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Japan’s largest telco, NTT DoCoMo, has begun to make a key piece of its strategy for NFC known, announcing deals with MasterCard Worldwide and South Korea’s KT Corp. to enable subscribers to make payments when they roam in other countries.

DoCoMo also announced among its first devices that support the international NFC standard along with legacy FeliCa technology. FeliCa has been widely deployed on point-of-sale terminals, transit terminals and cards and phones throughout Japan. Four of the Android-based smartphones and a tablet DoCoMo announced today support hybrid FeliCa and NFC chips.

The agreement with MasterCard would enable DoCoMo subscribers and users of its iD payments service with certain of these FeliCa-NFC phones to pay with MasterCard PayPass where the application is accepted, which MasterCard says is in 41 countries and on nearly 500,000 terminals. That includes such popular destinations for Japanese travelers as the United States, South Korea and Taiwan.

According to MasterCard, the PayPass transaction overseas would be tied directly to the iD account, which is issued by DoCoMo or its partners in Japan. 

Continued Support for iD, FeliCa
But the announcements today make it clear that DoCoMo has no intention of abandoning its own domestic contactless-mobile payment service and brand, iD, which it has promoted since late 2005, using its Osaifu-Keitai or wallet phones supporting FeliCa technology from Japan-based Sony. DoCoMo subscribers who want to pay for purchases at the physical point of sale in Japan would continue to use iD or other FeliCa-based payment applications, it appears.

And while DoCoMo’s winter lineup announced today includes the five hybrid FeliCa-NFC devices, two high-profile devices on the list do not support the NFC standard–only FeliCa–the Samsung Galaxy S III and the smartphone-tablet Galaxy Note II.

UPDATE (Oct. 12, 2012): A source told NFC Times that DoCoMo specifically ordered the globally popular Galaxy S III without NFC support. 

But a DoCoMo representative seemed to deny that DoCoMo had anything to do with the absence of standard NFC in the Galaxy S III in Japan. “Samsung finally succeeded in supporting FeliCa for their Galaxy handsets, and since they already support the SWP (single-wire protocol SIMs) for their non-Japanese models, I am sure they are positively studying the implementation of NFC with FeliCa for their future models,” he told NFC Times. 

Still, DoCoMo appears to be backing the idea that its subscribers will want to use their phones to tap to pay with standard NFC applications only when abroad.

“The service will still be an iD service instead of a PayPass service, which may be implemented to include a PayPass-enabled applet linked to an iD user interface application, hence the phrase 'iD-powered by PayPass,' ” the DoCoMo representative told NFC Times. “So to the user, the UI (user interface) for iD service would be the same, but the transaction will be either via SIM (for PayPass readers) or FeliCa chip (for FeliCa readers).”

The iD application would likely be stored on an embedded chip in the hybrid FeliCa-NFC phones, as at present, while PayPass probably would be stored on DoCoMo's mini-NFC SIMs. END UPDATE.

The telco earlier in the week said it would enable its subscribers to use the prepaid e-money service that Korean operator KT is rolling out, known as Cashbee, a contactless fare-collection service for buses, which Korean retail and food group Lotte has expanded to retail payment.

According to DoCoMo, there are 52,000 locations accepting Cashbee, in Lotte group department stores, convenience stores and at subway and bus fare readers in South Korea, with a total of 5 million users. Making Cashbee available to DoCoMo subscribers is an expansion of an earlier cross-border NFC deal between KT and DoCoMo, which will include other applications.

The roaming payment applications aren’t expected to launch until around September of 2013, and DoCoMo said at first there would only be two phones available that would be able to support PayPass on its NFC mini-SIMs–the Sony Xperia AX SO-01E and Sharp Aquos Phone Zeta SH-02E.

DoCoMo has rolled out FeliCa infrastructure worth millions of dollars, including subsidizing the rollout of FeliCa-based wallet phones and point-of-sale terminals. The wallet phone rollout started in 2004 and the next year DoCoMo invested nearly US$1 billion in Japan’s No. 2 credit card company at the time, Sumitomo Mitsui Card, part of its strategy to become a major payments player in Japan.

DoCoMo said today there are 560,000 iD terminals in stores and other merchant locations alone in Japan, and Japanese wallet-phone backers have said that, all told, more than 1 million terminals accept FeliCa-based payment applications in Japan. DoCoMo earns transaction fees every time consumers tap to pay with iD.

DoCoMo also said today it has 17 million iD or wallet-phone users, but the telco has always been reluctant to release transaction numbers or other specific usage statistics, and it remains unclear how it defines active users. It's unclear whether the 17 million users referred to iD users specifically. DoCoMo issues its own payment application under the iD brand, DCMX, along with DCMX-mini. The latter service enables users to sign up easily and have purchases charged on their monthly phone bills, though the total purchase amount per month is capped.  

Among other applications available on the more than 70 million wallet phones rolled out by DoCoMo and Japan’s two other major telcos, KDDI and Softbank Mobile, the past eight years is the Mobile Suica service from Japan Railway East, used for fare and retail payment.

A Future for PayPass in Japan?
UPDATE (Oct. 11, 2012): MasterCard had been engaged in an uphill battle to try to gain a foothold for PayPass in the domestic Japanese market, where FeliCa holds sway. On the technology end, that battle is made much easier as the country moves to the NFC standard, which would include support for phones and terminals complying with types A and B of the international ISO/IEC 14443 standard. PayPass follows this standard.

But commercially, the deal with DoCoMo could put off MasterCard's goal of developing PayPass in Japan.

“It’s fair to say, we will continue to support our (PayPass) customers (in Japan),” MasterCard's Philip Yen, Singapore-based group head of emerging payments for Asia Pacific, Middle East and Africa, told NFC Times. “I also want to stress, our focus right now is to work with DoCoMo to enable the iD customers to make payments at PayPass merchant locations outside of Japan.” 

Meanwhile, MasterCard has cut other deals with mobile operators to issue or otherwise roll out co-branded PayPass payment applications on cards and NFC phones. The deals so far are mainly in Europe, and include Deutsche Telekom, UK operator Everything Everywhere and French telco SFR. Vodafone Italia is the latest to announce plans to roll out its own PayPass-enabled payments service. END UPDATE.

No. 2 telco KDDI, which never shared DoCoMo’s strategy of becoming a payments player, has been promoting PayPass through primarily smaller issuers. But PayPass-enabled terminals remain scarce in Japan, numbering in only the hundreds, as of earlier this year.

PayPass has only been used for trials to date in Japan. Some of the FeliCa terminals could be upgraded to support types A and B, as well, observers say, which potentially could enable them to support PayPass, if commercial agreements were also put in place. While the NFC standard also includes FeliCa, FeliCa-only terminals will not communicate with standard NFC phones.

DoCoMo’s winter device lineup unveiled today included nine smartphones, one tablet and four feature phones. Besides the Galaxy S III and Galaxy Note II, six other devices support only FeliCa, not NFC, as well.

Of the four smartphones that support both FeliCa and NFC, two come from Japan-based Fujitsu, the Arrows V F-04 and Arrows Kiss F-03E. That’s in addition to the hybrid FeliCa-NFC models from Sony and Sharp, both also Japan-based handset makers. Fujitsu also makes the tablet, the Arrows Tab 5-05E, with NFC and FeliCa support.

The devices with the FeliCa-NFC hybrid chips are expected to be on the market starting next month. According to an earlier announcement, among the makers of the hybrid chips is NXP Semiconductors.

All nine of the smartphones, as well as the tablet, run Android 4.0 or above and support DoCoMo’s Xi 4G LTE network service.