Published on April 15th, 2007 | by Babar Bhatti3
Mobile Wallets: Case Study of M-Commerce From Japan
A few years ago Mobile Commerce was touted as the killer application of mobile technology. With the overall lukewarm interest in 3G, mobile commerce has also been slow to take off. In the next few posts I’ll share stories from around the world about mobile commerce applications. Industry analysts often point to Japan and Korea for signs of early mobile technology adoption so let’s start from a case study from Japan. The recent effort to introduce the so-called “mobile wallets” in Japan has been interesting. Here I’ll share a news report from CARD TECHNOLOGY which ran a story with a sub-title “Japan’s Mobile Wallets Fail To Inspire – Yet”.
As the report argues, Japan’s mobile telcos and payment card players haven’t yet convinced subscribers to think of their handsets as mobile wallets. As you read the story note how the usability of the whole process has created hurdles for the users and technology adoption. Also note how preloading applications on the phone helped in increased usage.
Here are excerpts from the news report:
Carried by 19 million commuters in what is reputed as the world’s busiest mass transit system, East Japan Railway’s Suica contactless card is used more than 200 million times per month. So it seemed like a natural for Suica to move to the contactless mobile wallet phones telco NTT DoCoMo has been selling for more than two years, later joined by Japan’s other mobile network operators. With Mobile Suica, commuters could download train tickets and recharge their Suica e-cash purse over the air to their phones, which they could tap to pass through transit gates or make purchases at more than 10,000 merchant locations in Tokyo.
But 13 months after its much-anticipated launch in January 2006, only 350,000 customers had signed up for the mobile service. That’s only about a third of what the commuter rail operator had expected. It declines to release transaction numbers.
The registration process has been difficult for many prospective users, Akio Shiibashi, director of the Suica Systems Department at JR East, tells Card Technology. “Membership is a little complicated, so we need to make it simpler,” he says. “The digital ticketing function has not materialized.”
Nor was 2006 a breakthrough year for any of Japan’s other contactless payment schemes that have launched service on wallet phones, known as “Osaifu-Keitai” in Japan. While a reported 2.6 million subscribers had signed up to tap their wallet phones to make credit payments in convenience stores, supermarkets, restaurants and vending machines as of January, it’s obvious the number of transactions are less than what backers had hoped for. The 2.6 million doesn’t include users of e-cash on the wallet phones.
Interestingly even in Japan consumer awareness remains an issue and there aren’t enough places for consumers to tap.
“The most important thing is the number of acceptance points,” says consultant Masayuki Yamamoto, a former executive with Visa International in Japan. “The number of merchants is not very great. (And) because the startup is slow, people are not aware they can use mobile payment.”
Wallet-phone backers say it’s only a matter of time before their investment pays off. But the teething pains in Japan-the most advanced mobile payment and ticketing market in the world-have implications for mobile operators, banks, transit operators and others in Europe and North America, which are planning to launch services in coming years using phones supporting similar contactless technology, NFC.
Among the issues facing the mobile-commerce players in Japan of interest to the outside world is how to solve difficulties in personalizing phones over the air with applications. After all, this is a major advantage contactless phones hold over cards. Transit operators could reduce the number of their ticketing agents by allowing customers to download monthly passes or e-cash for single rides. Banks could avoid card-issuing costs. And the handset could serve as the multiapplication platform cards never managed to become.
This study shows that makes a big difference if the application comes preloaded on the handset and is ready for the end-user. Excerpts from the above story:
For most of the registered users of contactless mobile payment in Japan, applications are preloaded on the handsets. Every new wallet phone the telco sells comes with iD pre-installed, ready to be registered by the subscriber-a much easier process than downloading the application itself. Japan’s largest credit card company, JCB, says its registered users jumped by three times after DoCoMo chief rival, telco KDDI, began preloading JCB’s QUICPay service onto its phones in February.
“It’s kind of difficult for average users to download the Java application,” says Shusaku Maruko, general manager in the planning department for FeliCa Networks, the DoCoMo-Sony joint venture handling the secure downloads.
Japan’s mobile-payment players face other challenges that those in the NFC world are unlikely to see. Foremost among them is the fact there is no standard application for contactless payment in Japan, in part because contactless phones and cards use a nonstandard technology called FeliCa, from Sony. It means when consumers find a contactless point-of-sale terminal, it may not accept the brand of contactless credit or e-cash they are carrying.
There are 5 contactless schemes rolling out in Japan. Efforts to make the point-of-sale terminals and readers interoperable rely not on international standards bodies, but bilateral agreements between the schemes. And progress has been slow. There are perhaps 100,000 terminals and readers deployed by the various contactless schemes at merchant locations in Japan, not counting multiple brands accepted at the same shop or restaurant. But that is still a small number in Japan’s vast retail market, says Yamamoto.
A Turning Point?
Still, wallet-phone backers are confident. DoCoMo’s Hiromiki Moriyama, a director in the telco’s multimedia services department, tells Card Technology 100 Yen shops (Japan’s counterpart to the U.S. dollar store) are among the latest retailers to accept iD. About 90 stores owned by the Aeon Group, one of Japan’s largest retailers, have already installed iD terminals. And Aeon also is among the first merchants to deploy readers supporting more than one brand of contactless payment.
Such high-profile merchants as Seven-Eleven Japan, with nearly 12,000 convenience stores, and McDonald’s restaurants are also planning to deploy contactless payment terminals. Seven-Eleven is launching its own contactless service, nanaco, this spring.
While the relative scarcity of acceptance points is a problem, the number of wallet phones is not. DoCoMo and its competitors have together sold nearly 30 million contactless phones since 2004, with 40 million projected by March 2008.
And service providers are also moving to ease the burden of signing up for the mobile services. For example, JR East had limited its mobile service only to holders of its own credit card, “View.” But the rail operator realized its mistake and 10 months after Mobile Suica’s launch, opened up the scheme to holders of all major credit card brands in Japan and three large banks. Subscribers can use these accounts to pay for the tickets and e-cash value they download. It is also making it easier to download the service, a task that took 30 minutes to 1 hour before. JR, like the other promoters of contactless payment, believe it can tap in on the estimated 60 trillion yen (US$514 billion) Japanese consumers spend every year on low-value purchases, nearly all of it with cash.But Japan’s wallet-phone backers know changing the behavior of tens of millions of subscribers will not happen overnight.