Another iPhone, another wave of mass hysteria—tons of buzz, long lines outside retail stores and a slew of online orders. The initial reception to the iPhone 5 has been so great that on Monday, Apple reported selling more than five million units of the new smartphone in just three days, depleting its initial supply.
As the new iPhone gets into consumers’ hands, so too does Apple’s new limited mobile wallet app, Passbook. A new function included in the latest version of Apple’s mobile operating system, called iOS 6, Passbook is a single platform for storing movie tickets, boarding passes, gift cards and retail coupons.
Several retailers have already built apps to integrate with Passbook, including Target, Walgreens, United Airlines and Fandango. The newest merchants to jump on board include American Express, whose app went live Sept. 21, and Starbucks.
With the American Express Passbook app, consumers can check recent transactions and account balances, as well as redeem rewards points and receive special offers based on location. The financial services corporation will also send consumers suspicious transactions that have to be confirmed via PIN number.
“The real-time notification capability allows AmEx to have a two-way dialogue with consumers that hasn’t really existed before,” wrote mobile and online technology consultant Rocky Agrawal in a Sept. 21 blog post.
Starbucks plans to incorporate its barcode scanning app, a function currently included in its standalone app, into Passbook by the end of September.
“We are excited about the launch of Passbook since it adds an extra level of convenience to the Starbucks iOS app and mobile payments store, and we believe Passbook will provide a great user experience for Starbucks customers,” wrote a Starbucks spokesperson in an email.
Users download individual retailers’ apps to Passbook’s centralized folder, which is similar to the Newsstand and iBooks iOS apps used to organize and update periodicals and e-books, respectively. The Passbook apps generate digital barcodes—one of the most widely used mobile payments technologies by merchants—that retailers scan to redeem consumers’ vouchers and gift cards.
Passbook also takes advantage of location-based offers. For instance, users can receive special offers and coupons from the Walgreens app when they’re close to the one of the pharmacy’s stores.
One of the key differentiators between Apple’s Passbook and other mobile wallet alternatives is that offers pop up on the iPhone’s locked screen, making it faster for consumers to access and use the tool.
“Passbook is a collection of QR/bar codes used in these various apps, which saves the customer at least two steps in the process, finding and opening the app,” said David Schropfer, head of mobile commerce at The Luciano Group. “Also, Passbook saves the customer a third step by launching the scannable code directly from a locked screen.”
There’s no shortage of mobile wallet options, said Bob Egan, founder and chief analyst at The Sepharim Group, but Passbook offers more convenience than the alternatives.
With Passbook, Apple removed two-to-four steps, so consumers derive value immediately, said Egan, plus its use of location-based offers is unmatched.
“Most of these wallets talk about creating new conveniences around paying for things or getting discounts for things, and from an e-commerce world they do, but from a consumer standpoint, they lack,” he said.
Egan cited Google Wallet and LevelUp as virtual wallets flawed with too many steps that have received lackluster response and success.
While Passbook is saving consumers steps in the point-of-sale payment process, the process isn’t perfect. Some users have had difficulties initializing Passbook and connecting Passbook with iTunes.
Egan also said Apple made a mistake in eliminating the crowd-sourced application environment. Many individuals and merchants were creating prebuilt templates for apps and Apple shut them down.
“This would really accelerate the process,” Egan said. “Apple should be taking advantage of this innovation.”
“Passbook is off to a rocky start, but it is clear that Apple wants to ultimately create a streamlined user experience,” Schropfer said.
Boston-based, Merchant Warehouse Inc. recently adopted Passbook. The company developed the Genius customer engagement platform to aggregate and integrate every payment type into a single platform.
“With the Genius device, we wanted to be payment agnostic,” said Marc Castrechini, director of software development at Merchant Warehouse. “You see exactly what you see in CVS with touch screens and pin pads, plus we added barcode scanners which Passbook uses.”
Merchant Warehouse uses Passbook for its gift card program, so consumers can store all their gift cards in one place and then easily scan a barcode when they want to redeem.
While custom wallets may supply more engagement to businesses, Castrechini said Passbook is preferable because the platform is already created and easy to use, plus, adoption of the app was seamless.
Castrechini has been impressed with Passbook’s open platform to facilitate the exchange of things. Inserting and updating passes is effortless; when a customer opens a link on his or her phone, the pass is automatically integrated into Passbook.
While the U.S. market has been slower to adopt new payments technology, some analysts and consumers wonder why Apple didn’t implement NFC capabilities on the iPhone 5. But Egan believes Apple did the right thing by passing on NFC because it isn’t widely accepted in the U.S., giving Apple time to plan how point-of-sale payments will evolve.
“Over the next 12 to 18 months, this is really about loyalty, check-in and couponing,” Egan said. “These technologies as payment methods won’t start gaining traction with consumer for another three to five years.”
The number of people using their smartphones for POS at retailers is still small, a fraction of 1%, said Egan. Out of 34 countries, those using POS technology scored a 5 out of 100 on MasterCard’s Mobile Payments Readiness Index.
While few third-party merchants have adopted Apple’s new technology, Egan said many quick service retailers, such as McDonald’s, Dunkin’ Donuts, and other fast-food restaurants are waiting for customers to embrace the new technology.