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Apple iPhone Passbook: The Future of Mobile Payments?

Mobile payment has been hailed as the next great frontier for smartphones, and Apple has bet a chunk of the iPhone's future on its new Passbook app-a precursor to the mobile wallet.

At least this is the thinking from J Schwan, CEO and founder of Solstice Mobile, which helps large companies such as W.W. Grainger, Northern Trust and Discover Card execute on their mobile strategy.

"By introducing Passbook with its couponing, rewards and other capabilities through the iPhone, Apple is laying the groundwork so they can introduce commerce capability," Schwan says.

Currently, there are 14 vendors, including Starbucks, Walgreens, Target, United Airlines and Fandango, participating in Apple's Passport program.

Despite Apple's big Passbook push, there is still confusion over what it actually does. Here's a typical scenario of how Passbook works: Go to the Apple AppStore, tap on Apps for Passbook and download, say, the Starbucks app. Create an account, along with a credit card, and put cash into a virtual Starbucks card. The virtual card, or pass, has a barcode.

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At a Starbucks store, you'll be able to call up the card on your iPhone, either through the Starbucks app or Passbook app, and purchase a cup of coffee. Starbucks, like other Passport vendors, also offers customer loyalty rewards and freebies, such as a song available for download via iTunes, straight from the app.

CIO.com sat down with Schwan to get his take on the future of Passbook and the challenges ahead.

What does Passbook look like now, and what might it look like in the future with full-blown mobile payment?

Schwan: Passbook, Apple's foray into the mobile commerce space, opens up a lot of opportunities for making engagement with brands much more efficient and easier. We think it's going to drive up adoption considerably by ad users.

In today's scenario, I can use my Passbook to buy a cup of coffee at Starbucks. In order to do that, I have to go into the Starbucks app and register a gift card. I have to tie that gift card to some sort of credit card account that actually funds the gift card. Then the gift card, which displays a barcode, can be exposed through Passbook to buy a cup of coffee.

Tomorrow, Starbucks could say, "Instead of doing all that, we're going to present a barcode that's going to be funded out of your iTunes account." You won't have to do any of the setup.

So you'd have a barcode that links to your iTunes account, and you'd use it everywhere?

Schwan: Exactly. So now we're talking about Apple being a bank, and I don't think that's outside the realm of possibility.

The other big mobile commerce technology is NFC. What was your reaction to the iPhone 5 not having NFC capabilities?

Schwan: We weren't expecting it to. With NFC, people don't realize that it's not just Apple that has to be ready. All these retailers have to be ready for the strategy to work. We don't think NFC is going to be the answer. It requires too much of an overhaul from an installation and infrastructure standpoint, in order to be widely adopted in the near-term.

I think Apple is playing it perfectly.

Passbook is allowing Apple and retailers to lay down the appropriate processes and infrastructure to support a full-blown wallet strategy. Passbook is a barcode approach-or QR [Quick Response] code-driven approach-and so adoption is going to much more rampant.

Apple is waiting, too. If there was huge NFC adoption, and [NFC] readers were going in at all major retail locations, then Apple's strategy may shift to support it. But that's not happening. So Apple is going with the lowest common denominator approach, which is the barcode.

If and when Apple does come up with an NFC chip, I think that the development community will get some hints so that they could start developing in advance.

(There's more to NFC than mobile payments, writes CIO.com Senior Editor Al Sacco. Check out his six future uses.)

Barcodes have been around for a while. Will retailers need to add anything to support Passbook?

Schwan: They may need to replace a one-dimensional scanner with a new two-dimensional scanner that tends to read reflective screens well. A lot of big retailers have already made that investment and have two-dimensional barcode scanners.

But retailers still need to iron out their processes to support paying redemptions with phones, everything from getting two-dimensional scanners at all the registers to facilitating business processes. It's one thing to get up to the counter, and the retailer doesn't really know how to redeem your coupon on your phone, verses a retailer who can't accept the payment. The former is a little more of a challenge than the latter.

The Passbook approach allows [retailers] to work out the kinks before full-blown mobile payments and mobile wallets are exposed.

What needs to happen for Apple to take Passbook to the next step?

Schwan: There's only a small handful of apps supporting Passbook right now. We're going to need to see broader support from application providers. It's not trivial: There's a server-side component to exposing that service, as well as the client-side on the phone component.

The other thing about passes is that they can't be dynamic. In order to fully expose the capability and make passes contextual, it requires a bit of engineering. It's going to take enterprise app developers a little bit of time to fully set their strategy and build out support. Frankly, most folks are a little behind.

With Passbook and NFC, retailers are in a tough spot. Isn't it too early to embrace Passport?

Schwan: There's a war happening right now in the mobile payment space. Different solutions are coming out. A lot of the retailers are kind of hanging back and watching before lining their chips up behind a particular solution.

The nice thing about Passbook is that you don't have to say, "This is going to be our mobile payment solution." You can experiment by adopting it as a platform for gift cards, coupon redemption, or deal delivery. You can still dip your toe in the water with Passbook while you're waiting for the overall payments war to shake out.

Tom Kaneshige covers Apple and Consumerization of IT for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Tom at [email protected]

Read more about iphone in CIO's iPhone Drilldown.


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