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Google outlined a plan last week to turn smart phones into mobile wallets and hopefully turn m-commerce into mainstream. The plan, which involves a partnership with MasterCard, Citibank, Sprint and various retailers, could make the search-engine giant the new dominate player in the mobile payment space.
The new service dubbed Google Wallet will allow users to pay for retail purchases by holding the phone up to a specialized reader at checkout counters equipped with the MasterCard PayPass terminals. PayPass is currently operational at 300,000 retail locations, including 120,000 in the United States. The near-field communications technology to be used by the Google Wallet allows devices to exchange information wirelessly as long as they are within inches of one another.
Instead of launching its own payment service, however, Google made the decision to partner with MasterCard and Citigroup to allow the financial giants’ customers to use their debit and credit cards to pay for purchases on the Android-powered phones from Sprint. Google also avoided the chicken versus egg problem by partnering with several retailers, including Macy’s, American Eagle Outfitters, Subway, Bloomingdale’s, the Container Store, Foot Locker, Walgreens and RadioShack to ensure immediate acceptance in the marketplace. Google plans to introduce the service initially in New York, San Francisco, Los Angeles, Chicago and Washington D.C. in the fall of 2011.
The announcement must be big as PayPal Inc., which has been a dominant player in this arena, has already responded within the week to Google’s announcement by filing a lawsuit. PayPal claims in the lawsuit that the Internet search giant stole its technology for turning smart phones into digital wallets. It alleges that Google obtained trade secrets from former PayPal executives, who oversaw this recent launch of a mobile payment system for Google.
Google and PayPal are not alone with NFC ambitions, but Google may have made the biggest splash yet with its recent announcement. Companies across the wireless sector are angling for a piece of the burgeoning mobile payments business, including wireless providers, smart phone manufacturers, credit card companies, retailers and mobile advertisers. T-Mobile, AT&T and Verizon announced in November 2010 that they formed a joint-venture payment system called Isis, which is expected to roll out services in two cities in 2012. American Express introduced a product called Serve and later Visa followed with its own contactless payment proposal. Other smaller players like Mopay and Boku also have joined the mobile proposition. Twitter co-founder Jack Dorsey also unveiled last week the Square Register, which is a new service that will allow merchants to manage inventory and run analytics against their sales without expensive equipment and high fees.
Google’s announcement is a case study in how to ignite a new payment system. Its approach has one of the best shots of any to make mobile payment a reality at merchant points of sale. First, Google leveraged its fast-growing Android platform, now one of the most popular operating systems available on smart phones today. More than 100 million devices are running Android in the marketplace worldwide and the company said it is activating a whopping 400,000 phones a day. Though NFC handsets are in short supply today, Google is betting on the reasonable consumer upgrade cycle for smart phones.
Second by partnering with MasterCard, Google gained immediate access to hundreds of millions of customers with debit and credit cards who can easily and quickly populate their mobile wallet. It also brought on major merchants like Macy’s, Walgreens and Subway, on Day 1, which is often the biggest hurdle in helping a new payment scheme become a reality. Google has eliminated two obstacles that have always prevented NFC from taking off: merchant terminal subsidization and hefty transaction revenue share as well. Google is both leveraging existing merchant NFC-enabled locations and subsidizing the purchase and installation of new ones. The only way Google might have bettered its launch would have been to partner with a larger wireless provider like Verizon or AT&T rather than the third biggest player with only about a tenth of the market share.
The most important barometer for measuring its success will be how consumers react. Google will need to convince the consumer that the new payment method is more convenient than swiping a credit card and just as safe both at the POS terminals and in situations where the consumer may lose his or her phone. In order to do so, Google needs to give customers confidence in the security of the device. That it in turn could create a payment habit that is a prerequisite for changing the payment mindset. Adding customised rewards and product discounts could be the way to ignite the consumer switch.
As part of that approach, Google’s NFC also becomes the link to a seamless marketing campaign for merchants: Entice customers with special offers and then offer a smooth transition from promotion to e-coupon to purchase. In addition to the Google Wallet, Google also recently unveiled Google Offers, a Groupon-like service that will deliver discounts from small businesses of up to 50 percent or more at local businesses. Although Google enters the already crowded field of daily deals sites, it becomes the first to combine deals with mobile payments, perhaps making it more desirable for the consumer to use their Google Wallet on a frequent basis than it ever would have otherwise.