Mobile Payment, E-Money and Credit Report in Japan

(c) 2014 Eurotechnology Japan KK www.eurotechnology.com Mobile payment, e-money, mobile credit report (26nd Edition) May 12, 20141
MOBILE PAYMENTS, E-MONEY
AND MOBILE CREDIT IN JAPAN
26th Edition, May 12, 2014

!
by Gerhard Fasol

Eurotechnology Japan KK

http://www.eurotechnology.com/

fasol@eurotechnology.com

!
Free version with selected pages.

Purchase full report here: http://www.eurotechnology.com/store/mpay/

EXECUTIVE SUMMARY: MOBILE PAYMENTS,
E-MONEY,AND MOBILE CREDIT IN JAPAN
2
- Electronic money and virtual electronic credit cards, based on multi-application smartcards and communicating via
contactless NFC methods, and mobile phone based payments have broad usage in Japan both for purchases of goods
and services, as well as for transportation tickets.

- FeliCa-based multi-application smartcard chips and corresponding JAVA applications are today in most of Japan’s mobile
phones, linking mobile payments, mobile credit cards, and e-money, and accelerating development.

- “Gentle” regulatory supervision is a strong contributing reason why e-money has developed rapidly in Japan.

- E-money in Japan is a vibrant free market, contested between private companies.

- Key drivers of Japan’s new payment industry are:

- SONY with FeliCa cards as hardware provider,

- the world’s largest railway company JR-East with SUICA e-Money and prepaid fares

- regional railway companies with corresponding e-Money and prepaid fare cards

- retailers Ido-Yokado with e-Money Nanaco, and retailer AEON with e-Money WAON

- online shopping mall Rakuten with Edy electronic money,

- DoCoMo with the introduction of i-Mode based mobile payments and wallet phones

- In addition many software companies, and IT integrators (e.g. NEC) are part of Japan’s e-money and mobile payment
ecosystem

- While Japan’s e-Money and mobile payment ecosystem is extremely advanced and impressive, Japanese companies have
until now failed to build global business based on these technologies

VERSION HISTORY: MOBILE PAYMENTS
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Version Date Notes
15 April 26, 2007
16 October 17, 2008
17 March 17, 2009
18 June 8, 2009
19 July 7, 2009
20 July 9, 2009
21 July 13, 2009
22
23 December 27, 2011

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Version Date Notes
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25 September 9, 2013
26 May 12, 2014 corrections, reformat, updates
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AGENDA - LIST OF CONTENTS
6
-Executive summary: Mobile payment, e-money and keitai credit

-Competitive landscape for e-money and keitai credit

-E-Money vs keitai credit

-Disruptive innovation

-New business model for mobile communications

-DoCoMo:

-investment in credit card companies

-new mobile payment and credit brands

-DoCoMo’s strategy

-KDDIThe Card and Jibun-bank

-SoftBank Card

-QuicPay, Smartplus andVisa-Touch

-Electronic cash and mobile payments in Japan

-Edy - electronic cash, Rakuten Edy KK, Mobile banking and Edy

-Electronic money for Japan’s retailers (Nanaco and WAON)

-I-Mode Felica Examples:AM/PM,Ticket-PIA,ANA

-Felica and Mifare

-mobile FeliCa wallet phones and the mobile FeliCa eco-system

-M-Commerce, mobile payments and mobile transactions

-SUICA, PASMO and transportation based e-cash systems

-mobile payment for transport in Japan vs London

-why does it takeTransport for London at least 10 years to reinvent the mobile payment wheel?

-QR-codes to pay bills, paying utility bills by mobile phone

-DoCoMo Coin

-Summary

!

E-CASH FUNDAMENTALS
7

JAPAN’S PRAGMATIC APPROACH
8
- In my discussions with Japanese mobile payment managers and Bank of Japan ofﬁcials I observed
that the Japanese have a pragmatic attitude towards electronic money and mobile payments.The
introduction of these services in Japan is driven by practical business reasons, convenience and a
fascination with technology.

- Japan traditionally feels that it does not need to consider global standards

- European CEOs and mobile-operator executives on the other hand seem more concerned with
the more fundamental questions concerning e-money and mobile payments.

- Indeed, a recent review of the “E-Money Directive” of 2000 by the EU Commission states that
‘growth of e-money in Europe is slower than expected’, and suggests recommendations to
lighten the regulatory regime laid out in the directive

E-CASH IS DIFFERENTTO CREDIT CARDS
AND DEBIT CARDS
14
Electronic cash differs to electronic
payment with credit or debit cards.
For electronic cash, as illustrated
here, the cash resides electronically
in the card or in the wallet phone.
From time to time, the balance on
the card and the balance in the
data centre are reconciled
asynchronously. In the case of
credit and debit cards, the card
only contains the account number.
All balance and transaction
information is held and
manipulated at the data centre
only.
service provider
(credit card, bank, etc)
data center
JAVA application
with access to
FeliCa-chip
application/data
on FeliCa-chip
antenna
reader/writer
terminal
(c)2007EurotechnologyJapanKK
www.eurotechnology.comreader/writer
terminal
Credit Card
debit card
1234 5678 1234
Read onlyRead &
write
Wallet phone
e-cash
electronic
payment,
credit card
debit card

E-MONEY IN JAPAN
15

WHY ELECTRONIC CASH?
17
- Electronic cash transactions take on the order of 0.1 seconds and are much faster than traditional
cash: no change is required

- Reduce counting errors

- Reduce fraud and theft

- Reduce the cost of handling cash - savings can be used to improve service, or for loyalty programs
and discounts

- Electronic cash is “smart”: many functions can be programmed, can be combined with loyalty
programs etc. For example,ANA (All Nippon Airways) offers conversion of frequent ﬂyer miles into
electronic cash, and Frequent Flyer Miles for Edy purchases to encourage introduction of Edy
payments.

E-MONEY STATISTICS
23

TOTAL NUMBER OF E-CASH CARDS ISSUED
24
- Currently about 120 million e-cash cards (including about 12 million “mobile cards”) are in
circulation

- The number of e-cash cards is about to exceed the population of Japan, ie on average everyone in
Japan has at least one e-money card
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
10000000
20000000
30000000
40000000
50000000
60000000
70000000
80000000
90000000
100000000
110000000
120000000
emoneycardsissued e money cards issued
BoJ data
including mobile
Edy SUICA
BoJ data
mobile e money
c2009EurotechnologyJapanKK
www.eurotechnology.com

WHICH PROPORTION OF JAPAN’S MONEY IS E-
MONEY?
37
Bank of Japan data show that e-Money corresponds to about 2% of the amount of banknotes and
coins.This percentage could increase to 5% by 2015.
2006 2007 2008 2009 2010 2011 2012
0
1
2
3
4
5ofbanknotesandcoinsamount
e Money as a percentage of
total banknotes and coin amount
BoJ data
all types of e money
c2009EurotechnologyJapanKK
www.eurotechnology.com

EDY ELECTRONIC CASH
!
WHY EDY?
EURO DOLLARYEN
38

EDY IN FELICA WALLET PHONES
42
- The Edy account balance and transaction record is stored both in the secure area of the FeliCa chip,
and also on the central Edy data base server.

- The data on the FeliCa chip and the central server are periodically synchronized.

- The Edy JAVA i-appli allows to access both the balance stored in the FeliCa chip (shown in the left
hand side image) and also the balance on the central Edy server (shown in the right hand side
image).These two balances should normally agree - connection is necessary for reconciliation.

RAKUTEN EDY KK
(OWNER AND OPERATOR OF
EDY E-MONEY)
47

RAKUTEN EDY KK ( WAS BITWALLET KK)
48
Business
-Planning and management of prepaid electronic money business (Edy)

-Development of companies issuing prepaid electronic money, and of shops accepting it

-Management of the “Edy” brand
Company foundation
January 18, 2001 as BitWallet KK

!
June 2012 name changed to Rakuten Edy KK, logo changed to “Rakuten Edy”
Paid in capital
was:YEN 21,453.5 million (US$ 214 million)

!
now:YEN 1840 (US$ 23 million)
main shareholders
Rakuten

SONY

NTT DoCoMo

ANA

RAKUTEN EDY KK SHAREHOLDERS
49
Shareholder percentage
Rakuten
SONY Financial International
NTT DoCoMo
SONY
Dai Ichi Koushou (Karaoke company, brand “Big Echo”)
Tokyo Mitsubishi Bank
Nihon Konrax
Toyota Motors
Mitsui-Sumitomo Bank
Glory Engineering
Sakura Information Systems
Denso
KDDI
About 45 other major corporations
Total

NANACO
50

NANACO
51
- Nanaco is electronic money issued by Seven & I Holdings, one of Japan’s largest retail companies.

- Nanaco started on April 23, 2007.

- Nanaco is a complex electronic money system, which is issued alternatively in the form of cards or
as a JAVA application downloaded to a mobile phone.

WAON
!
“CUTE (=KAWAII) MONEY - LOVELY
WAYTO PAY”
61

KID’S WAON
64
From autumn 2007,AEON offers “Kid’s WAON” - electronic money for children

MOBILE PAYMENTS AND
KEITAI CREDIT IN JAPAN
66

AVIBRANT AND COMPETITIVE
MARKET
74

COMPETITION BETWEEN BRANDS
76
- At the point of sale, e-cash and keitai credit cards compete.

- All Japanese e-cash and keitai credit systems use SONY’s Felica systems, therefore they can all be
combined into a single terminal as shown on the right hand side, where customers can select a
particular type of e-cash by pressing a button

MOBILE PAYMENTS AND KEITAI CREDIT
AS NEW BUSINESS OPPORTUNITIES
FORTHE MOBILE INDUSTRY
81

BUILDING MOBILE PAYMENT BUSINESS:
DOCOMO’S INVESTMENT IN MITSUI-
SUMITOMO CREDIT CARDS
86

MOBILE PAYMENTS AND KEITAI CREDIT
AS NEW BUSINESS OPPORTUNITIES
FORTHE MOBILE INDUSTRY
94

BANK ATM WITH FELICA READER
100
This bank ATM is equipped with reader/writer terminal
for Felica, to transfer money between a FeliCa card or
FeliCa equipped mobile phone and the bank account, or
credit card account

DOCOMO’S ID STRATEGY
102
DoCoMo’s strategy is to attract part of the small payments (YEN 100 -YEN 1000) from cash to
mobile phone payments

DCMX = DOCOMO’S
CREDIT CARD
BRAND
105

temporary event hall inTokyo’s

Aoyama area to launch the brand

!
(later Microsoft used a similar event hall

in the same location to launch XBOX

in Japan)
108
DCMX = LAUNCHINGTHE BRAND

KKDI - JIBUN BANK
110

JIBUN BANK
112
- Jibun Bank (Jibun =oneself) is a joint venture
between KDDI andTokyo-Mitsubishi-UFJ-Bank
focus on banking via the mobile phone.

- A mobile phone site allows most banking
transactions directly

- KDDI offers Jibun-Bank to subscribers of
competitor DoCoMo as well, and we expect in
the future offering to all Japanese mobile
provider’s customers

KDDITHE CARD -> AU JIBUN CARD
119
- In response to DoCoMo’s DCMX
credit card, KDDI created “KDDIThe
Card” - a KDDI branded credit card,
starting on June 1, 2006 in cooperation
with the following credit card
companies:

- Credit Saison

- JCB

- Toyota Finance

- UFJ NICOS

!
- In Autumn 2008,“KDDI-The Card” was
merged into the Jibun-Bank and became
the “au JIBUN Card”

- au Jibun Card uses the QuicPay wireless
(RFID) payment system

DOCOMO’S RESPONSE:
PERSON-TO-PERSON MOBILE
PAYMENTTRANSFERS
121

SOFTBANK CARD
124

SOFTBANK CARD
125
in response to DoCoMo’s DCMX credit card, and to
KDDI-The Card (now AU Jibun Card), SoftBank created
the Softbank card.

QUICPAY ANDTHE
MOBILE PAYMENT
PROMOTION
FORUM
126

QUICPAY BAR
134
Quicpay bar in Nagoya
promotes Quicpay with
cocktails and drinks

SMARTPLUS
AND
VISA-TOUCH
135

TOKYO-MITSUBISHI-UFJ
MOBILE BANKING
139

I-MODE-FELICA EXAMPLE:
AM/PM CONVENIENCE STORES
CUSTOMER FIDELITY PROGRAM
148

EXAMPLE:AM/PM CONVENIENCE STORES
149
- AM-PM convenience stores have partnered with Bitwallet and have installed contactless reader/
writers in all POS terminals for use with Edy e-cash.

- AM-PMs installed FeliCa/Edy reader/writers can be directly used also to interface with I-mode/
FeliCa phones.

- AM-PM’s installed system will allow to use the ecash application of I-mode/FeliCa phone, and a
number of other applications, such as loyalty programs (“ap-club”) and other applications

EXAMPLE:AM/PM CONVENIENCE STORES
150
- Electronic cash payments at point of sale (POS) terminals

- customer relationship management, loyalty program, offers and new content for “club-ap”

CLUB-AP - CUSTOMER CLUB
LINKEDTO EDY E-MONEY
151
- Edy balance

- Club AP point balance

- Education game “AP”

- Chaku-melo (ringing melody) scratch game
(win free ringing melodies). Play the game as
a reward for purchases

- am/pm usage record

- Club AP: registration and changes

- Link to am/pm I-mode mobile website

CLUB AP - CUSTOMER CLUB
152
Edy cash balance transaction history Club AP point balance

EXAMPLE: CUSTOMERTERMINAL AT AM/PM
153
- Customers can access their
Edy accounts and perform
transactions, collect Edy-Gifts,
etc at online terminals named
“appoint’s” in am-pm
convenience stores.

- “appoint’s” terminals are a
cooperation between am/pm
convenience stores and
SONY’s So-net internet
services division
FeliCa card
reader

TICKET-PIA
154

ALL NIPPON AIRWAYS (ANA)
157

JAPAN AIRLINES - JAL
163

JAPAN AIRLINES - JAL
164
- In response to ANA, competitor JAL (Japan Air Lines) also introduced equivalent electronic payment
and ticketing systems.

- While ANA is linked to Edy e-money, JAL is linked to JR-East’s SUICA electronic money

- The photographs show one of JAL’s ticket sale and check-in machines.

- The JAL ticketing and check-in provides QR-code and FeliCa wallet phone read/write interfaces
QR code reader wallet phone reader

SONY’S FELICA
165

FELICA WALLET PHONES
171

SECURITY AND PRIVACY
173

BUSINESS MODELS ANDTHE
FELICA / MOBILE FELICA
ECOSYSTEMS
179

SUICA, MOBILE SUICA AND
TRANSPORTATION BASED NFC
PAYMENT AND E-CASH SYSTEMS
182

SUICAVS LONDONTRANSPORT’S OYSTER:
WHY DOES ITTAKE LONDONTRANSPORT
10YEARSTO RE-INVENTTHE MOBILE
PAYMENT WHEEL
187

WHY DOES ITTAKE AT LEAST 10YEARSTO
REINVENTTHE MOBILE PAYMENT WHEEL IN
LONDON?
189
- Quick answer: human nature and organizations are the barriers

ODAKYU @CLUB
191

ODAKYU @CLUB
192
- The Odakyu Railway line is one of many commuter
railway line networks in the west ofTokyo an
extends out into the Hakone resort areas.

- The Odakyu Railway operators reservation-only
“Romance Car” trains (shown on the left) which are
much more comfortable then the usual almost
standing-room only commuter trains.“Romance car”
trains are used by commuters in the evening to
return home more comfortably, for shopping trips,
for short-distance business trips (e.g. to the high-tech
R&D labs in Atsugi) and to visit the Hakone resort
area.

- Odakyu is using a self-service reservation system for
customers to book an purchase seats on the
reservation-only Romance-Cars via mobile phone.

- Although we did not ﬁnd ﬁgures released by
Odakyu, we estimate that 10%-20% of seats are sold
mobile phone.

SUMMARY
193

SUMMARY: JAPAN’S MOBILE PAYMENT AND E-
MONEY ECO-SYSTEMS
194
- Electronic money, based on multi-application smartcards and communicating via contactless NFC
methods, and mobile phone based payments have broad usage in Japan both for purchases of goods
and services, as well as for transportation tickets.

- Felica multi-application smartcard chips and corresponding JAVA applications are today in most of
Japan’s mobile phones, linking mobile payments, mobile credit cards, and e-money, and accelerating
development.

- “Gentle” regulatory supervision is one of the major reasons e-money has been developing rapidly in
Japan.

- E-money in Japan is a vibrant free market, contested between private companies.

- Key drivers of this new payment industry have been SONY with Felica cards and Edy electronic
money, the world’s largest railway company JR-East with SUICA, and DoCoMo with the introduction
of i-Mode based mobile payments and wallet phones.

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EUROTECHNOLOGY JAPAN KK
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GERHARD FASOL
PROFILE: HTTP://WWW.FASOL.COM/PROFILE/
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- Worked successfully with Japan’s high-tech sector since 1984 - 27 years. Came first to Japan in
1984 to help build NTT’s first international R&D cooperation on semiconductor lasers

- Entrepreneur inTokyo since 1996, Eurotechnology Japan KK worked with many large corporate
groups (e.g. SIEMENS, NTT, DeutscheTelekom,Asahi Glass...), more than 100 investment fund
managers

- Assoc. Professor of Electrical Engineering atTokyo University. Record of Fasol-Laboratory atTokyo
University: http://www.fasol.com/tokyo_university/

- Elite “Sakigake” (Pioneer) R&D project on Spin-Electronics of Japanese Government Science and
Technology Agency.This work was evaluated by US National Science Foundation and US
Department ofTrade: http://www.wtec.org/loyola/erato/ch7_5.htm

- Co-initiator of spin-electronics device research in Japan, one of the first to start work on spin-
electronics in Japan in 1991

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- Assoc. Professor of Electrical Engineering atTokyo University

- PhD in Solid-State Physics (Cambridge University,Trinity College, UK)

- Diplom-Physiker, Ruhr-University Bochum (Diplom-Thesis on Superconductivity)

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GERHARD FASOL WITHTETSUZO MATSUMOTO, EXECVP OF
SOFTBANK MOBILE CORPORATION
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“POST GALAPAGOS STUDY GROUP”
25 JAPANESE LEADERS + 1 FOREIGNER (GERHARD FASOL) WORKING
FOR ONEYEAR ON CONCEPTSTO OVERCOME JAPAN’S
“GALAPAGOS EFFECT”
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see: http://www.eurotechnology.com/2013/10/07/galapagos/

“POST GALAPAGOS STUDY GROUP”
25 JAPANESE LEADERS + 1 FOREIGNER (GERHARD FASOL) WORKING FOR
ONEYEAR ON CONCEPTSTO OVERCOME JAPAN’S “GALAPAGOS EFFECT”
202
see: http://www.eurotechnology.com/2013/10/07/galapagos/

CONTACT
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• CEO: Gerhard Fasol

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• Email: fasol@eurotechnology.com and gfasol@gmail.com
203

Mobile Payment, E-Money and Credit Report in Japan

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