Tag: PiTaPa

Forget the Suica vs EMV open loop soap opera, it’s all about loyalty program banks now

Quick, what’s the number one complaint foreigners had when they couldn’t use their foreign issue VISA cards for Apple Pay Suica recharge anymore? Was it inconvenience? No, it was points. Specifically Chase Sapphire VISA 3x travel points. And what’s the number one compliment that foreigners have about using EMV open loop transit boutiques? Earning reward points. The Chase Sapphire VISA crowd had already moved on from Suica to PASMO back when JR East pulled 3x travel points for 1x shopping points for Suica recharge back in May 2021. Points are where the action is.

Go on over to YouTube and check out Wendover Productions How Airlines Quietly Became Banks. The video neatly explains what industry insiders and analysts have know for some time: flying passengers is a money losing business, the profit is made on selling services with loyalty programs, loyalty programs that are in reality clever financial instruments…loyalty program banks if you will. Reward points are like virtual money, but they can be treated like futures trading in that they will be traded in for certain services at a certain value…at some point. The untaxed reality gap is where all the fun happens: there are ways to earn real money off virtual money without a fixed holding period.

This is why airlines have made loyalty programs into separate subsidiary companies that are worth more than the money losing parent airline companies. The key takeaway: airlines are in the business turning a profit by selling services with attached loyalty programs to passengers riding on money losing airlines. Starbucks does a similar thing with their Starbucks card loyalty program which is also called a massive bank, all that unspent money on all those cards, similar to the Suica float. The Japanese point economic zones, Rakuten, PayPay and NTT docomo dPay have been doing all this for years already.

Is there anybody doing the same thing with rail transit with ridership still reeling in the post-Covid era? Very, very few. How many rail transit companies have a loyalty program similar to what airlines do: earning and using rewards across many different services? You probably can’t come up with one. JR East JRE POINT is a rail transit company loyalty program, the only comprehensive one that exists right now and it will formally joined with a real bank too in 2024 with the launch of JRE BANK. The recently launched JR West WESTER aims to become loyalty program, perhaps even a loyalty bank. Let’s take a closer look at how the comparisons stack up internationally.

Most transit operators around the world don’t offer loyalty programs. JRE and, maybe, MTR are the only ones.

The key difference is that Suica and Octopus are both transit and payments cards, in other words a payment platform. Owning the payments side is key for driving loyalty programs. It’s interesting too that Suica, Octopus and EasyCard used FeliCa and MIFARE that allowed them to build payment platforms that are independent of EMV. Another interesting aspect is that while JR East is a private transit company, Octopus is mostly government owned but doesn’t act like a public transit owned company.

All of the western transit companies are government owned and expected to be ‘public transit’ where making profit isn’t the bottom line. The reason why most MIFARE based transit cards never evolved beyond being transit cards (Taiwan’s EasyCard being the outstanding case) and leave the point reward franchises to the EMV open loop card brands, comes down to local politics of public transit. But is this really in the public interest?

My argument in countless posts over the years is that leaving everything to EMV open loop card brands is giving away a money franchise to the EMV consortium. It leaves money on the table that could have been used to build local transit linked services and infrastructure ecosystem that benefits all transit users and encourages transit ecosystem use.

Japanese ridership and fare income will only go down from here so Japanese transit companies need to be like airlines and earn money from selling service extras. Much better for long term transit sustainability to become a loyalty bank that leverages transit infrastructure loyalty linked services into profit. A close examination of the 10 Transit IC cards gives us a good idea of how open loop support in Japan will play out.

Most of the Transit IC cards have limited point rewards but very few have loyalty programs.

Outside of JRE POINT and WESTER, most of Transit IC cards except for TOICA and PiTaPa have some form of point bonus rewards for riding transit. Most are bare boned, manual affairs that involve a trip to the station ticket kiosk machine to load reward points. Tokyo area PASMO member transit companies have their own point systems, as do Osaka area PiTaPa transit companies which is the problem: despite sharing the same Transit IC card brand, the various point systems have no compatibility or synergy. There are a bunch of point card fiefdoms that cannot evolve into loyalty program platform. PiTiPa is the worst off of all, a failure with a shrinking user base despite being a credit card post-pay transit card.

The smallest transit cards, by user number, without robust point systems are exactly the first systems targeted for open loop by the SBI Holdings backed Japanese open loop Quadrac consortium (Quadrac for backend servers, Japan Signal for gate readers, VISA for sponsorship, SMBC for stera payment processing) : Fukuoka City Transit (hayaken) and Nankai (PiTaPa). They can implement open loop without diluting their loyalty programs because they don’t have any. It’s a similar case with ‘shared’ transit cards like PASMO.

PASMO members TOKYU and Tokyo Metro have stronger point systems silos but those silos do not translate across the PASMO ecosystem. Users can dump earned points into their PASMO card with a point recharge but there is no method for tying point rewards to services across the entire ecosystem. The dilemma for PASMO members, especially Tokyu who footed the bill for building Mobile PASMO, is balancing open loop and closed loop without diluting their PASMO related point business.

Here’s a Q&A that hopefully sums up some basic points of where things go from here.

Q: Will Suica disappear?
A: No. Suica is a loyalty platform and ecosystem, not a transit card.

Q: Will JR East replace FeliCa with EMV as the Suica foundation technology?
A: This is a topic that Japanese IT media loves to dream about like salarymen fantasizing about manga sex they read on the commute home. FeliCa and EMV are proprietary technology packages that come with licensing price-tags. EMV has the added risk that JR East would have to ally with a EMV payment brand to create a EMV white-label closed loop Suica card, like OMNY card. There are other disadvantages: NFC A is the slowest NFC transaction flavor no matter how much backend optimization the Quadrac consortium come up with, and offline payment transaction support is limited because mutual authentication and card balance is done on central servers. Last but not least: JR East owns a nice big chunk of FeliCa Networks along with Sony and NTT Docomo.

Q: Will EMV open loop be ubiquitous across all transit operators in Japan?
A: No, for the business reasons outlined above. JR East, JR West, and probably JR Central will not implement open loop as they want to sell closed loop Shinkansen tickets with loyalty programs. There isn’t any reason to partner with a EMV card brand for a white-label closed loop card when they already own FeliCa and QR closed loop products. There is also the scale problem. Open loop has been pushed by the media as a solution that solves every transit ticketing problem. It doesn’t. The reality is that open loop works best with simple fare structures. Closed loop works much better with complexity and interconnectivity.

In closing, Japan is the only country where open loop is being deployed by private rail transit companies that need to make money. Just as airlines ally and break with different card issuers for their loyalty programs, for business reasons and market politics, expect a similar market dance here. Payment technology, whether EMV, FeliCa or QR is just a means to an end of owning a vertically integrated loyalty program empire. The Japanese payments market will continue to be interesting ride that cannot be experienced anywhere else.

What’s next for PiTaPa?

Now that Nankai Railway Visa Touch and QR Code transit tests have started (April 2), it’s helpful to take a look at Surutto Kansai, the association of Kansai area non-JR transit companies that issue and operate PiTaPa. I covered PiTaPa problems previously but in addition to the Nakai Visa Touch and QR tests, there have been a few other developments among PiTaPa group members:

  • Nankai Visa Touch and QR Code Transit: the Nakai, VISA Japan, SMBC and QUADRAC Co., Ltd venture started in April for Visa Touch and Nankai Digital Touch QR, QR tickets are purchased and used via the Nakai App and can only be purchased with Visa brand credit cards.
  • Osaka Metro ICOCA: Osaka Metro started selling ICOCA commuter passes and regular cards from November available at all station kiosks. They are the last major PiTaPa member to add ICOCA commuter passes, other major members (Keihan, Hankyu, Hanshin, etc.) added them years ago and have finally retired mag-strip commuter passes. One clarification regarding TOICA: it’s sold at Shin-Osaka station by JR West not Osaka Metro. An interesting aside is that when you use TOICA on Osaka Metro the system recognizes it as ICOCA. In a separate development Osaka Metro wants to implement face recognition transit gates for the 2025 Osaka Expo that dump cards altogether.
  • Keihan ICOCA: Started offering ICOCA Points at the end of 2020 (discount fares for repeat transits in the same month).

In the Transit IC card 2020 ranking by issue/holder numbers PiTaPa was 6th at 3.3 million cards with the slowest growth. It will likely drop to 7th place in 2021.

Suica, PASMO and ICOCA represent 90% of transit IC card issue

Nankai Open Loop Tests
As expected the Visa Touch and QR gates are limited to certain stations and exits. From the on-site media presentation pictures it’s clear that Nanaki is doing open loop transit gates the right way by keeping EMV/ QR only gates separate and off to the side wherever possible (bolt-on jobs are used in narrow areas). If there is one thing we have seen these past few years it’s that all-in-one gates with multi-protocol readers are slow and error prone. They just doesn’t work well for transit.

Target users are inbound travelers from Kansai International airport and plastic contactless Visa brand cards as it does not support Apple Pay Express Transit or similar services on Google Pay, Samsung Pay, etc. The inbound angle is a tough sell in the travel restricted COVID era now that Kansai area hotels are closing and laying off staff. A few interesting inbound points: Mainland China visitors use Union Pay not Visa, QR tickets have to be bought with a Visa card, and Nankai Digital Touch QR tickets are faster at the gate than Visa Touch because they are closed loop.

  • Junya Suzuki will be covering the Nankai open loop tests in detail
Fellow transit otaku in Osaka run loops around the Visa Touch open loop gate at Nankai Namba station
Nankai Digital Touch QR tickets are faster at the gate than Visa Touch because they are closed loop

Taken altogether it’s mayhem. As FeliCa Dude says in his tweet, Surutto Kansai is done for. The interesting thing is that PiTaPa is a very similar to the digital Opal Mastercard debit with specific merchants allowed scheme: a closed loop credit card account instead of the closed loop digital Opal Mastercard debit account. Where PiTaPa failed was that Surutto never provided a plain old prepaid transit card option so that users could buy a commuter or regular one for cash and recharge it at any station kiosk. Opal of course still sells the good old Opal MIFARE prepaid card and they would be smart to keep it around. There will always be a need for cash based transit cards.

Why can’t Surutto Kansai to come up with this simple solution for PiTaPa? In a word, SMBC bank group. They are behind the PiTaPa card creation, and now they are pushing Visa Touch transit. It’s an unfortunate and awkward situation: transit companies forced to issue and use an ‘outside’ transit card like ICOCA instead of their ‘in-house’ PiTaPa brand. I suspect the impasse will continue until SMBC gives in and let Surutto create a prepaid card and own the float, or the major Surutto Kansai members stage a real revolt. Until something gives Mobile PiTaPa will be impossible. The pressure to do something will only grow as the Mobile ICOCA 2023 launch approaches.

The Great Big Nankai VISA Touch Transit Boutique

VISA Japan has been busy this year marketing VISA Touch contactless cards with the SMBC group, leveraging the SMBC-GMO-VISA co-venture stera payment platform that launched in 2020. We have already seen a few VISA Touch stera powered ‘transit boutiques’: smallish inbound tourist centric transit companies that don’t support Transit IC cards like Suica and PASMO. This could be changing.

Nankai Electric Railway along with VISA Japan, SMBC and QUADRAC Co., Ltd., a SoftBank and hedge funded systems company that develops VISA Touch and QR fare systems among other things, announced a co-venture test of VISA Touch and QR Code open loop fares for ‘inbound tourists’ on Nankai transit gates in 2021. ‘Test’ not ‘rollout’. That will come later in 2022. The wording of the press announcement is vague with photo ‘images’ of what it might look like. It reads more like a VISA PR release than a Nankai one.

To understand why Nankai is testing this it helps to know a few things. Nankai lines service Kansai International Airport that up until COVID hit had a lot of inbound tourists from China visiting Universal Studio Japan in Osaka, amoung other things, the AliPay thing being the most important.

The other important thing to know is that Kansai area transit companies (Hankyu, Keihan, Nankai, Hanshin) never developed a PASMO like transit prepaid card for non-JR group transit companies. PiTaPa is a failure because it’s a post-pay transit card, a SMBC managed credit card with credit card checks. It cannot be bought from a station kiosk like any other transit prepaid card and is unsuitable for students and other commuting masses without credit cards or the patience to apply and wait for a PiTaPa card in the mail that is pretty much limited to transit and a few select participating merchants.

This is why Hankyu and Osaka Metro ‘borrow’ the JR West ICOCA card for issuing commuter passes. It’s a mess. But it also means that transit companies in the PiTaPa SMBC orbit are in a weaker position, open to SMBC pressure and loan incentives to try VISA Touch open loop (not really open loop when it’s an exclusive VISA Touch arrangement and nothing else right?).

The Japan Transit IC map. Post-pay PiTaPa based transit cards are in a weaker position than regular prepaid transit cards

It also helps to know that stera Panasonic JT-C60 NFC readers are the slowest transit Suica compatible readers I have every used. These same readers are used in VISA Touch transit boutiques and we all know that EMV contactless is slower than FeliCa.

So what is Nankai testing exactly?

(1) Transit gate friction. Transit IC card tap speed is less than 200 milliseconds (ms) while legacy mag strip paper ticketing is 600 ms. The stera Panasonic readers are far slower than 600 ms, if that’s what they end up using for the test…it’s hilarious to imagine Nankai retrofitting a bulky slow Android based NFC reader on a Omron transit gate.

(2) Fare system overhead. How much does the centralized fare processing and linking to VISA and AliPay cost and how does it perform versus local stored value transit IC cards.

The eventual rollout plan will be based on hardware and system cost balanced against the estimate of capturing more inbound transit revenue. There are also transit gate layout issues to consider, is it better to go with slow and fast lane transit gate layout, or retrofit every gate as cheaply as possible. Does any of this make sense in the COVID era when tap speed is more important than ever?

The Real Friction Point: Inbound and Privacy
We’ll see how it works out but since the advertised point of this effort is for the benefit of inbound tourists, I’ll come out and say it: one of the best things about COVID is the elimination of inbound tourists and their luggage on commuter trains in heavily trafficked areas like JR East Yamanote.

Large groups of people with lots of luggage riding commuter trains during rush hours without following common sense etiquette is a huge stress point for regular commuters. When doors are blocked by luggage and tourists who don’t know, or don’t care about other people using the train, it’s trouble in the making.

The hallmark of any good transit system is safety and reliability, a finely tuned balance of servicing all customers and wisely investing in infrastructure. And transit data privacy, one of the things that open loop advocates don’t talk about. There are risks of sharing transit fare data with outside companies, which is what open loop is all about. All too often in the grab for inbound tourists and in the rush of implementing open loop, transit companies ignore this balance at the expense of regular transit riders. Nankai must keep this in mind. If they do not it will end up being a ‘do less with more overhead’ endeavor, an expensive and security risk proposition for Nankai, but not for VISA, SMBC and QUARDRAC.

UPDATE 2021-03-01: The Nankai Visa Touch tests start April 3, QR Transit tests start April 15. Also: What’s next for PiTaPa?

  • PiTaPa is done, that’s the real Nankai Visa Touch/QR story

UPDATE 2021-12-01: Nankai and SMBC announced an extension, open loop tests will continue for another 12 months up to December 12, 2022. Test stations have also been added on the Koyasan line. It’s pretty easy to see that COVID related dramatic declines in tourists and transit use has delayed the rollout, which is exactly what the announcement outlines. In other words: we need more user data before spending a lot of money on a new ticketing system that might not recoup costs.

The real aim of Nankai open loop is the uptick in tourist traffic in connection with the Osaka-Kansai Expo 2025. Hopefully the state of world travel will be in better shape then than it is now.

Transit IC only JR East Shinkansen eTicket reservations start today

The new JR East Shinkansen eTicket service debuts March 14, but 30 day advance ticket reservations mean it kinda starts today. The best explanation, Japanese only at this point, is the Eki-net online guide that outlines the new reservation, purchase and seat assignment process for PC and smartphone web pages. I find the smartphone online version more streamlined than the PC one but they are straight forward if you are familiar with Eki-net. The basic Eki-net process is the same until step 7, the section where you assign the eTicket (s) to your registered transit IC card (s). The differences from smartEX are interesting:

  • You can register up to 6 different transit IC cards to a single Eki-net account: Suica, Mobile Suica, PASMO, Kitaca, ICOCA, TOICA, manaca, PiTaPa, nimoca, SUGOCA, Hayaken
  • A single Eki-net account can reserve/purchase up to 6 Shinkansen eTickets then assign tickets and seats to registered transit IC cards

JR East Shinkansen eTickets are geared for family travel in a way that smartEX, EX-Press and the old Mobile Suica Shinkansen eTickets ending March 13 are not. Other systems can only attach a single IC transit card per account. The flexibility opens up some interesting possibilities, since Apple Pay Suica is just another transit IC card, one person can buy and assign eTickets up to 6 difference Apple Pay Suica devices. The downside is that transit card linking is completely manual and up to the user to update information when a new card is issued or the Apple Pay Suica ID number changes (less common than before but still happens). There are bound to be some very short trips that end with a transit gate error. Some other observations:

  • eTickets require a Transit IC card (paper tickets can be issued in the event of a lost transit card)
  • eTicket reservations are currently limited to Eki-net online but Eki-net app will gain eTicket support when the service launches March 14
  • As Suica App is tied to Apple ID and the Mobile Suica cards registered to it, I don’t see Shinkansen eTickets being integrated back into Suica App anytime soon
  • I don’t see QR Code ticketing support coming until after the transit IC eTicket system is complete and necessary gate infrastructure in place, a few years down the road at best

Eki-net eTickets are limited to JR East operated Tohoku, Yamagata, Akita, Hokkaido, Joetsu, Hokuriku Shinkansen lines. The next obvious question is when will other ticketing be migrated to Transit IC, and what kind of discounts will be offered?

Discounts, incentives and ticket system silos
Most Japanese don’t buy express train or Shinkansen tickets at regular prices. The whole point of Eki-net, smartEx, and all the other account based ticketing systems are the discounts and incentives to get people out of the ticket office line and online. Each operator has their own complex set of discount schedules which they guard and control carefully because it is their business engine.

For this reason I am not optimistic we will see an all-in-one train ticket app. Sure, there is some integration of JR East eTicket and JR West e5489 because they share Hokuriku Shinkansen operations, and there might even be an app than integrates many different ticket systems, but I don’t see it offering all the discounts of stand alone apps like Eki-net, EX, Odekake-net, etc. I also don’t see multi-lingual support in the mix, at least not in time for Tokyo Olympics. The fun starts March 14 with many things still coming down the pipe, from next generation Suica to new transit gates. It will be an interesting time.

  • Eki-net main screen
  • Only JR East Shinkansen lines are eTicket compatible
  • After the eTicket reservation/purchase the users has to select which transit IC card to attach
  • The eTicket with discount

Hankyu Goes ICOCA

Hankyu Corporation announced in January they would sell ICOCA cards for commuter pass use starting March 1. The switchover is interesting on many levels. ICOCA is the JR West transit IC card and PiTaPa is the transit IC card for Kansai area private lines (Hankyu, Keihan, Hanshin, Kintetsu, etc.). They are both FeliCa cards, offer commuter passes and are compatible for transit use under the Japan Transit IC Mutual Use Association project specification.

There is one big difference: ICOCA is prepaid while PiTaPa is a postpaid credit card/transit card hybrid that can never really be mainstream because it has credit checks. ICOCA can be bought by anyone at a ticket machine. The Hankyu/Hanshin switchover to prepaid ICOCA for the masses follows the JR West arrangement that Kintetsu and Keihan already have in place. There is just one last little detail that JR West needs to work out however: get ICOCA on mobile digital wallet platforms like Apple Pay and Google Pay. Super Suica should take care of that in 2021.