Apple Passbook mobile payments offered consumers an early bridge between traditional payment cards and the emerging world of smartphone-based commerce. Introduced as part of Apple’s new mobile operating system, Passbook was designed to store closed-loop payment cards alongside movie tickets, boarding passes, and loyalty cards. Notably, the initial concept focused on merchant-specific cards rather than open-loop credit, debit, or prepaid products.
That approach offered advantages for both consumers and merchants. Customers already understood where closed-loop cards could be used, eliminating much of the acceptance uncertainty associated with early mobile payments. Merchants could reduce their reliance on plastic cards, encourage account reloads, and potentially steer transactions toward lower-cost payment methods. Location-based functionality could further increase engagement by automatically presenting relevant cards when consumers entered participating stores.
Last week Apple Inc. announced that it willinclude a mobile wallet in its new mobile operating system comingin the fall. The application is called “Passbook,” and it isdesigned to store closed-loop payment cards and things like movietickets, boarding passes, and loyalty cards.
What is interesting about Passbook is that it makes no mention ofoffering open-loop cards of any kind, be they prepaid, debit, orcredit. While that is no doubt in the design plans, Apple seems tohave recognized that smartphone users are more likely to becomemobile payments users when they feel like the risk is limited andwhen they are prompted to pay with their phones.
Closed-loop cards are an intuitive payments leap for the customersof retailers that load their cards into the phone. The cardholderunderstands where and how the card can be used because they believethat the Starbucks card is for their morning coffee and that theretailer adopted the technology because it is able to acceptpayments that way. There is no acceptance ambiguity.
The retailer benefits because the Passbook can eliminate plastic,speed up transactions, and direct customers to a low-cost method ofpayment. Having the cards on a mobile phone may also promptreloading by cardholders because now they have an easy way toaccess and use the cards.
Finally, by opening cards when a Passbook holder walks into thestore, Apple now is encouraging what may otherwise be a casualbrowser to become a buyer. With some cards, Starbucks or DunkinDonuts being examples, this will likely not be necessary, becausethe customer has walked in with an intent to buy. Few people browsedoughnuts and then walk out empty handed. But for other merchants,opening that card will be like opening a license to spend,encouraging consumers to buy. A recent blog post by Victoria Finkle, ofAmerican Banker, talks about how this kind of technology caninfluence behavior.
While there are still some questions that need to be answered, theApple Passbook is likely going to be the gateway app for manypeople into the world of mobile payments. It’s future success willdepend on merchant adoption, and its ability to enable split tenderpayments and rewards redemption from loyalty cards.
Apple Passbook mobile payments demonstrated how combining payments, loyalty, and location could create a more compelling mobile experience than simply reproducing a physical wallet on a smartphone. Closed-loop cards provided a relatively familiar and low-risk way for consumers to become accustomed to paying with their phones.
Merchant adoption would ultimately be critical to Passbook’s success. Features such as rewards redemption, split-tender payments, and contextual presentation of stored cards could make the platform more valuable while giving merchants new opportunities to influence purchasing behavior and strengthen customer relationships.
