay web page artwork. Instead of 3 iPhone Apple Pay images there are now 4, one of which features the PONTA contactless rewards card. Why would Apple feature it only now when Apple has ignored PONTA since the October 2018 launch? Now we know why: the Apple Pay version of Docomo d POINT Card is launching February 18. Twitter user Ballpen caught a few early bird launch campaign posters outside a LAWSON store showcasing Apple Pay d POINT with a NFC mark, just like PONTA. The launch campaign will run from February 18 to April 17 offering 7X bonus d POINT when using Apple Pay at LAWSON.

The LAWSON POS is built around the Panasonic JT-R600CR reader that is Apple Pay savvy and supports the VAS protocol. Apple Wallet Ponta at LAWSON uses VAS (NFC A) for reading and linking reward card information with a purchase. Docomo d POINT Apple Pay will also use VAS but there is more to it. Docomo d POINT has a far larger Godzilla sized market footprint than PONTA, and Docomo is looking to streamline its siloed payment services: d CARD (plastic), iD (NFC FeliCa), d POINT rewards card and the new d BARAI QR Code payment system into an intelligently integrated service package that can best SoftBank PayPay market performance.

Docomo announced in November that it would merge some d Barai functions into iD with an updated iOS app at some point. It looks like that app is coming February 18 that adds the user d POINT Card to Wallet. The real question is how it works on the updated LAWSON POS system and plugs into iD payments. Do we say ‘Apple Pay’ at checkout like we do for PONTA points, ‘iD’ or something else? Tune in for details in tomorrow’s press release. Now if only JRE POINT would go Apple Pay, I’d be finally free from plastic reward cards cluttering up my real wallet.

UPDATES
Apple Pay Docomo d POINT Card is live, it works just like PONTA at LAWSON, say ‘Apple Pay’ at checkout then select d POINT or PONTA on the checkout touchscreen. There is a Wallet notification UI bug that displays the PONTA icon instead of d POINT when adding points but they are added correctly.

5G Contactless Payments Part 1: Fast QR vs Ultra Wide Band enhanced FeliCa and MIFARE

Payment empire players envision a brave new world of 5G enhanced contactless payment solutions, seen in recent moves by JR East and other major Japanese transit companies to replace expensive legacy mag strip ticketing with lower cost QR Code ticketing. 5G flavored QR Code and ‘Touchless’ Ultra Wide Band (UWB) Mobile FeliCa solutions were also on display at last months Docomo Open House 2020. How can it be that Docomo is developing Ultra Wide Band Mobile FeliCa and QR Code solutions?

The endless push pull of ‘this contactless payment works great for me’ that drives somebody else crazy is endless fascinating. We have more choices than ever: digital wallets, plastic cards, face recognition, NFC, QR Codes, etc. 5G and UWB promise to mix things up even more.

Ultra Wide Band enhanced FeliCa and MIFARE Apple CarKey?
The evolution of EMV, FeliCa, MIFARE and other similar protocols as they transition from plastic smartcards to digital wallets devices opens up opportunities to include other radio technologies like Ultra Wide Band and Bluetooth in addition to NFC. Ultra Wide Band Touchless FeliCa on display at the Docomo Open House was all about cars, not Touchless walkthrough transit gates that will appear in a few years.

Touchless FeliCa makes great sense as a ‘NFC car key’ that utilizes UWB for operation at greater distance and better accuracy when needed. Touchless makes even more sense as a ‘keep phone in pocket’ touchless payment method for drive thru purchases. The addition of UWB into the mix makes smartcard protocols much more useful than just NFC. I would certainly welcome a smartphone UWB powered Touchless FeliCa replacement that ditches the need for automobile ETC cards and readers on Japanese expressways.

How UWB enhanced FeliCa would fit with Apple’s new CarKey feature said to be coming with iOS 13.4 is unknown but iPhone already supports FeliCa. UWB touchless support for iPhone 11 and later models is a logical evolution. Sony and Docomo are developing the technology with NXP which certainly means that MIFARE will also support UWB enhancements. The long history of FeliCa and MIFARE as keycard solution providers is a natural fit with Apple CarKey. NFC is the only protocol that has been discovered in iOS 13.4 beta CarKey framework so far but I would not be surprised if UWB code references turn up at some point.

5G Cloud vs Local Processing
The Docomo Open House also showcased a QR Code transit gate with 200 millisecond (ms) transaction processing but the real star was the speed of 5G. 5G powered cloud processing promises to upend the current advantage of locally processed prepaid stored value cards…cards like Suica.

The basic promise of 5G is that IT system designers finally achieve a nirvana of everywhere, always available, big pipe central processing without wires, the big cloud. The original Suica card design effort back in the 1980’s had to leverage local processing because central processing wasn’t up to the task of handling massive transaction volumes of a Tokyo-Shinjuku-Ikebukuro station at peak rush hour. This is why Suica cards are stored value by design, the FeliCa technology behind the card design delivers 200 ms and faster transaction times for local processing at the transit gate. What happens when 5G promises, in theory, to deliver 200 ms central processing?

Kill mag strip paper tickets first then Suica?
As Junya Suzuki points out in his article ‘Is QR the future of Suica?‘, transit QR Codes on the complex Japanese transit network only need be a unique local passkey with everything else, verification, transaction, etc., done in the 5G cloud. The same concept applies for facial recognition systems where the registered face is the unique local passkey. With the power and speed of 5G, Suzuki san argues that the need for Suica-like local processing falls away. In his scenario all Suica needs to be is a unique passkey that can lose stored value functions.

I understand his point, Suzuki san comes from an IT system background, as a journalist he has covered JP transit payment system developments for a long time. For low traffic stations a Suica-lite 5G cloud based network makes sense and does away with the expensive hard wired transit gates. Just one year ago JR East said they are building a cloud networked Suica to cover all non-Suica areas.

However the old Tokyo-Shinjuku-Ikebukuro station peak rush hour central processing crunch problem remains. I’m not convinced super fast 5G enabled cloud processing is going to solve that problem any better or cheaper than Suica does now, and reliability is a complete unknown. We also have the next generation ‘Super Suica’ format and FeliCa OS coming in the next 12 months, the design goals here include a flexible, modular cloud friendly architecture and lower costs. Next generation Suica coupled with a flexible local processing~cloud processing backend may be a compelling solution that finally delivers a practical inexpensive Suica infrastructure to the little end of the line station which only gets a few trains or buses a day.

New JR East Suica / QR Code transit gate for Takanawa Gateway station

JR East, Hanshin and Osaka Metro are testing QR Codes and facial recognition ID ticketing to replace mag strip paper. As Junya Suzuki points out, mechanical paper ticket transit gates are more expensive to install and maintain than IC transit card gates but the real expense is mag strip paper recycling costs. Mundane but not surprising. The more important long term question is this: do transit companies keep the current more expensive cash base paper ticket fare vs less expensive IC card fare structures in place, or do away with it when QR Codes replace mag strip tickets? I don’t think we’ll see an answer to that question for a few years.

There is no doubt that 5G will enable new payment possibilities, and a lot of debate. But I don’t see 5G cloud completely upending and replacing the need for local processing and stored value cards. Both are evolving, both have their place. It doesn’t have to be, and should not be a one size fits all solution. Each approach has strengths that can be complementary and build a better stronger system.

For me it comes down to one simple thing. My Apple Watch can be buried under multiple sleeve layers but Apple Pay Suica works great going through rush hour transit gates every time. It’s the best argument for UWB enhanced FeliCa and MIFARE touchless transit gates and stored value local processing I can think of. QR can never match that, nor can face recognition…think face masks during an epidemic or pollen season.

In the next installment I hope to explore 5G and the evolution of digital wallets.

Origami Pay folds into merpay

The overheated Japanese payments market kicked into consolidation mode with the Line Pay Pay Pay merger announcement last November. The next consolidation was announced today with the Origami Pay startup folding into the the merpay startup. The deal is expected to close by February 25. Now that a market shakeup is in full swing I think we can expect mergers for other smaller players like kyash before the Tokyo Olympics.

It will be interesting to see what comes out of the merger of the QR Code Origami and NFC Apple Pay merpay. Perhaps we might end up with a flexible frontend solution like the recently released Toyota Wallet which combines both approaches. And it seems that the arrival of Toyota Wallet was a big factor that pushed the market into the consolidation cycle we are now witnessing. I just hope the backend is flexible too and not chained to a single banking empire. We shall see.