I have lots of respect for Bloomberg reporter Gearoid Reidy and Craig Mod, but a recent Twitter exchange they had about code payment apps vs NFC reminded me that no matter how long westerners reside in Japan and appreciate the culture, our western cultural ‘winner or loser’ take on things too often gets in the way of truly understanding what’s going on. The Japanese take complexity in stride and are very adept at dealing with situations that drive us westerners crazy.
This is especially true when the debate is about that contentious intersection of contactless payments and technology: EMV is the winner FeliCa the loser, code payments are the winner NFC is the loser, and so on. As fun as that debate can be at times, the black and white distracts westerners, and even some Japanese from analyzing the gray to find out what’s driving the narratives and why.
My take has always been that Japan is the best place to observe trends first before they happen elsewhere. This is what Gearoid half jokingly calls ‘j a p a n i f i c a t i o n’. It’s real and has nothing to do with liking or disliking Japan. Either way, too many dismiss the opportunity to learn ahead of the curve. My take has also been that the crazy kaleidoscope of Japanese payment choices is coming to your country too. We got a taste of that with the announcement of the Australian national QR payments and rewards platform called eQR.
The standard Japanese market debate point of code payments vs NFC assumes the China Alipay model. China didn’t have the mobile NFC contactless payments infrastructure that Japan had, so the Alipay code payment model makes sense there. In Japan it does not, which is why Gearoid and Craig are scratching their heads in public. Code payments in Japan are all about leverage, big data, and carriers. Leverage in that carriers like NTT docomo keep the dBarai accounts in-house and use the float for their own purposes instead of letting banks and credit card companies earn interest on dCard accounts. That’s why they encourage users to use dCard to recharge the code payment dBarai account instead of using the card directly.
It’s a similar situation for SoftBank and PayPay, though I suspect it has more to do with deficit financing funnery that SoftBank Holdings is so adept at. Heaven help us, and all those Vision Fund supporters, if it comes crashing down. PayPay has been helpful though at shining a bright light on Japanese payment networks and the various service fee structures from CAFIS on down. VISA JP has suddenly seen the light and proposes to do something about it…perhaps.
Code payments are just a tool in the swiss army knife payment wallet app, like Toyota Wallet, insurance and leverage. We saw that in action when Apple Pay first launched in America and Walmart answered with CurrentC. We’re seeing again with eQR in Australia and it will keep happening when merchants or banks or payment service players need a tool to bargain a better percentage. Heck even Apple Pay is flirting with the idea of adding code payments to Wallet, though I think their hesitancy to do so means…it’s just a bargaining tool for Apple too.
The Apple Pay monopoly debate isn’t new and isn’t about being ‘open’, it’s about banks getting what they want from politicians. What I found interesting was the back and forth between Apple and Google regarding the hardware embedded secure element (eSE) vs. the virtual secure element in the cloud Host Card Emulation (HCE), a topic that confuses many ‘experts’.
Google is playing both ends here because they have different flavors of Google Pay for different kinds of Android devices. Google Pixel Google Pay uses eSE while everybody else use HCE Google Pay. One very important thing not mentioned in tech blog coverage is that Samsung Galaxy and the Chinese smartphones (Huawei, OPPO, Xiaomi) all use a custom eSE with their own XX-Pay. In other words, everybody on the Android side outside of low end junk is doing exactly what Apple Pay is doing.
Apple Host Card Emulation (HCE) is a less secure implementation, which was adopted by Android … Apple did not implement HCE because doing so would lead to less security on Apple devices.
Google Our payments apps are immensely secure…we would refute the suggestion our HCE environment is in any way insecure … I would argue the user experience on Google Pay is equal to that of Apple Pay.
GlobalPlatform HCE solutions can be a great option for issuers to get to market cost-effectively for their Android customers. However, they aren’t without their complexities. Rooted in the NFC device OS, HCE apps can be more vulnerable than the ‘Giant Pays’.
So HCE security is up to the payment app, shitty app = shitty security without Apple Pay Secure Intent. The whole HCE debate is nonsense, like FeliCa Dude says it’s eSE or nothing. If the committee thinks that HCE means open and good, they are showing their incompetence.
Apple Pay Wallet has a very simple rule: any card that loads a Java Card applet into the secure element has to reside in Wallet. Any card or developer that wants to loads applets and use the secure element has to have a PassKit Secure Element Certificate Pass. This is covered by NDA but a company called PassKit (not Apple) gives us an idea what Apple’s NFC/Secure Element Pass guidelines are:
Apple care a great deal about the user experience. Before granting NFC certificate access they will ensure that you have the necessary hardware, software and capabilities to develop or deploy an ecosystem that is going to deliver an experience consistent with their guidelines.
Yeah, the end to end user experience, the whole reason behind the success of Apple Pay. Banks don’t want to be told they need to improve their ecosystem for a better user experience, and they don’t want to pay a transaction cut to Apple that they are used to keeping for themselves. What else is new?
The whole ‘Apple Pay is a monopoly’ soap opera is overrated.
PASPY is just the tip of the iceberg. There are many transit IC cards out there with the same problem: fixed infrastructure costs supporting a small region transit IC card and declining ridership. Add the COVID crisis that has decimated public transit use and you have a business crisis. All the small transit cards outside of the Transit IC card standard (the pink box) are in the same boat: they can only be used in their respective regions, they don’t have e-money functions, they don’t have the resources to go mobile.
This is exactly the problem JR East is addressing with their 2 in 1 Suica MaaS soution. JR East hosts the hardware, the local operator issues a ‘localized’ Suica that offers both special local MaaS services (discounts and extras, etc.) and seamlessly plugs into the larger Suica and Transit IC map.
Unfortunately PASPY is in the JR West region which doesn’t have anything similar to the JR East MaaS program. It would be a perfect solution: customers would get a new card that works just like it does now but works everywhere with e-money and ICOCA benefits, Hiroden is freed from the costs of hosting and issuing their own card.
QR is not going to be the salvation that Hiroden hopes it will be. QR isolates Hiroden from the wider transit IC network of Mobile Suica, PASMO, ICOCA. Even if Hiroden gets rid of their card issuing business cost, they still have to host a system to run the QR Code app and manage accounts. The real rub is that instead of anybody buying an IC card out of a machine, Users will have to sign up for the app or buy a QR paper ticket. They also have to worry about where and how their account data is stored. My prediction: it’s going to be a messy money losing transition.
Heraiza down but not out
Poor little Heraiza, one of my favorite Japanese YouTubers, has been copyright claim ‘hacked’ from a fake account pretending to be Dentsu and now has 2 bogus strikes against her YouTube account. As an independent 17 year old high school student with 150,000 followers, she doesn’t have the resources of a YouTuber managment agency like UUUM, who she likes to badmouth (and I won’t put it past UUUM using fake accounts to take her out). Dentsu or whoever the real copyright holder is has confirmed to her that her content does not violate said copyrights.
A recent customer sentiment survey regarding QR Code use and security from Ivanti is a classic case of marketing manipulation in action. Same survey, different titles:
The English title: QRurb Your Enthusiasm 2021: Why the QR code remains a top security threat and what you can do about it
The Japanese title: Is Japan a 3rd world country when it comes to QR Code use? Compared to 80~90% usage rates in China and the West, Japan remains stuck at 60%
The English survey summary highlights basic security problems to sell security software:
47% or respondents claimed to know that a QR code can open a URL.
However, only 37% were aware that a QR code can download an application and only 22% were aware that a QR code can give away physical location.
Two thirds of respondents felt confident that they could identify a malicious URL, but only 39% stated they could identify a malicious QR code.
49% stated they either do not have or don’t know if they have security installed on their mobile device.
The Japanese version highlights low Japanese QR Code payment use, and security software use compared with China to sell security software. It also heavily implies that Japan is behind China because of this.
Don’t know about you, but this kind of night and day spin is one reason I have stopped believing most market surveys. They are just too loaded. Give credit where it’s due: the Japanese Ivanti marketing department is certainly clever in spicing up a dull story. It’s their job. Download the English PDF and see for yourself.
I was pleasantly surprised to find some hits coming from a website called limitless possibility, followed the link and discovered a great podcast by Luc-Olivier Dumais-Blais and Yanik Magnan on Japanese transit IC cards, Suica 2 in 1, the new features of FeliCa Standard SD2, Ultra Wideband Touchless and more…things I’ve been writing about for a while that never get any traffic.
Yanik does a much better job of summarizing the transit technology landscape than my messy collection of posts. I wholeheartedly agree that UWB Touchless is the perfect opportunity for Japanese Transit IC members to put aside political differences and merge, or at least ‘harmonize’ their data formats for a real all in one Super Suica. We shall see. There are things coming down the pike such as multi-secure element domain/multi-protocol Mobile FeliCa that might have transit implications. And I thank Yanik for his constructive criticism of my ‘Super Suica’ coverage. It’s very helpful and rare that anybody takes the time these days.
Extra bonus: their discussion of the Japan QR Code payment mess and a sendup of PayPay ‘gamification’ campaigns using the Canadian Tim Hortons roll up the rim thing is hilarious and spot on.
Only TWO WEEKS left before the launch of QR code payment on 23 January! For this new service, we have installed about 1,000 QR code scanners at stations and conducted a series of system and on-site tests. Prominent purple signage will also be on display to help passengers identify the gates providing the new service.
This is the debut of MTR ‘open-loop’ ticketing. Up until now MTR used the ubiquitous Octopus card, the trail blazing transit card that showed the world what smartcard ticketing can do when extended beyond transit to include eMoney payments, transforming a transit card into a transit payment platform. Unlike Japan however Octopus Card Limited (OCL) was late bringing Octopus to mobile. Part of the problem was that Hong Kong mobile carriers never had an Osaifu Keitai-like standard that bridged the Symbian and Android hardware eras. OCL also wasted time with SIM card mobile support before finally launching the mobile Smart Octopus service first on Samsung Pay in late 2018, followed by Apple Pay Octopus in June 2020 and Huawei Pay Octopus in December 2020.
But MTR still faces a problem that most Android devices don’t support FeliCa even though NFC-F is supported across all NFC capable devices. It’s the global NFC dilemma best illustrated in the Google Pay on Google Pixel situation: Mobile FeliCa is installed on all Pixel devices but Google only turns it on for Pixel models sold in Japan. There are many takes on the reasons why. My take is that Google doesn’t want to do the all the global NFC OS level support work that benefits all Android manufacturers. Google’s stance is, ‘don’t ask us, roll your own embedded Secure Element (eSE) solution.’ And so it’s a race of how many ‘Octopus on XX Pay’ digital wallet platforms OCL can line up for Android and wearables.
For MTR, QR Code open loop transit sidesteps this Android hardware mess, but will it be a success when users have to open a smartphone app with a face mask on at every gate? Apple Pay Octopus on Apple Watch sure beats that problem and then some. Long term I think NFC wearables and UWB Touchless will be the QR killer. Time will tell.