When you want to look up a restaurant or dry cleaner in your area most people just “Google” it. Well, if all goes according to what we’re hearing, you may be able to pay for your dinner and freshly pressed trousers by just “Googling” them as well. Google announced Google Wallet yesterday with great fanfare. The Google Wallet will use the Android smartphones that have NFC technology built in. This new ‘wallet’ will let customers store multiple payment and gift cards as well as participate in Google Offers, which will drive targeted coupons and ads to customers based on their transaction history. Both New York and San Francisco will trial the Google Wallet this summer with more cities slated to follow and an anticipated launch date of September 1 later this year.
We think that if anyone has a shot at bringing all the parties together, Google does. And by doing so, Google implicitly acknowledges that the payment ecosystem is very complex. With major brand recognition of the partners, and the availability of mass merchants and over 100,000 NFC enabled terminals, there’s opportunity there. But will the customer experience be good enough to warrant widespread adoption? Do customers really want to constantly see ads on their phones? Remember, Google’s play in all this is targeted ad and couponing, not necessarily just payments.
The good news is that NFC will provide an even more secure way to do mobile transactions than existing contactless payment systems and we think that’s good because it should help allay any transaction security concerns consumers may have. NFC is better than the EMV contactless cards used overseas and being proposed here because a user can turn off their phone and disable the payment hardware device (i.e. the phone). Additionally, EMV has already been shown to be vulnerable and NFC has not as of yet.
In spite of bringing significant players to the table, we believe Google Wallet still has some significant challenges, the least among them the exclusivity of the Android operating system, needing Sprint for the wireless services and only working with a Citi issued Paypass Mastercard. Mastercard marketshare is significantly smaller than Visa’s and Android marketshare is estimated to be about 31 percent, barely ahead of Apple’s iPhone share of 30 percent. So if consumers have only one or neither, will they want to apply for a Citi credit card and buy a new phone just to participate with fifteen mass market retailers?
Another challenge facing this deployment is the integration of the contactless NFC terminals with POS systems. If this platform is Google centric, then will merchants have to consider multiple integration points for customers who use other NFC enabled smartphones? If so, time, complexity and cost will factor in to adoption. Along with industry pundits, we believe Google’s real play here is the ability to extend their online capabilities to the smartphone which inherently will increase their ad revenues. With the ability to capture so much data, Google will be in the catbird’s seat when it comes to owning the targeted ad and couponing market. And perhaps this is the real story behind Google Wallet, we’ll have to wait and see.
Google Wallets is exciting, and we are also interested in seeing the success of the pending Isis trial as well as the new mobile venture between Bank of America, Wells Fargo and J.P. Morgan that enables P2P payments. There is still much to be worked out on the payments side of all of the mobile payment trials, not to mention how quickly both the merchant and consumer will embrace this coupon/payment offering. We think it’s all tied up in both ensuring there is upside potential for the merchant, and the customer experience is worthy of waving the phone for purchases.
Lastly, we all expect other players like Apple and Blackberry to throw their hat into the ring and grab some marketshare. Will Google's beating them to the punch make them all play along nicely or will they roll out their own proprietary systems that don't work with each other? We'll find out in the next 12-18 months.