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Kanji Sahara Nakamura Gakuen University 5-7-1 Befu Jonan-ku, Fukuoka JAPAN [email protected] 092-851-2531



The non-contact IC card system is conveniently used for the payment of commuting transportation fare. This payment system is prepayment way for passengers. Passengers have to credit cash into the IC card in advance. At the gates, passengers make on demand payments. This system is a type of financial DCM. This IC card system is changing from DCM to SCM system. The system is changing from prepayment into post payment by the application of monthly debit systems. Passengers enjoy discounted fare rate by the frequency of getting on and getting off. This post-payment style may be called financial SCM.

Keywords: IC card system, financial SCM, Financial DCM, e-payment system Introduction

Today is in the age of IT Revolution. Among the advanced digital tools, the non- contact IC card for commuting is successfully used. The non-contact IC card is a prepaid card to pass the toll gate. Passengers can pay commuting fare on demand by holding the IC card over data reading pad installed in the gate. Through this IC card they can save time of tickets purchase or toll gate inspection. The IC card enables passengers to save time for purchasing tickets and for inspection at the toll gate. There is a long history to develop the new style payment card in Japan. The innovation was begun by the East Japan Railway (JR-East) and the Bit-wallet Corporation whose main shareholder is the Sony Corp. JR-East reduced petit-cash or coin handling cost tremendously by prepaid card system. This system expanded to the JR-West and even foreign countries such as China, India, Thailand and Singapore. At the beginning, the payment style was made by stored value on demand payment, gradually the card evolves into post payment of financial supply chain style. On demand payment was prepayment of non discount style, new version of succeeded payment style is post payment with discount fare rate. This paper tries to analyze the change from prepayment on demand style to post discount payment supply chain style.

Background of non- contact IC card

In 1967, the magnetic transportation ticket was introduced into the toll gate system in Osaka by the Omron Co., Ltd. The automatic gate machine reads the data of magnetic tickets. This system was effective to cut labor cost of handling petit-cash and was introduced in Osaka commuting 142

companies in 1980's. In Osaka they are more competitive market in transportation industry than in Tokyo. In 1991, the Japan Railway East (JR-East) company introduced prepaid magnetic ticket following Osaka system. Figure-1 Introduction of slide-in magnetic ticket machine contact magnetic ticket Omron Co., ltd. invented magnetic automatic toll gate 1967 system in Osaka Private transportation Mainly joint introduced in Osaka 1980's companies in Osaka JR-East introduced prepaid magnetic ticket in 1991 Tokyo This magnetic system cuts labor cost and lets passengers pass the gate quickly. On the other hand, the system produced a lot of worn-out magnetic head, roller, and driving belt of tickets by heavy frictions. When every over 4 millions of tickets are processed per gate machine, they had to operate expensive maintenance of gate machines periodically. Gradually, the out of order machines became critical traffic problems especially at the time of rush hours of passengers. To cope with these problems, non-contact IC card was taken into consideration by the JR-East from 1987. Non-contact means no frictions. No frictions mean no maintenance operations. In 1990, the JR-East introduced revised system of magnetic gate machine, but was not in time to introduce new non-contact gate system. They made another research for the clearance of problems to the non-contact IC card project.

The system of the Felica

In 1988 the Sony corp. started the convenient non-contact IC card system project against forgery, with strong security and speedy data processing. The card system was named Felica. Figure-2 The project of the Felica card non-contact IC card 1988 Sony FELICA Project started New type of railroad tickets joint 1992 JR East & Sony project 1997 Hong Kong Introduction of Octopus card 2001 JR East Introduction of SUICA Bit wallet shopping card Edy started 2002 Shenzhen introduction to bus tickets & taxi Singapore introduction of ez-link card Delhi in India introduction of subway travel card 2003 JR West introduction of ICOCA 2004 Bangkok in Thailand introduction of subway card inter fare payment application JR East and West between SUICA and ICOCA


railway card in Osaka 2006 JR-West PiTaPa

introduction of PiTaPa of post payment auto-charge-system, co use of ICOCA & PiTaPa

From 1992 the JR-East and the Sony corp. started a new joint project for the implementation of the non-contact IC card into gate machine. To check the new technology, they made a variety of pilot tests in Hong Kong railway named Octopus card. The paper regarding Octopus card was introduced in the 2006 APDSI Conference in Hong Kong in the name of "successful adoption of smart card and e-payment system: Octopus card in Hong Kong". In the paper, the non-contact IC card is described as very successful electronic cash system, over 13 million Octopus cards are in circulation, over 9 million transactions are made per day, nearly 300 service vendors in Hong Kong. The system was introduced into Shenzhen in China, Singapore, and Delhi in India in 2002 and Bangkok in Thailand in 2004. The application is starting from Asia and expanding over the world.

Leading edge technology

The JR-East tried 3 times of pilot survey for the non-contact IC card. The first phase was from 1994 February to 1994 March. The following troubles were found. 1. unable to make quick data response between IC card and reader/writer, many monitors were locked inside the gate machine 2. Rejection rate of IC card was over 20 times as that of magnetic card figure-3 SUICA pilot survey SUICA pilot survey 1st phase 2nd phase 3rd phase term 1994/2-1994/3 1995/4-1995/10 1997/4-1997/11 a month 6 months 7 months scale 8 stations 13 stations 12 stations 18 lanes 30 lanes 32 lanes monitors 400 approx. monitors 700 approx. monitors 800 approx. velocity 70kbps 250kbps card hold touch & go power Battery w/out battery rate of reject over 20 times approx.4 times 1(same as magnetic card) The second phase was held from 1995 April to 1995 October for 6months. The velocity was changed from 70 kbps to 250kbps and from micro wave into shortwave. The rejection rate improved from over 20 times to 4 times. They found that changing the way of card handling from "hold-over" to "touch & go." At the beginning, as monitors had no patterned hold styles toward machines, then the rate of rejection was 4 times or over. Monitors understood patterned touch & go style toward machines and the same touching style improved the rejection rate as equal level of the traditional magnetic card. The third phase was held from 1997 April to November for 7 months.


Third phase was for the confirmation of touch & go style and the change from battery use style to without battery style. To clear the dead battery problem of IC card, they made test to generate electricity by magnet. The JR-East reached the same level of rejection rate as magnetic ticket. Final trial was to shorten the data processing time under 0.2 second. Old style magnetic ticket took 0.7 second to process ticket data. Automatic fare machine had several checking functions like ticket validation, read the fare amount, debit the fare amount and write the balance account during short time period. The non-contact IC card system accomplished the checking process and read/write process under 0.2 second. This high speed data processing of non-contact IC card enabled more than sixty passengers to pass the toll gate during a minute. By the employment of this leading edge technology, JR-East found its feasible gate toll system.

Non-contact IC card as a Financial DCM

In the magnetic ticket system, passengers have to purchase ticket at the entrance. They check in and check out the toll gate. Therefore, passengers lose time to purchase ticket at the entrance beforehand. The magnetic ticket system is efficient only for commuting companies, not for passengers. One reason is to save petit-cash handling cost, and another is to relieve the traffic congestion at the toll gate of stations by checking tickets. Those two benefits are for commuting companies. However, those companies have to maintain the gate machines periodically. Thus, it was necessary to develop better new system. To use non-contact IC card, passengers have to deposit certain amount of cash into the IC card in advance. Then they don't have to waste their time to purchase tickets. Passengers can easily pass through the toll gate with IC card. They can make payment by the gate on demand. Passengers enjoy saving their time by both purchasing IC card beforehand and passing through the gate with "touch & go" style. Passengers make demand payment at gate. And also, commuting companies don't have to make periodical friction maintenance of gate machines. SUICA was introduced by JR-East in 2001 as application of the non-contact IC card. The similar card ICOCA(IC Operating CArd) was introduced by JR-West in 2003 in Osaka area in Japan.

From Financial DCM into financial SCM.

Passengers cannot enjoy posting cash payment in the case of DCM. They have to make deposit enough cash in advance. There is prepayment problem at the side of passengers. There appeared new type of IC card in Osaka named PiTaPa ( Postpay IC for "Touch And PAy") in 2006 by joint use with ICOCA. PiTaPa payment system is like the credit card system of post payment. Passengers can commute and make payment later with discount rate from their nominated deposit account. Passengers receive invoice after a month later with fare details, and pay discounted amount. Passengers enjoy discount based on their frequency or fare amount. Supplier upstream the service chain to their customer. This may be called financial SCM (Supply Chain Management).

Extension into the shopping card

SUICA was also used as shopping card at shops in JR-East stations. JR East had similar prepayment card named IO-Card. JR-East changed from IO-Card to SUICA IC Card in 2004.


Non-contact IC card SUICA, at the same time, proved the convenience of shopping card. As the shopping card SUICA is used only shops inside of JR-East. The inventor, Bit-Wallet, started shopping card Edy (Euro, Dollars, Yen) for all over Japan. The Edy card is used outside the railway company use. The airplane company ANA (All Japan Airway Company) jointed to the Edy card for mileage point service. This tie-up with the BitWallet and the ANA increased the numbers of participants both shoppers and cardholders. Octopus card in Hong Kong is the same system of the SUICA. The Octopus card is the noncontact IC Card. The first test was implemented in 1997 by the company Bit-Wallet. After the survey of this Octopus card in Hong Kong, SUICA was introduced in Tokyo. Octopus card is used not only for commuting card but also for shopping card. SUICA, ICOCA or Edy are the followers to the Octopus card. The Octopus card system is immigrated into Shentzen in China for bus or taxi charge. It is also immigrated into municipal transportation system in Singapore and Delhi subway system in India both in 2002.

Payment innovation in Japan

Corporate financial payment innovation is expanding in Japan. Big shift from draft or check payment to electronic payment occurred during 1980's to 1990's. Electronic payments are made by cable remittance, electronic fund transfer, or electronic payroll payment into employee payroll account. The Electronic Banking is increasing from corporate financial department into consumer department. Automatic Tellers Machine (ATM) contributed to expand consumer's shift of electronic payment. The cash dispenser (CD) was firstly introduced in Japan in 1969. Gradually, CD machine was reformed into enhanced ATM. Consumers are familiar to handle machine for crediting, withdrawing, or remitting fund. They enjoyed saving time by using bank card instead of lining at the teller's counter of banks. They had latent complaints to lose time at the stations to buy ticket. Another payment style is the credit card. The credit card started in Japan in 1961 by the JCB (Japan Credit Bureau). The JCB card is conveniently used by the Japanese as a cashless payment style. Many card companies started entering the credit card industry. Consumers had reliable cash payment system without cash. There were preferable undergrounds of many ATMs for consumers to use enhanced card in the age of 2000's. The POS system was introduced in 1970's in Japan. Since then, the barcode systems were used in a variety of registers at shops. It is daily used in front of consumers at the super markets or others. Both sellers and buyers rely on the barcode systems. They are accustomed to save time at the register counters. The system of non-contact IC card was easily accepted by passengers like the POS barcode systems.


There are two important implications in the non-contact IC card application. One is the perfect solution of waiting line problem in front of ticket machines. Passengers had to wait to purchase ticket to enter a station gate. Especially, at the time of events, audience of halls or the place of meeting had to wait to purchase ticket at the stations by making a time consuming long waiting line. This inconvenience was cleared by the non-contact IC card of demand payment. This time loss was replaced by on demand payment: debiting required charge from IC card balance account which is deposited in advance. This is an important function of financial DCM. 146

Another solution is the benefit of discount rate of post payment of IC card. Passengers can make post payment based on the frequency and amount of charged fares. This is the function of financial SCM. Passengers are charged properly by the volume of their balances. Railway companies don't have to handle petit cash or coin, and also don't have to keep keypunchers at gates. Further, combined application of non-contact IC card with commuter use and shopping card use is convenient to the cardholders as an electronic wallet. At the same time, cost saving advantage of railway companies expands into shopping stores and others like parking lots. World wide acceptance to business use of the non-contact IC card is expanding from Hong Kong, China, India, and Europe Netherlands.


Chan, Pui Yuk., Shi, Xinping. (2006). Successful adoption of smart card and e-payment system: octopus card in Hong Kong. APDSI 142-145 Iwata, Akio. (2005). SUICA hitorigachino himitu. Chukei Shuppan. 104 Octopus strengthens automatic add value service.


Paynter, John. Arm's length evaluation of Hong Kong`s Octopus Smart Card System. Sahara, Kanji. (2006). Financial Payment Innovation in Japan. APDSI, Hong Kong Proceedings, 128-130 Takeuchi, Kazumasa. (2006). SUICA, EDY, ICOCA denshimane bijinesuno shikumi. Paru Shuppan. 29-45



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