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Apple Pay Japan – Apple Looks to Ride Japanese Trains to Success

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September 9th, 2016

Apple held its annual fall event this Wednesday, September 7th 2016. While the iPhone continues to headline Apple’s fall events, Wednesday’s presentation also spent considerable time focused on an important country for Apple and its mobile devices – Japan. The big announcement for the Japanese market came when Apple unveiled that it would be extending support for Apple Pay in Japan for the newest iPhones and Apple Watch models. Wednesday’s news marks an important turning point for mobile proximity payments in Japan as Apple’s commanding share of the Japanese smartphones market provides a tremendous platform for the company to drive growth – particularly with regard to the country’s world-class transportation system.

Proximity Payments in Japan – Transportation Opportunity, NFC Incompatibility

The Japanese market has long held a strong affinity for cash-based transactions – 62% of consumer payment transactions in 2016 took place using cash in value terms. Despite this fact, Japan is the 6th largest global market for mobile proximity payments and offers promising opportunities for growth thanks to strong national data coverage and increasing possession rates of smartphones – which reached 56% of Japanese households in 2015. In addition, contactless smart cards are already well integrated in the nation’s heavily travelled railway system – setting the table for growth if Apple can successfully tap into the transportation market.

Mobile proximity payments have seen a fair amount of usage in Japan through the Osaifu Keitai mobile wallet system that has been present on some phones in the country since 2004. FeliCa, a near field communications (NFC) standard developed by Sony has become the overwhelming standard for proximity payments in Japan and is the technology underlying both Japanese contactless smart cards and the Osaifu Keitai service. The standard is particularly popular on Japan’s highly developed railway system because of its high payment processing speed. Outside of Japan, NFC Type A/B standards are the most common implementation of NFC technology, and are the standard which Apple Pay utilises. Incompatibility between these standards has heretofore meant that Apple – which is the overwhelming leader in smartphone sales in Japan with 55% of volume sales in 2016 – has been isolated from the most popular proximity payment systems in the country.

Apple Pay Japan – Apple Looks to Transportation, Beyond

Apple’s announcement on Wednesday that iPhone 7, iPhone 7 Plus, and Apple Watch Series 2 devices sold in Japan would be compatible with the FeliCa proximity payments system marks a concerted effort to capture the Japanese market. Apple wasted no time in heavily promoting its integration with Suica– the FeliCa card used on JR East railways that serve Tokyo, one of the highest volume railway systems in the world. The company explained that Apple Pay will be available wherever Suica cards are used, including a number of shops and restaurants. In addition, Apple Pay will be supported by iD and QUICPay and allow consumers to connect cards from a variety of Japanese issuers.

Apple’s move deftly plays into the existing proximity payment practices established in the Japanese transportation market. Rather than trying to create a grassroots movement toward card and mobile payments in what is still a heavily cash-oriented society, it appears that Apple’s aim is to use its strong smartphone market share to absorb a significant portion of transit spending and simultaneously use this as a rallying point for further proximity payment inroads within the Japanese economy.

Apple clearly views the Japanese market as a crucial opportunity for mobile proximity payments, an opportunity which is only bolstered by the upcoming 2020 Summer Olympics in Tokyo. Although the Olympics are several years away, Japan has expressed interest in improving the uptake of digital payments in the country as it prepares for the influx of tourists associated with hosting the Olympic Games. Apple’s move to push past the barrier that has kept it out of the Japanese proximity payments market is likely to play an important role in not only unlocking new commerce opportunities for the company, but also in helping Japan prepare for the flood of iPhone-bearing tourists that 2020 brings.

For further analysis of mobile wallets like Apple Pay, please see Euromonitor’s strategy briefing: Tech Titans and their Prospects in the Impending Global Mobile Wallet War.

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Ryan Tuttle

Ryan Tuttle is a consumer finance analyst at Euromonitor International. His work at Euromonitor focuses on global trends and developments in cards, payments, and lending. He has a master’s of public policy degree from Oregon State University and a bachelor’s of environmental studies degree from Gonzaga University.

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