Public tests for new JR East Suica/QR combo transit gate (Updated)

The new JR East Suica/QR gate design was unveiled back in December along with the new Takanawa Gateway station details. Test gate installations have been in service at Takanawa Gateway and JR Shinjuku New South exit these past few months but only for Suica and the QR reader covered up. If you have your heart set on trying one out, go to Takanawa Gateway where JR East officials will take the cover off the QR reader from September 15~29 (except for 9/24~27) for public tests.

QR will eventually replace mag strip paper tickets which are increasing expensive to recycle, and the new gates will gradually replace those ingenious paper ticket/Suica combo transit gates made by Omron. I have tried the new gate in Shinjuku and all I can say is…I’m glad I wear my Apple Watch / Apple Pay Suica on the right.

No moving parts is boring…but cheaper than intricate mag strip reading mechanisms

UPDATE: Conflicted Impressions
Junya Suzuki has posted a deeper dive into the QR reader design on the new JR East gates with his usual fascinating analysis. Suzuki san is very big on the evolution of Suica away from local processing to a centrally processed unique ID model that does away with stored fare.

His IT background experience really shines through as he makes a convincing argument that a centralized unique Suica ID approach greatly simplifies the IT system by reducing hot-list/off-list refreshes that have to be coordinated between local and central systems.

We’ll have to see how things pan out with next generation FeliCa and next generation ‘Super Suica’ in 2021. There will be a definite focus on cloud + local, but I have doubts that Suzuki san’s centralized everything vision is always the best approach.

Perhaps I am missing something in his analysis, but I think there’s a happy medium that leverages the strengths of both for a robust innovative transit fare payment system as the centerpiece of the transit business platform.

Here’s a recap of his observations and reader feedback:

Separate QR reader placement
In Suzuki san’s piece JR East tech leads explain that widely separate NFC and QR readers work much better than an all-in-one approach. NFC always reacts faster than QR and this creates problems with the all-in-one reader and smartphones when fast, clean, precise read times are required. The gate QR sensor is made by DENSO. If you have ever used a poky DENSO POS QR+NFC reader at store checkout, you can relate.

Security Invisible Ink
As FeliCa Dude points out, JR East is likely using IR transparent ink to create unique ID codes for security. Apparently this is already used for Okinawa Monorail Okica QR paper tickets.

Poor Walk Flow
One of the great things about the mag strip paper ticket gates is they pull the ticket into the machine and spit it out at the other end of the gate. This is clever guided incentive to keep walking to pick up the ticket. With QR code transit gates people stop and wait for the reader to do something. Another nice thing about mag ticket machines is they eat the used tickets. The QR paper ticket downside not mentioned by JR East or the media: where do people put their used tickets for paper recycle? Who and what collects them, a bin?

The Apple Pay Code Payment + App Clip Connection

The Apple designed App Clips code combines a visual code and a NFC tag

When the AliPay Apple Pay leak surfaced earlier this year the stock story was that Apple Pay must support AliPay and WeChat Pay if Apple Pay is to have any relevance for iPhone users in China. The real story is more interesting and is centered on App Clips, not AliPay or other specific QR code payment players.

Until now Apple Pay has been all about the NFC ka-ching thing, but it has also evolved along the way. Apple Pay debuted with NFC-A EMV in 2014, it added NFC-F FeliCa with Suica in 2016, MIFARE Student ID passes and PBOC China transit cards in 2018.

iOS 14 is the first time Apple Pay is moving beyond NFC. CarKey will incorporate Ultra Wideband when the Car Connectivity Consortium Digital Key 3.0 spec is finalized and ‘Code Payments’ are coming at some point in the iOS 14 cycle.

Tap or Scan Simplicity
The strength of code payments is simplicity and low cost. iPhone is both a radio (NFC) and camera (scanner). NFC always has an advantage over a scanner in that it works without light and can be activated just by the user pointing their device at an NFC reader or tag.

The downside is the NFC reader side of the equation: the reader + cash register/transit gate + transaction software has a higher initial investment than a code scanner attached to a POS system. The promise of App Clips is they finally put NFC, specifically NFC tags, on the same low cost entry bar of QR codes.

App Clips are activated by:

  • App Clip Codes
  • NFC Tags
  • QR Codes
  • Safari App Banners
  • Links in Messages
  • Place Cards in Maps

Let’s examine the ‘real world’ App Clip activation triggers: Apple App Clip codes, NFC tags, QR codes. For Apple designed App Clip codes, “You can scan them with your camera or tap one using NFC.14” The #14 footnote is interesting: “Camera support for scanning an App Clip code will be made available in an iOS 14 software update later this year.”

This means those fancy Apple designed App Clip codes are coming after the initial iOS 14 launch, and when they do Apple Pay Code Payments will certainly be coming with them. It boils down to one thing: making App Clips a simple tap or scan process. NFC tags still enjoy the ’point here’ advantage as App Clip does the rest. For visual codes the user has to launch the camera and scan before App Clip takes over.

The Code Payment/App Clip Network Connection Requirement
Apple Pay Wallet NFC payment cards have 3 major features that payment apps do not:

  • Direct side button Wallet activation with automatic Face/Touch ID authentication and payment at the reader
  • Device transactions without a network connection
  • Ability to set a default main card for Apple Pay use

Apple Pay Code payments can possibly offer this for dynamic code payments where a scanner reads the code off the iPhone screen. However, static code payments are messy because Apple Pay requires a network connection to process the payment just like apps do. In the Apple Pay code payment scenario suggested by the AliPay screenshot leaks, a static code scan directly activates the appropriate Apple Pay code payment (AliPay, etc.), the user enters the amount, taps ‘Pay’, authenticates, and Apple Pay does the transaction via the network connection. It’s a similar scenario for NFC tag payments.

It’s because of this network connection requirement that I believe Apple is pushing Apple Pay NFC tag and code payments wrapped in the App Clip experience. They will work by themselves of course, but they work better as part of the total App Clip experience. This is where App Clip codes come in.

What about App Clip codes? The iOS 14 preview page says:

App Clip codes are Apple-designed identifiers that are uniquely paired to specific App Clips and provide an easy way to find and launch an app experience at the exact place and moment you need it. You can scan an App Clip code with your camera or by tapping one using NFC.14 We will be adding support for them in an iOS 14 software update later this year.

How is this any different from regular NFC tags or QR codes? I suspect it’s a mini qualification program for developers, payment providers and merchants to supply the ultimate App Clip experience. It also works as App Clip branding and advertising for Apple.

Are there special App Clip code tags that push the App Clip experience further than regular NFC tags and QR? I suspect so and that could be fun. Think about it, what if the Apple designed App Clip code NFC tag activated an App Clip with code payment. A QR payment without the static QR code. That would be the ultimate App Clip experience indeed.

Hama Pay adds dual NFC/QR as iOS 14 Apple Pay QR payments loom

The recent Bank of Yokohama Hama Pay app update created some buzz with the addition of an Apple Pay iD Prepaid card option. It’s similar to the Toyota Wallet approach: the bank app links the user’s bank account to an open front end bank payment service with QR code payment for debit and credit and NFC payment for prepaid.

The difference with the Hama Pay prepaid card is that VISA JP issues the iD card which means it cannot be used internationally the same way that the Toyota Wallet Mastercard iD card can; Mastercard supports iOS NFC switching, VISA JP does not.

Another weird thing: the Hama Pay ad blurb uses the ‘Touch Payment’ branding phrase with iD. Up until now VISA JP reserved that exclusively for EMV contactless card issue but not for FeliCa cards, which of course iD is. Does this mean VISA JP will finally sign with Apple Pay? Probably not.

The Toyota Wallet also uses a QR+NFC frontend

IT journalists approach the story as a NFC vs QR dilemma for banks, but I don’t think this captures the whole story. iOS 14 Apple Pay is adding QR code payments for the first time and this means that QR Code Wallet payments don’t need to launch an app, they will work directly from the lock screen just like any Apple Pay card.

This represents a big evolution of Apple Pay from NFC only to an open front end approach that includes NFC, Code payments and Ultra Wideband. It will be very interesting to see how bank apps evolve in the iOS 14 era as we move away from the plastic era ‘A vs B’ mind set to the bewildering variety of ‘A~Z take your pick’ era of mobile payments. We still have the Apple Pay/Face ID with face mask passcode nonsense…but that’s another post for another day.

iOS 14 Apple Pay is adding Ultra Wideband and QR into the mix

Japan Cashless X-Day

Anybody care to chart the Japanese cashless transformation?

Now that the CASHLESS Rebate program is over with transaction rates reportedly going back to ‘normal’ (an estimated 1% rise over rebate program rates), JP media outlets report that some smaller merchants might go back to cash to keep profit margins intact. Real transaction rates are always hush-hush but QR payment rates recently revealed in connection with the Japan QR (JPQR) unified code scheme give us an idea what goes on behind the curtain:

NTT Data already lowered basic CAFIS transaction rates in response to the stera payment co-venture from SMBC-Visa Japan-GMO. As the JPQR transaction rate chart makes clear, banks and payment players have plenty of transaction rate wiggle room. The Japanese government is pushing cashless. If necessary the push will become shove for lower rates and yet another cashless program but where do things stand right now?

July 2020 is the proverbial “X-Day” crossover point: Japan is cashless now, even though the transformation is uneven, ongoing and very messy. On the customer side cashless is the mindset and survival behavior for many Japanese, even for older folks who under normal circumstances would prefer using cash until they day they die.

Faced with the reality of handing money that carries the risk of infection, people are going cashless instead especially with contactless smartphone payments. Junya Suzuki was right all along: Apple Pay turned out to be “the black ship of payments” catalyst that finally nudged Japan from cash to cashless. That and COVID.

Market analysts will undoubtably demand chart data that clearly explains and quantifies the transformation before declaring a ‘winner’ but they have a long wait. That’s because the cashless transformation is sloppy with huge regional variations, all happening right before us. But all of this is an afterthought and our priorities are different now, getting accurate market survey information of any kind in the current environment is extremely difficult.

The Tokyo Olympics was supposed to be the event heralding the cashless era but the COVID crisis has forced much more change very quickly. Evidence is best found in the countless little rituals of daily life that have evolved and are not going back. Merchants who do go back to cash face the risk of fewer customers: when offered a choice people choose cashless.

This realization hit me yesterday when my partner complained about his Docomo dPAY points taking a hit because the Summit supermarket staffer tapped a wrong payment button on the new POS cashless menu options added on July 1. He wanted to pay with iD. A year ago he never used iD, dPAY or Apple Pay and never wanted to, but life changed.

These days I hear contactless reader sounds everywhere, FeliCa chirps and EMV beeps are common as clear plastic sheeting and foot position floor stickers at checkout. And just when posting this the Ministry of Land, Infrastructure, Transport and Tourism announced that Japanese Expressways will be going cashless only with ETC. If there’s anything that defines this sea change it is this: it’s not a ‘victory’ over cash that the media sometimes depicts, nor does it feel like progress. In the COVID era it merely feels like survival.

Tokyo Cashless 2020: cashless transaction fees and platforms (Updated)

The tempest in a teacup over Marukame dropping QR Code cashless payments at some restaurant locations turned out to be parent company Toridoll Holdings updating their POS system. QR Code support will return with the same cashless payment lineup supported at all locations.

The brouhaha is a good opportunity to catch up with an issue I have been meaning to blog about for some time: cashless transaction fees. The ever reliable Junya Suzuki did everybody a favor reporting the Toridoll situation with his usual levelheaded expertise. He also puts out a wonderful series called ‘Pay Attention’ that covers Japanese cashless and payment issues with a unique on the ground reporting style.

In a recent installment, “The Cashless Transaction fee paradox” he discusses the complex Japanese cashless transaction fee landscape. Actually it’s complex everywhere because listed transaction fees are not necessarily what merchants end up paying. It’s an ever changing game of negotiation. And it’s a shell game of POS equipment rentals, extra software services and consumable gotchas like paper receipt printer rolls.

As Suzuki san points out there are basic transaction infrastructure processing costs associated with the NTT Data ‘Credit and Finance Information Switching System’ (CAFIS) backbone and gateway. There are newer players such as the SMBC, Visa Japan, GMO co-venture stera payment network that bypass CAFIS altogether. NTT DATA announced a new lower CAFIS fee structure today that reduces processing fees for small transactions and counters the stera move. The lower CAFIS fees should benefit a lot of smaller payment network players.

Let’s make a deal
The real issue is transaction fees. AirPay and other middle range mobile based POS system players like Rakuten Pay and J-Mups all offer similar transactions fees that range between 3.24~3.74%. As Suzuki san explains, this works out to be roughly 0.5~1.0% higher than a cashless transaction in America using Square.

Those fees are not what all merchants end up paying, but real rates are kept secret. Even Suzuki san, who has comprehensively covered the cashless scene for over 10 years, has no hard numbers, just ballpark estimates. In general 3~5% for goods, 5~8% for services. Low margin but large convenience store chains, i.e. merchants with clout, are aggressive and negotiate lower transactions fees with their large sale volumes.

Super low margin businesses like family owned supermarkets get caught in a catch-22 situation where the more cashless is used, the more that transaction fees eat into their margins (razor thin 1% margins for smaller chains). It’s fascinating stuff and you should read the original Japanese article if you have the ability or translation software.

This complexity makes me skeptical of article claims like, “Apple’s arrogance angers Korean card issuers.” The reality is plain old fee negotiation, by any means necessary, to get the upper hand. I suspect the fact that only 30,000 or so Korean merchants out of some 2.8 million are equipped with NFC readers, is the bigger reason for Apple Pay Korea not launching. Nobody wants to buy new POS hardware just for Apple Pay, so it’s back to the negotiation table.

stera all-in-one cashless platform
The stera terminal cashless platform is launching July 6. FNN has a nice overview video of stera and what it hopes to accomplish. All major protocols (EMV, FeliCa, QR) and payment networks are supported in an all-in-one reader. The difference between stera other mid-market solutions is the integration of hardware and software frontend all the way to the GMO internet based transaction backbone and gateway. SMBC and Visa Japan will certainly use stera to promote EMV and Visa Touch, but it’s a smart solution that runs on Android OS so it can be updated and tailored for multiple POS systems. It will be interesting to see what the impact of stera is and how CAFIS based payment solution providers compete with it.