Japan's Tap and Go

  It is difficult to find an ATM in Japan that accepts international cards, but the dispensers are very welcoming to Japanese banking customers. At most machines, individuals can withdraw 3 million to 5 million yen (US 30,000 to 50,000) per day. Although Japanese rarely take out this much cash, or spend it, the fact banks place few limits on their withdrawals illustrates just how much cash dominates at the point of sale.
  That is especially true for low-value payments, and NTT DoCoMo, Japan's largest mobile network operator, is after this massive cash market. So are banks, transport operators, credit card companies and other service providers.
  Led by DoCoMo, these entities want to turn the ubiquitous mobile handset in Japan into a "mobile wallet," enabling consumers not only to make retail purchases and, soon, pay transit fares, but to enter movie theaters, check in at airports and gain access to their apartment complexes-all with a tap of their phones.
  DoCoMo was expected to have sold 3 million of its "i-mode FeliCa" handsets by the end of March, all embedded with a contactless chip and antenna, which transmit data via radio waves when signaled by a reader. DoCoMo is focusing on financial applications, especially those that tap into what the operator estimates is a 27 trillion yen (258 billion) market for micropayments. These are transactions of 3,000 yen (28.60) or less that consumers initiate at convenience stores, supermarkets, fast-food restaurants and a range of other merchants. Transit fares add billions more worth of payments.
  "The payment market is huge," says Carl Atsushi Hirano, head of the mobile-wallet project for DoCoMo. "Many, many credit card companies have contacted me." The companies see that many consumers always have handsets with them, and issuers want it to be the number one card, he says.
  I-mode FeliCa promoters face a difficult task, however. They have to wean consumers off their tried-and-true cash and convince merchants to pay up to 5% of the sale in transaction fees to accept the new form of payment.
  DoCoMo will not take a cut of the fees, says Hirano. The operator is pushing the platform to burnish its brand and keep already-low churn in check, as well as increase the value of its holding in FeliCa Networks, its joint venture with Sony Corp. that manages the platform, he says. Sony owns the FeliCa technology.
  But a dearth of places for subscribers to tap their phones may be one reason why nine months after DoCoMo launched the world's first contactless m-wallet, i-mode FeliCa has yet to generate the excitement many observers had expected.
  Backers hope that will change when a major new service provider, Tokyo regional commuter train operator East Japan Railway, introduces its "Mobile Suica" fare collection and e-cash application early next year. This would help address the scarcity of acceptance points. And as consumers use the m-wallet more, their worries about security will ease, believes DoCoMo.
  Survey results suggest consumers would use their phone to pay for their commutes. In an August Internet poll by Yahoo! Japan, respondents listed transit fare payment as the service they wanted most from the contactless phones (chart page 48).
  DoCoMo is rumored to be planning to incorporate in its handsets Near Field Communication, a short-range wireless technology that uses the same type of contactless chips as are embedded into transit fare cards. The technology would allow DoCoMo to add services, but first the operator has to demonstrate that subscribers are taking to the mobile wallet itself.
  JR East, Japan's largest passenger train operator, has issued nearly 11 million contactless Suica cards. It has planned for years to eventually launch the mobile application. JR executives were the first to suggest the service, more than four years ago, to i-mode managing director Keiichi Enoki. JR East also has a minority stake in FeliCa Networks.
  The rail operator does not plan to allow its customers to pay fares with their handsets until January because of concerns about the performance of the application.
  But it does have big plans for the mobile contactless platform, hoping to encourage more users not only for its fare-payment application, but also for Suica cash, its retail e-purse, as well as its "View" credit card. It also will allow customers to buy e-tickets for Japan's high-speed train service, Shinkansen, over the mobile network, downloading the tickets to the contactless chip in the handset. Customers can then tap their phones at the gate to board the train.
  JR predicts 1 million of its customers will pay fares with their phones by early 2007, a year after the planned launch of Mobile Suica. The rail operator will need 1 million to 2 million customers using the mobile service to cover its investment, says Akio Shiibashi, associate director and general manager in JR's Suica System Department.
  JR East's customers likely will not be the only ones using Mobile Suica. Next year, an estimated 7 million riders on Tokyo's conglomeration of public and private metros. The trains now use magnetic stripe "Passnet" cards, but they are scheduled to join Suica. They presumably will be able to use the mobile application, too. Other operators using FeliCa cards in the Kansai region, Japan's second-largest metropolitan area, also eventually could pay with their handsets.
  More Work Ahead
  The momentum could start this fall when Japan's other major mobile-network operators, KDDI and Vodafone, plan to start selling handsets incorporating the FeliCa chip. They have abandoned plans to do m-payment via infrared technology and are jumping on what the carriers call the "Mobile FeliCa" bandwagon. But even this will not be enough to make the platform a success, predicts Gerhard Fasol, head of Eurotechnology Japan, a consultant and promoter of Japanese technology.
  There are indications that handsets as payment devices have advantages over cards. The i-mode FeliCa's primary payment application is the Edy electronic purse, operated by bitWallet.
  For instance, consumers spend more with their Edy. BitWallet says average transaction amounts for Mobile Edy are up 20% from the roughly 400 yen (3.80) consumers usually spend with Edy cards. Handsets also allow consumers to view their account balances on their screens, according to bitWallet. The consumers can use Mobile Edy at about 20,000 retailers and other merchant outlets in Japan where the Edy card is accepted.
  I-mode FeliCa users can download just the services they want to their handsets, but Edy, which is co-owned by DoCoMo and several financial institutions, comes preloaded on the FeliCa handsets. Since July, about 400,000 subscribers have activated the application, says Makoto Yamada, a deputy senior general manager at bitWallet. About one-third of these recharge over the network using a credit card, he says.
  That recharge amount is also higher than with cards. For the latter, consumers have to hand cash to clerks or feed it into machines. BitWallet estimates the average mobile recharge for Mobile Edy is 5,000 yen, double what it is with cards.
  To thrive, bitWallet needs more acceptance points. While other convenience-store chains, Circle K and Sunkus, have agreed to accept Edy, eventually adding 6,000 stores, bitWallet is still only a bit player in the retail picture.
  Acceptance Is Key
  It charges transaction fees of 2% to perhaps as much as 5% of the sale, depending on the merchant. This makes for a tough sell, especially to smaller merchants unaccustomed to paying any fees and unaware of the costs of handling cash. And with ready ATM access, the merchants' customers probably are not caught often being short of cash.
  Meanwhile, Japan's largest credit card company, JCB, plans to offer "QUICPay," which it contends is more convenient than the other schemes because the customer's e-money account is automatically topped up from his credit card account when it runs low. JCB seems to have no clear plan for how to roll out a sizable base of QUICPay readers, however.
  Still, it raises the possibility that three e-purses, Edy, Suica and QUICPay, could share space on the same handset. That does not seem to faze bitWallet, however. "Our competition is cash," says Yamada. "It's a huge market."
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