Four reasons why Apple’s Passbook is growing on retailers

June 26, 2013

We still have no leader in mobile payments, but when it comes to digital gift cards Apple’s Passbook is doing a decent job of making its case with big-name retailers — many of whom were somewhat skeptical of its utility when Passbook was first went live in fall 2012.

CashStar, which makes digital gift cards for several dozen big name brand retailers including Starbucks, Dunkin  Donuts, Sephora, Williams-Sonoma, Gap, Best Buy and others, has good insight into how some of the biggest retail brands are faring with Apple’s digital wallet. And today, nearly 10 months since Passbook’s launch, CashStar released data claiming that about one-third of all digital gift cards that are sent to someone are opened on a smartphone, two-thirds of which are iOS 6 devices. About 30 percent of those are actually added to the Passbook app.

Gift cards, of course, are not the only feature of Passbook. The app is intended to be a repository for anything that would be kept in a wallet, including airline and train tickets, coupons, rewards cards, entertainment passes and, yes, gift cards.

Most major airlines have embraced Passbook, as have many movie theaters, ticket companies and some sports leagues. While several big brands like Starbucks and Sephora were on board with Passbook at launch, many other big retailers “weren’t sure what would happen at first,” CashStar VP of Marketing Gene Cornfield told me on Tuesday. “Some took a wait-and-see approach.” But that is very much changing, for several reasons.

Users are starting to understand Passbook: Apple didn’t make it easy to figure out how to use Passbook at first. But, a few months later, it made some important changes. And now, CashStar says every “two to three months” the percentage of digital gift cards added to Passbook is doubling.

People are actually spending money in Passbook: Without being more specific, CashStar says “millions of dollars” in gift cards have been added to Passbook since it debuted. Though the number of users of Passbook gift cards is still in the “tens of thousands.”

Location-based reminders: Lost, left at home, or forgotten gift cards don’t do retailers any good — they recognize revenue dollars from gift cards once they’re redeemed. And it turns out that the location-based alerts built into Passbook are helping them out here.”The geo-fenced reminder of when you’re near a store … is a great prompt for a consumer to spend the balance” of a Passbook gift card,” Cornfield said. “Retailers like it because it brings consumers in the store.” Digital gift cards that get added to Passbook, “with reminders, is actually increasing the redemption velocity even more.”

Training consumers for true digital payments: A lot of the gift cards added to Passbook are indeed gifts. But plenty are cards that customers load for themselves to use basically like money: think Starbucks or Dunkin Donuts cards that are reloaded each month as a quick method to buy coffee with a phone.

Interestingly, if you ask customers if they’d be interested in a mobile payment service, like hooking up a credit card or bank account to a mobile device, they tend to be skeptical and cite security concerns.

“We’re seeing very little if any resistance to putting gift cards, which are as good as cash, on a mobile device,” said Cornfield. People pay with a Starbucks digital gift card 4.5 million times a week — that’s a lot of coffee and a lot of casual use of phones as a payment device. It’s a good way of familiarizing users with the concept of paying by phone.

No one has emerged as a leader in mobile payments, though there are plenty of groups vying for it. But with the software that’s catching on, millions of devices in people’s hands, 575 million credit card accounts, and growing momentum with retailers, Apple is positioning itself quite carefully to be that leader one day — should it want to.

(c) 2013, GigaOM.com.

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