WW-149 -- Virtual Wallet Services The end of the cash era?

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J@pan Inc presents the Wireless Watch Newsletter:

W I R E L E S S W A T C H

Commentary on Japan's Wireless World
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Wireless Watch Newsletter
Issue No. 149
Friday December 16, 2005
TOKYO

CONTENTS
++ Viewpoint: Virtual Wallet Services
The end of the cash era?

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++ Viewpoint: Virtual Wallet Services
The end of the cash era?

Despite the efforts of credit card companies, the majority of
payments in Japan are still made in cash. Japanese love cash.
Major players like Sony, Japan Railways East (JR East),
the am/pm convenience store chain, and mobile carriers have
launched a huge initiative to push virtual wallets on mobile
phones. Can the combination of mobile and smart card
technology change the way Japanese make payments?

Sony developed the underlying technology. Called Felica,
the technology allows the embedding of an IC chip and internal
antenna in a card. (The word "Felica" is a combination of
"felicity" and "card," suggesting an easier and more
convenient life.) Contactless communication is activated
by weak electronic signals from an external reader-writer
device. The handset or smart card receives these signals.
Communication is even possible when the handset is switched off.

With a single card, multiple data sets for different purposes can
be managed. The operating system embedded in Felica has
a file system that securely separates data by application.
A company can use Sony's software development kit to create
its own Felica applications.

A major platform making use of Felica is Suica, the IC card
ticketing system introduced by JR East in 2001. Suica cards
can be purchased at stations and re-charged up to a balance of
20,000 yen at vending machines. JR East has equipped all its
ticketing gates with reader-writers.

Sony strove to make Felica fast and secure; speed and security
are vital requirements of a virtual wallet. ("Suica," in fact, is
a portmanteau of the mimetic word "sui-sui"
["quick"] and "ca," short for "card".) JR East's busiest stations
in Tokyo must be able to handle thousands of secure debit card
transactions per minute. When passengers pass through the
ticket gate, they hold the Suica card against the Felica
reader-writer device. During this touch-and-go, card and reader
authenticate each other, followed by a data read-write for the
contactless payment. These three steps, including secure
encryption, must be completed within one tenth of a second.
Dynamic generation of the encryption key with each instance
of mutual authentication of reader and card minimizes risk of fraud.

Suica has met with an enthusiastic reception, with more than
12 million Suica cards issued to date. The card can also be used
to pay at station shops and restaurants.

Felica technology is widely used in Japan. Convenience store
chain 'am/pm' adopted the 'Edy' electronic money service
system in July 2002. The Felica IC chip with antenna is
embedded in the Edy debit card. This debit card system is
operated by Japanese company BitWallet, whose major
shareholders are NTT DoCoMo, Sony, several large banks and
Toyota. After purchasing the Edy card, the user can add value
to it by using an Edy reader-writer device or online via an Edy
account that balances a registered credit card. The maximum
value that can be added for one charge is 25,000 yen, and the
total debit on the card cannot exceed 50,000 yen. At the
cashier the customer pays with Edy by placing the card on
the reader-writer. The money is transmitted from the Edy
card into the merchant's system and then directly into the
merchant's bank account. Edy is complementary to credit cards,
as the typical amounts paid are less than 1,000 yen. Major
Japanese credit issuers have even embedded Edy into their
cards to allow for these types of mini-payments.

(The next edition of "Wireless Watch" describes NTT DoCoMo
and Sony's effort to create a mobile Felica-based wallet.)

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STAFF
Written by Arjen van Blokland; Edited by Burritt Sabin
(editors@japaninc.com)

(C) Copyright 2005 Japan Inc Communications KK. All Rights Reserved.

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