Speculation Ends As Apple Unveils a Digital Wallet That Works with QR Codes

Ending months of speculation about is intentions in mobile payments and promotions, computer icon Apple Inc. on Monday entered the increasingly crowded market for digital wallets with an application it calls Passbook. At the same time, the company announced it now has card credentials for some 400 million users on its rapidly growing App Store, creating what some experts see as the potential to move its wallet into physical stores with its own payment accounts.

The new Passbook feature, part of iOS 6, the latest version of Apple’s mobile operating system announced on Monday and expected to be available in the fall, appears to be aimed chiefly at storing electronic tickets and coupons initially. But can also be used to keep proprietary card details for specific merchants, and observers say it’s only a matter of time before the wallet begins holding major-brand card details. “Absolutely I think they’ll be in there,” says Aaron McPherson, director of the financial services practice at IDC Financial Insights.

The complete roster of merchants already signed up for Passbook isn’t clear, but so far eight retail, lodging, and transportation companies are known to have integrated with the application, according to the online technology news service TechCrunch. These include Amtrak, Fandango, MLB.com (the site for major-league baseball), Starbucks, Target, United Airlines, and W Hotels, in addition to Apple’s own physical stores.

For point-of-sale transactions, Passbook relies on quick-response (QR) barcode scanning rather than near-field communication (NFC), a short-range, interactive technology Apple has been widely expected to adopt. Data for items such as tickets, coupons, or boarding passes will appear as barcodes on users’ iPhone screens to be scanned. Relying on geolocation technology, Apple engineers have designed the codes to pop up on the phone’s so-called lockscreen as the user approaches a store or a boarding line, allowing for immediate use when the user enters a passcode and eliminating the need to flip through multiple screens.

While Apple has clarified its position relative to digital wallets, other longstanding questions remain about its intentions in mobile commerce. For example, whether Apple will adopt NFC in the next version of its iPhone, expected later this year, remains a matter of speculation. But some observers say it’s only a matter of time now that its wallet features are known. “Almost every QR code scheme I’ve seen has NFC on the road map,” says Nick Holland, senior analyst at The Yankee Group. “NFC trumps QR codes in terms of how easy it is to just tap and you’re done.”

Still, the company may be biding its time as wallet projects linked to NFC launch. For example, Isis, a joint venture of the country’s three largest mobile carriers, is expected to start an NFC-based mobile-payments service in two U.S. cities next month. “If I were [Apple], I’d wait and see how Isis does with it,” says McPherson. Google Inc.’s NFC-based product, Google Wallet, has struggled since its commercial launch in September. And Visa Inc. and MasterCard Inc. have also announced digital-wallet projects.

With or without NFC, Apple may have an advantage over wallet providers such as Google. “Apple may be perceived more positively by retailers than Google, whose underlying constraint has been that they were always focused on transaction-level data, and how that conflicts with retailers’ own desire to control [that data],” says Cherian Abraham, principal analyst with Richmond, Va.-based DropLabs, in an e-mail message. “With Apple, there is platform dominance and ubiquity, and so far they have just been happy in selling more hardware.”

Apple did not respond to a request for comment, nor did Isis or Google.

While the Passbook wallet may well include general-purpose payment cards in the near future, Apple’s 400-million-strong user base for its App Store positions the company to make a powerful run at the physical point of sale in the same manner PayPal Inc. has, notes Holland, relying on its own accounts rather than major-brand accounts stored in the wallet. He adds Apple could have a huge advantage in that it has four times as many accounts with card information as does PayPal. “The planets are aligning here that sooner or later Apple is going to be moving into the physical payment space,” he says.

Given Apple’s advantages, the biggest implication of the company’s announcement, at least for now, may well be for rival wallet providers. “Some of the other wallets should be nervous about now,” notes Holland.