As Apple (AAPL, Financial) gears up for its iPhone 7 launch, the company is slowly adding more ammunition to its arsenal to help boost its sales around the world. According to Bloomberg, Apple is planning a new iPhone feature for Japan that will allow users to pay for mass-transit rides with their smartphones, instead of swiping their physical payment cards.
Japan is a small but highly populous country with 336 people living per square kilometer, and the number of people who use the mass-transit system is close to 9 million per day, thus opening up a potentially huge market opportunity for Apple.
The recently reported third quarter results reported Apple’s revenues touched $42.358 billion, with nearly 8.3% coming from Japan alone. The Land of the Rising Sun is the second biggest revenue earner for Apple after the United States, and was the only region to post positive sales growth for Apple in the first nine months of the current fiscal.
Apple is doing its best to keep that momentum going, and their decision to add extra features that can help its current as well as prospective customers is great news for Apple sales in Japan.
“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 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.”Bloomberg
Things have not gone too well this year for the world’s largest company. With smartphone sales slowing down around the world, top manufacturers like Apple, Samsung (XKRX:005930, Financial) and Xiaomi have a taken a huge hit this year and the trend is yet to be broken. The Apple of everyone's eye right now is the iPhone 7. If it does well, Apple may be out of the woods for a while.
It is good to see that Apple is pushing more on the services side, strengthening the company’s ecosystem. This segment never had the limelight it deserved. After the Apple Maps fiasco, not many expected the company to deliver strongly in this crucial segment. The launch and success of Apple Pay, however, has changed that equation, and the company seems to be steadily growing in confidence.
Apple’s recent billion-dollar investment in Chinese ride-sharing company Didi Chuxing and the plans to launch a service in Japan to help mass transit riders makes it clear that the company is going to be expanding Apple Pay’s reach around the world. The transportation angle may also lead the company to increase its time and money investment on Apple Maps, a crucial application for the future. Google (GOOG, Financial) holds all the aces when it comes to Maps, but Apple could be gearing up for a showdown in not-so-little Tokyo, seriously.
So far my writings on Apple have been focused on Apple’s future bets, because the iPhone magic might not last forever. They have sold a billion iPhones, and that journey has taken them to the top of the capitalist heirarchy - yet may not be enough to keep them there. It is the ecosystem of Apple Pay, Apple Maps, Siri and so on, that will keep users engaged well into the next decade and beyond. Device sales may be Apple’s bread and butter now but Cook, with his five years at the helm of Apple, knows that it is just not enough.
Disclosure: I have no positions in any of the stocks mentioned above and no intention to initiate a position in the next 72 hours.
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