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DoCoMo keeps plugging the e-wallet

Wireless telecom giant is far ahead of the game with its contactless mobile wallet. But is cash still king?

In Japan, NTT DoCoMo's "contactless" mobile wallet, I-mode Felica, lets subscribers make payments, pick up tickets, board airlines, enter their homes and even sign in at karaoke bars, all with a tap of their phone handsets.

Perhaps only DoCoMo, the world's biggest wireless telecom, could pull this off at a time most other retail mobile-commerce players are still trying to get out of the gate.

The Tokyo-based company has more than half the subscribers in Japan, and the nearly 44 million users of its I-mode mobile Web and e-mail service also make it the world's largest Internet service provider of any kind.

Like other wireless providers in Japan, DoCoMo controls the specifications for all its handsets, which are branded with the company's logo rather than the mark of the handset maker. This has enabled it to put seven models on the market since launching the "m-wallet" last summer, all embedded with contactless chips from its mobile commerce partner, Sony. Sony's Felica chips are used in more than 30 million contactless transit fare cards in Tokyo and other Asian cities and about 7 million retail e-cash cards.

Carl Atsushi Hirano is DoCoMo's point man for the mobile wallet. One of the main tasks for the 43-year-old former investment banker is to bring in as many payment services as possible, giving users lots of places to use their phones to conduct transactions.

"DoCoMo is moving to a post-I-mode business model based on Felica."
--Yasushi Yoshikawa, general manager, NEC

To date DoCoMo has lined up 20 service providers and counting for I-mode Felica, including e-ticketing schemes for the country's large Toho Cinemas chain and its two major passenger air carriers, Japan Airlines and All Nippon Airways. JAL customers, for example, can wave their way onto the jet without needing a boarding pass. "We see this (handset) as a fundamental device the people will have in the future," says Izuru Takaya, JAL's planning manager for product marketing and development.

But DoCoMo itself sees the future of the mobile wallet in financial services, especially those that tap into what the operator estimates is a 27 trillion yen ($256 billion) market for so-called micropayments. These are small purchases, typically amounting to $30 or less, that consumers make at convenience stores, supermarkets, fast-food restaurants and with a range of other merchants--just about all of it in cash. Transit fares add billions of dollars more worth of payments. (Cash is so important for Japanese consumers that most banks allow their customers to withdraw $30,000 to $50,000 from ATMs--per day.)

But DoCoMo isn't only after cash purchases. It recently announced plans to spend nearly $1 billion to buy a 34 percent stake in the large credit card unit of Sumitomo Mitsui Financial Group, Japan's third-biggest bank. The two companies will launch a credit payment service on the m-wallet, enabling consumers to make both small and large purchases with their phones. Sumitomo will install readers at retail shops and also equip ATMs to respond to the call of the Felica chip in customer handsets. The deal will also allow DoCoMo to issue its own conventional credit card.

Another service provider already sold on the I-mode Felica m-wallet concept is JCB, Japan's largest credit card company, which this year plans to launch its "QUICPay" mobile payment plan. The application will let consumers load up to about $300 worth of e-cash on the contactless chip; when the value falls below a certain level JCB will reach out over the mobile network to top it up from the customer's credit card account.

Although financial institutions typically reject such arrangements, JCB is taking the chance in hopes of snaring a piece of a micropayment market in Japan it estimates at a massive $600 billion, an even more liberal estimate than DoCoMo's. Of course, only about $200 billion of that is in play, figures Atsushi Yoshida, a senior vice president for emerging technology at JCB. The rest will stubbornly remain cash.

Even then, I-mode Felica's promoters face a difficult task. They have to wean consumers off cash, the favored form of payment in Japan, while persuading merchants to pay commissions of 2 percent, 3 percent, even 5 percent to accept the new form of payment.

Still, Hirano says the operator is mainly pushing the m-wallet to burnish its brand and to dissuade mobile phone subscribers from moving to the competition. He adds the company wants to increase its holding in Felica Networks, its joint venture with Sony that manages and licenses the technology platform.

Downturn for DoCoMo
DoCoMo's mobile commerce gamble comes amid a rare downturn for the company in Japan's saturated mobile phone market. Sales are expected to drop by nearly 5 percent to $46.5 billion for the trailing 12 months that ended in March, the first yearly fall in revenue in DoCoMo's history. Fierce competition has required the company to discount its calling charges and offer subscribers a fixed rate for data service.

No longer will DoCoMo earn money on each packet of data transmitted over its network as subscribers send e-mail or download games or cartoon characters. And despite being the world's first major operator to launch a high-speed, third-generation wireless network service in 2001, DoCoMo is still playing catch-up with its more nimble rival, KDDI, in signing up customers.

Things are likely to get worse next year when Japan finally lets subscribers change carriers while keeping their phone numbers, which telecom regulators in most other developed countries have already mandated. Number portability usually hurts the dominant mobile operator in a market.

All of this helps explain why DoCoMo is promoting I-mode Felica so heavily, touting it as the third stage in the mobile "revolution" it touched off with the explosion in wireless calls in the mid-1990s, and continued five years later with its I-mode mobile Internet service.

"DoCoMo is moving to a post-I-mode business model based on Felica," says Yasushi Yoshikawa, general manager of mobile business development for Japanese electronics giant NEC, the largest manufacturer of handsets in Japan. But DoCoMo, which succeeded in signing up content and service providers for I-mode, is having a tougher go in recruiting merchants to accept the m-wallet.

"Commuting is one of the basic activities of the people...They will move on to use this phone as a credit card."
-- Carl Atsushi Hirano, executive director, NTT DoCoMo

A dearth of places for subscribers to tap their phones is a key reason that, nine months into the launch of I-mode Felica, transactions are not exactly tumbling in. DoCoMo has even offered to finance the rollout of phone readers for retailers to connect to their cash registers. But few have taken up the offer.

Moreover, subscribers have security concerns. If they lose their phones, they lose their electronic cash and ID, which a thief could spend without logging into the network. DoCoMo added a remote locking mechanism that enables subscribers to shut the chip down by calling their missing handset from a preregistered number (or several times from a payphone). One handset also offers a fingerprint lock.

Hirano and others are convinced attitudes will change next year when East Japan Railway introduces its "Mobile Suica" fare collection and e-cash application. Roughly 11 million commuters use contactless Suica cards to ride the trains in Japan.

"Commuting is one of the basic activities of the people," Hirano says. "They will move on to use this phone as a credit card."

The momentum could start this fall when Japan's other top mobile network operators, KDDI and Vodafone, start selling handsets with the Felica chip. But even this doesn't guarantee success for I-mode Felica, says Gerhard Fasol, head of Eurotechnology Japan, a consultant and promoter of Japanese IT. "The judgment is still out," cautions Fasol.

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