Fields of Dreams: the endlessly looping open loop vs closed loop transit debate

MacRumors reported that Apple Pay Express Transit support is finally arriving, bit by bit, on the TfL system after being announced back in May. I only noticed the piece because somebody threw a link to my site in one of the forum comments and the discussion has some interesting, and deliciously snarky, open loop bank cards for transit vs. native transit card debate.

The ‘Japan has a transit IC card problem’ angle is interesting. Yes, Japan does have a transit IC card problem, if you work for a bank credit card operation that wants to promote open loop, which I suspect is the case in the forum debate. The counter argument presentation-like power points are just too glib: to date no major transit system has junked native transit cards for bank cards, not even Oyster. Transit is a license to print money and the huge transaction volumes in Tokyo alone are mouth watering. The ‘problem’ for bank card players is how to angle for a bigger cut of the action.

The debate perfectly represents the plastic era transit card vs credit card mindset. More interesting to me are the things people don’t discuss: the impact of Apple Pay and Google Pay digital wallet platforms and transit business models. My take is that smartphone digital wallets do away with old plastic era distinctions and create new business opportunities for transit companies, if they chose to pursue them. Most don’t.

Tech analysts love to talk about ‘value capture’. The current cashless payments frenzy in Japan is all about capturing users to sign on with a payment platform then growing the ecosystem with more and more services that users, hopefully, want to pay extra for. Nobody talks about this in the open loop vs closed loop debate. The bank that owns the credit card owns the customer going through the transit gate, not the transit company. Put it this way, JRE POINT that go back into free Suica recharges, Green Car upgrades, etc. are vastly different from bank card points, as are the business platforms they feed customers back into. Moving people are money in motion, who gets a cut and what businesses do with that cut is everything.

It an interesting paradox that Europe and America talk about privatizing public transportation in various degrees but to date only Japan and Hong Kong have built highly successful businesses based on ‘value capture’. The endless open loop vs closed loop debate always comes down to this: you can argue all you want about the parts but in the end it is meaningless. To truly understand things, you have to examine the whole business model, how everything fits together, and how that can benefit everybody while growing and evolving.

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JR Central Online EX Ticketing Extends to Kyushu Shinkansen in 2022

JR Central/JR West/JR Kyushu issued a joint PR release that JR Central’s EX Shinkansen eTicket system, encompassing both EXPress Reservation and smartEX services, will be adding JR Kyushu Hakata~Kagomashima Shinkansen ticketing in spring 2022.

2022? If it’s going to take that long why bother announcing it now? I am sure that part of the reason for the long lead time is the next generation Suica card architecture (Super Suica) and FeliCa OS update coming in spring of 2021. All nine of the Suica sister transit IC cards under the Transit IC interoperability umbrella will need to switch over to the new transit card format to maintain compatibility: Suica, Toica, ICOCA, SUGOCA, Kitaca, PASMO, namaca, Hayaken, nimoca.

Right now Mobile Suica is the only transit card on mobile, and mobile offers service extras like downloadable Shinkansen eTickets. The next generation Super Suica format will likely extend mobile capability and mobile service extras to all nine cards. At the very least JR Central will have to retool the EX system for the new card architecture while maintaining compatibility with the current card architecture. It makes sense to upgrade the current EX system areas first and add Kyushu Shinkansen ticketing last.

Meanwhile, JR East is due to rollout a new eTicketing system in spring 2020.

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Japan Transit IC Map, outside white area cards are due to join Super Suica in 2021

JRE POINT Issues Apple Pay Suica Notice

With the JAPAN CASHLESS Rebate program in full swing, many Apple Pay Suica users are suddenly paying attention and signing up to get those post-transaction rebate points. The sleepy JRE POINT site is suddenly a hot bed, and users are advised to steer clear of registering Suica cards during the peak evening hours of 22:00~24:00.

JRE POINT issued a notice today reminding users with plastic Suica cards registered with JRE POINT, that they need to re-register the Suica as Mobile Suica if they transfer it to Apple Pay.

JRE POINT allows multiple Suica cards to be registered, but only a single Mobile Suica card (green) can be registered at any one time, and one Mizuho Suica (blue). Once a Apple Pay Suica/Mobile Suica card is registered however, users don’t need to worry about the Suica ID number changing when migrating to a new device or moving Suica from iPhone to Apple Watch. The number usually doesn’t change but even if it does, the Mobile Suica/JRE POINT system takes care of it.

UPDATE: I forgot to mention that MIZUHO Suica does not count towards the Mobile Suica limit, you can have one Mobile Suica card (green) and one MIZUHO Suica card (blue) both in Wallet, both earning JRE POINT.

Apple Pay Suica Market Share Math

One side benefit from the fake NFC TIMES article is that we now have the latest Mobile Suica issuance numbers direct from JR East: as of August 2019 total Suica issue is 78 million, Mobile Suica is 7.8 million. This is 10% exactly and has nothing to do with transaction volume, but let’s have fun and run some numbers.

If there is anything I have learned in the past 3 years, I am certain that Apple Pay Suica users use Suica much more than regular plastic Suica users. The Apple Pay ‘recharge anywhere, anytime’ factor, the ability to see what the Suica balance is at a glance, plus the magic of services like Suica Auto-Recharge, all combine to completely transform Suica into a super card. Let’s be conservative and say that Apple Pay Suica users use their Suica at least twice as much as regular plastic users, though it is probably 3 x ~ 4 x more.

In a simple hypothetical one on one scenario with 2x Mobile Suica transactions, Mobile Suica would account for 20% of total Suica transaction volume though I think 30%~35% is probably a more realistic estimate. When you factor in the cost of plastic Suica issue with its lower transaction volume, it’s clear that Mobile Suica is the future of the Suica platform.

What about Apple Pay Suica market share? There are 7.8 million virtual Suica cards installed on iPhone and Android smartphones. Let’s be conservative and say 40% of that total is iPhone/Apple Watch Apple Pay Suica, which is about 3.1 million. But let’s pull out that interesting survey from a few months back that found only 1 in 3 iPhone users who can use Suica (global NFC iPhone), actually install and use Suica: 3.1 x 3 = 9.36 million.

9.4 million Apple Pay Suica capable iPhones exist in Japan. This is a very conservative estimate but already more than the total Mobile Suica issue base. Add in all those iPhone SE/6/6S devices that can’t do FeliCa begging to be upgraded to global NFC spec iPhone… and I believe that Jennifer Bailey and the Apple Pay team are looking at a golden 2020 Tokyo Olympics opportunity for Apple Pay Suica. Now all we need is a good marketing campaign from Apple to mine it.

Ride the Rails with Apple Pay Suica and Earn JRE POINT

The enhanced NFC functions of iOS 13 could not have come at a better time for the Japanese market. The great 10% consumption tax cashless experiment begins October 1 when the tax hike becomes effective and the Japanese government starts giving 2%~5% refunds for cashless payments via established card point systems. The ‘My Number‘ Japanese Individual Number card will be a centerpiece for getting those point rebates and the Japanese government has already announced iOS 13 support for My Number card. The whole rebate/refund thing is clear as mud but exciting too. Suica is listed as one of the many e-money cards eligible for consumption tax refunds/rebates. Suica consumption tax point refunds will be delivered via JRE POINT.

JR East added to the excitement today with the announcement that starting October 1 Suica users can earn JRE POINT simply by riding the rails. Mobile Suica transit users (Apple Pay Suica, Google Pay Suica, Osaifu Keitai Suica) earn 1 JRE POINT per 50 yen of IC transit fare, plastic Suica cards earn 1 JRE POINT per 200 yen of IC transit fare.

That’s a huge incentive to drive transit users from plastic Suica to Mobile Suica. The same JRE POINT rates apply to Green Car Seat purchases. And get this, only Mobile Suica Commuter Plan purchases and renewals are eligible for JRE POINT with 1 JRE POINT per 50 yen of the purchase/renewal. This is a sweet deal if your company sponsors your commuter pass. They give you the money, you get the points. Ugh, now I have to hold off renewing my Apple Pay Suica Commute Plan until October 1 but the points are worth going without my commute plan for a few days. JR East’s big push for Mobile Suica over plastic is remarkable and will become a shove when the next generation ‘Super Suica’ format arrives in April 2021.

To earn points the Suica card must be registered to a JRE POINT account. The JRE POINT account setup process has gotten a little more streamlined, and the iOS JRE POINT App a little less clunky over the past year. Mobile Suica and JRE POINT systems are now dynamically linked so you don’t need to worry if the Apple Pay Suica card ID number changes.

Today’s announcement only applies to regular train travel but JR East will be adding a lot more in 2020~2021 as the Super Suica start date approaches: JRE POINT for Touch and Go Shinkansen travel starts with the new JR East eTicket system in April 2020, Round trip fixed travel route coupon-like JRE POINT is due December 2020. And finally, with Super Suica in place, the regular express train/Shinkansen ‘EkiNet‘ ticketing and point system will be rolled into the JRE POINT system. Travelers can then earn and use JRE POINT to purchase regular express train and Shinkansen eTickets and upgrade seats. It will be Apple Pay Super Suica eTicket bliss.