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Apple Lays Foundation for Digital Payments in Japan

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Apple has launched an automated account loading feature in Japan, a product that eliminates the need for plastic gift cards and may signal the beginnings of a pure digital wallet.

Called iTunes Pass, the product allows consumers to visit an Apple store in Japan and purchase credit for Apple's iTunes Store, App Store and iBooks. The money is immediately applied to the corresponding Apple account instead of requiring a gift card and redemption code, according to a July 15 report by the website 9to5 Mac.

The feature is reportedly available only in Japan at this point, though the global addressable market would be quite large. Apple did not return a request for comment by deadline.

Instead of using a physical gift card, iTunes Pass installs a virtual card inside of the iOS Passbook application. A staffer at an Apple Store can scan the pass to apply a credit to an Apple Account.

ITunes Pass is the latest of many small steps  Apple has made that could be combined to enable mobile commerce, contactless payments and a mobile wallet. And the company boasted in April that most of its 800 million iTunes accounts have credit cards already attached. But its Passbook app, a wallet that houses other apps, has mostly been a sandbox for third parties.

"It would seem with this move Apple is boiling the proverbial frog. It's a small, yet significant move that slowly transitions Passbook from a digital storage container to a digital wallet," says Jordan McKee, a senior analyst covering mobile payments at 451 Research Mobility Team. "Shedding the physical card not only has benefits from a cost standpoint, it also gets users in tune with the idea of using the device as the card. It's easy to see how this could be a segue into grander and more robust moves in the payments space."

Apple recently applied for a patent for an NFC antenna for iPhones and is reportedly working on an NFC payments project in China.  Apple has also approached retailers directly to discuss mobile payments.

"When Apple inevitably jumps into the mobile payments arena, its prospects look quite good," McKee says, adding 451 Research's June Consumer Survey found that one in four consumers would be "most likely" to use a mobile wallet from Apple.

Japan is a perfect testing ground for such a product, since it would not have to compete heavily with credit cards, says Gareth Lodge, a senior analyst at Celent.

"Japan is a very cash-oriented society," Lodge says. About 85% of payments in Japan are made with cash; other payment types such as direct debit and debit cards are not widely used in Japan, he says.

"While this may be a precursor to other things, today it's making sure people have money in their iTunes account to spend at iTunes," Lodge says.

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