Apple to plan iPhone for Japan with tap-to-pay for subways

Bloomberg

Apple Inc. is planning a new iPhone feature for Japan that will enable users to pay for mass-transit rides with their smartphones instead of physical payment cards. A future iPhone will include technology called FeliCa, a mobile tap-to-pay standard in Japan developed by Sony Corp., according to people familiar with the matter.
The FeliCa chip will let customers in Japan store their public bus and train passes on their iPhones. Users would then be able to tap their phones against the entrance scanners instead of
using physical cards. While the FeliCa chip is the standard technology underlying the service, there are several different providers of transit payment cards
based on the type of transit and areas within Japan.
The Near Field Communication technology powering Apple’s mobile-
payments service, Apple Pay, is prevalent in North America, Europe and Australia, but the FeliCa standard dominates
Japan with a penetration of 1.9 million payment terminals, according to the Bank of Japan.
The terminals handled 4.6 trillion yen ($46 billion) in transactions in 2015. Last year, there were 1.3 million NFC terminals in the U.S. and 320,000 in the U.K., according to research from Let’s Talk Payments and the U.K. Cards Association.
Apple intends to work with multiple transit card providers, one person said. The major players there include the Suica and Pasmo networks. Theoretically, virtual representations of the transit passes would be stored in the iPhone’s Wallet application, said the person, who asked not be identified because the planning is private. The card companies sell access to transit services both as-needed and via monthly packages.
Apple’s opportunity in Japan is significant with the country alone representing 8 percent of the company’s total revenue and almost 11 percent of operating profit in the most recent quarter.
IPHONE TIMING
Apple has planned to launch these new features with the next iPhone models, which the company is set to unveil in September, according to people familiar with the matter. However, the company could hold back the transit card feature to next year’s model if discussions with the Japan-based payment networks fall apart, one person said. Apple is already at work on a major redesign of the iPhone for 2017 that focuses more heavily on the display by removing the Home button, according to a person familiar with the matter. In addition to supporting the transit-pass network, the FeliCa chip can also store e-money, an electric form of currency now widely accepted at vending machines, convenience stores and cafes in Japan. Apple is in discussions with at least one major financial institution to support these e-money transactions, according to one of the people.

REVENUE OPPORTUNITY
Apple Pay first launched in October 2014 in the U.S. with the iPhone 6 and has since expanded to Australia, Canada, China, Hong Kong, France, Singapore, Switzerland and the U.K. Apple Pay contributes to the company’s rapidly growing services business, which grew 19 percent year-over-year to about $6 billion in the fiscal third quarter.
Earlier this month, Apple struck a deal with Japan-based phone carrier KDDI to allow customers to bill iTunes purchases to their phone service bill instead of directly to their credit card. Apple’s deal with the Japanese carrier is indicative of Apple’s payment-related negotiations with firms in Japan and follows up the company’s work on activating carrier-based iTunes billing in Germany, the U.K., Russia, Switzerland, and Taiwan.