Apple: The tortoise in mobile payments vs. the hares

The site 9to5Mac this week reported that Apple has quietly launched a feature that enables users in Japan to deposit money into their iTunes accounts via the Passbook app at Apple retail stores. The offering, named iTunes Pass, generates a code that can be scanned by Apple clerks to process payments inside the Passbook app instead of using a physical gift card and redemption code. The deposit can be used immediately for purchases in Apple’s App Store, iTunes Store and iBookstore.

While iTunes Pass may not seem significant, it’s only the most recent development from Apple as the company inches closer to offering a full-blown mobile payments offering based on Passbook. And it’s worth noting that Apple chose to introduce the feature in Japan, where credit cards aren’t widely used and which remains one of the few mature markets where mobile payments at the point of sale were quick to take off.

Apple’s deliberate strategy

Apple introduced Passbook two years ago as a digital wallet for other apps including loyalty cards, tickets and boarding passes. And a lack of support for third-party payments hasn’t prevented retailers, airlines, restaurant chains, movie theaters and even some sports leagues from embracing Passbook, as Gigaom’s Erica Ogg reported last year. Meanwhile, Apple has continued to move aggressively – if behind the scenes – to lay the foundation for what could be a major mobile payments business: It has shuffled its front office, filed patents and discussed its plans with high-profile retail chains.

More recently, Apple released an API for iOS’s Touch ID in advance of the launch of iOS 8, allowing developers to leverage a feature that presumably could be used to authenticate users quickly and easily at the point of sale. And it is racking up retail partners for iBeacon, its platform for in-store mobile marketing – and, perhaps eventually, payments – based on Bluetooth low energy.

Isis: Rushed to market with little support

Contrast all that careful preparation with Isis, the carrier-backed joint venture for mobile payments. Despite support from three of the four major U.S. carriers and at least one delay, Isis appeared to be rushed to market when it launched in Austin and Salt Lake City nearly two years ago. As Gigaom’s Stacey Higginbotham reported at the time, the launch was plagued by a lack of support NFC-enabled handsets and an inexplicable dearth of education at the few participating retail outlets.

The service went nationwide late last year, but Isis doesn’t appear to have made much progress despite baiting consumers with some compelling financial incentives. Things aren’t getting any easier for Isis with Google’s introduction of Host Card Emulation (HCE), a technology that prevents carriers from blocking Google Wallet in favor of their own system. Of course, Google Wallet isn’t exactly seeing mass-market adoption either.

Still a wide-open market

The lack of traction seen by Isis and Google Wallet underscores the fact that the market for mobile payments in North America still faces several major challenges: In addition to a lack of infrastructure at the retail level, business models still must be developed that reward both the vendor and the consumer for using a phone to conduct transactions rather than credit cards or cash. Those traditional payments methods are usually still easier to use than mobile, which typically requires multiple steps from the consumer.

I’m still skeptical of the market for mobile payments in the short term, and we could see any of a handful of unlikely players emerge as the market begins to get legs over the next few years. For now, though, Apple is wisely laying a solid foundation while those who were early to market spin their wheels. Advertisers, retailers and app developers should be paying close attention.