A Beloved Tokyo Penguin’s End Presages a Payments Giant

(Bloomberg Opinion) — Japan is a country where everything has a recognizable mascot, from tourist sites to the Tokyo police force.

But one of the most beloved is soon to be no more. East Japan Railway Co., better known as JR East, announced Tuesday that it’s retiring the iconic penguin that has long adorned Suica, the contactless payment platform for trains in the capital and beyond.

Since Suica’s introduction in 2001, the penguin (simply known as “the Suica penguin”) has featured on transit cards and apps that are used daily by the tens of millions who traverse the world’s largest metropolis and the east of the country. The company officially says the character is “graduating.” On social media, it was treated like the death of a beloved celebrity.

The change is not just cosmetic. It’s part of a business rebrand to shift JR East from an old-school firm dependent on train revenue to a fintech powerhouse. In what it calls a “Suica Renaissance,” the firm aims to change the transit card into a modern mobile payments platform — a super-app offering peer-to-peer transactions and a banking back-end, along with futuristic tech that will eliminate the need for station turnstiles.

The penguin is not just a corporate icon — it’s more akin to the likes of Hello Kitty. Multiple stores sell goods featuring the character; there’s even a bronze statue of it in Shinjuku, the world’s busiest train station used by some 3 million people a day (memes showing it being torn down like those of Lenin after the fall of the Soviet Union circulated online). A yet-to-be-announced new character will take the flightless bird’s place — one that, presumably, will highlight how Suica is evolving.

JR East is acting because it faces stiff competition if it wants to be a payment giant. Cashless transactions are increasingly dominated by QR code systems, with the overwhelming market leader SoftBank Group Corp.’s PayPay Corp., which has accumulated 71 million users since launching seven years ago.

PayPay’s blitzkrieg strategy offered huge cashback programs for users who downloaded the app, while encouraging merchants with years of zero transaction fees. The firm innovated quickly, aided by the technological know-how of then-fellow SoftBank investee Paytm, and as a QR code-based service, it doesn’t require stores to operate finicky (and costly) terminals.

The app already offers many of the fintech services Suica aims to provide. It’s the country’s leading platform for peer-to-peer payments, and offers bank accounts, credit cards, and investment services. You can even receive part of your salary in PayPay points. Despite its business being almost exclusively in Japan, SoftBank aims to list the firm in the US, with some reports saying its valuation could exceed $20 billion — or two-thirds of JR East’s entire market capitalization.

It’s not hard to think the railway operator missed a chance to become the market leader. Suica was a technological marvel when it launched. Based on Sony Group Corp.’s contactless Felica technology, it was built to handle the throughput of Tokyo’s train stations at rush hour, facilitating a passenger every second and quickly displacing paper and prepaid magnetic cards. It stayed ahead by quickly expanding to mobile devices — first on local handsets, and then becoming the first transit card offered on iPhone. As a method of paying, it’s simpler to use than QR codes, and predated tap-to-pay credit cards by years.

But while it didn’t take JR East long to see the potential for use in retail, the technology was initially limited to kiosks and other stores within train stations. It was also hobbled by the nature of Japan’s railway industry, with different firms offering competing standards. JR East had to focus on cooperation rather than nationwide expansion.

The biggest blocker to Suica as a cashless platform has been its design as a charge card with a small upper limit. Meanwhile, QR code systems were free to move more flexibly — and supercharged by a boom in cashless payments during Covid, they became fully fledged digital wallets while Suica still focused on transit and daily needs.

JR East needs to fix the mess of its multiple apps and logins for various services. But at least it looks to be on the right track and getting serious about monetizing this product. (While the penguin will be missed, one reason for its retirement might be that it was not created for the railway firm, and the rights partially belong to its illustrator, Chiharu Sakazaki.)

With millions of users locked into its ecosystem, Suica isn’t going anywhere. The operator last year set up a bank, and is pledging to spend nearly $17 billion on M&A by 2032. And more than anything, the news of the mascot’s demise has already created intense word-of-mouth and awareness of the platform’s coming rebirth. The penguin will be mourned. But it’s more important that JR East doesn’t miss this opportunity.