May 26

What’s in Google’s wallet?

Today Google announced a new payment facility, called “Google Wallet” which enables wireless payment through your, currently Android (2.3.3), mobile smartphone while also enabling users to redeem special coupons and earn loyalty points. It stores virtual versions of your existing plastic cards on your phone. Simply tap your phone to pay and redeem offers using near field communication, or NFC. While the practice of using a cell phone for wireless payment has existed in Japan for a few years under Sony’s FeliCa solution, Google’s launch is the first time that mobile payment is being massively launched in the US.

Lets take a quick look at the many moving parts that must work together in order for Google wallet to succeed:


Commercial deals
…with carriers

A big one is carrier & manufacturer support. According to Google, Wallet will be available on the Nexus S 4G from Sprint first, with more devices to follow. The only issue is that Google Wallet will only work on NFC-enabled devices, and as of this writing, there are only two that support that technology.
open commerce ecosystem


…with credit card processors

Google Wallet will work with Mastercard’s Paypass system, but they must also partner with other top banks to ensure that it can get its offering working with as many cards and technologies as possible. Google needs to get American Express, Visa, Discover and other top credit card companies on board.


… with merchants

While its being field tested in New York and San Francisco, in order for Google Wallet to be a success though, Google will need merchants to support NFC in their stores. Partnering with Citi and its PayPass service is a good first step, but that offering is a relatively small number of places around the U.S. when one considers the sheer number of locations where products can be purchased. According to Google, due to the support for Mastercard credit cards from Citi , users can pay for goods at 120,000 U.S. shops including Macy’s, Walgreens, Subway, Noah’s Bagels, American Eagle, Bloomingdale’s, Peet’s Coffee, Toys ‘R’ Us and others. Credit cards, on the other hand, are welcomed at the vast majority of retail outlets around the country. For a digital wallet to succeed it needs to be able to replace your wallet. If users still need to have a credit card on hand at all times just in case, it will be hard to gain mainstream adoption. Google Wallet isn’t there quite yet, but the partnership with MasterCard, rather than using a new technology or service is a good start.


An incredible level of competition

The business model is focused on payment. Each payment contains all the data regarding your purchase: what did you buy, at what price, when, where. Handset makers, banks, telecom operators see this data as a gold mine for advertising and each of them will want to get their hand on it. Android’s progression in 2010 has been phenomenal and we can soon foresee that one out of 2 mobile phones bought in the world will run on the little green droid. This trend is clearly the key facilitator for the adoption of the Wallet on the user side. Apple has been speculated to be bringing NFC to the next iPhone, and you have to believe Facebook, 4Square or Groupon is working on rival solutions or partnerships. If that happens, Google could be in for trouble. As noted, the search giant needs help from vendors in order to offer Google Wallet on devices. Apple, however, has full control over the iPhone hardware and software. That alone gives it an advantage that could prove extremely troublesome to Google over the long term.


Privacy & regulation

This new functionality is structurally changing the advertising approach. Instead of pushing you ads disconnected from your needs, advertisers seek to push you hyper targeted ones. And the more they push you ads, the more cash you might spend. This will be accomplished via a massive product called Google Offers. Google Offers will push hyper targeted ads & deals from local and online businesses based on what you have already bought and current location based information. When shopping a store, an offer may be automatically factored into their purchase. Users can also go to the web and find coupons and add them to their digital wallet.  Like Groupon, Google collects a fee from participating retailers every time a coupon is redeemed. Expect that it will be the main future source of revenue growth for Google and will most likely raise privacy concerns and litigation.



Google knows security is a big factor when you deal with credit cards and will play a key role in the success of its Wallet option. To help improve security, the company requires users to establish a PIN that must be entered to open the wallet and before purchase. The search giant said that payment information is encrypted and thanks to MasterCard’s PayPass feature, users should be secure. According to Google, the Nexus S uses a smart-chip secure element from NXP, the same kind of chip used in electronic passports and in contactless and contact-based credit cards. The cards have tamper sensors so if someone tries to physically access a card it self-destructs and all payment card credentials are encrypted and stored on the chip, which is separate from the Android device memory and accessible only by authorized programs. When all of these are combined with the fact you can also set a PIN to unlock the phone your digital wallet is safer than your real wallet (which contains credit cards that aren’t secure or kept behind two different PINs). Google still recommends that you cancel your cards if you lose your phone, but the system offers a more secure method, which is important to gaining adoption and ultimate success.


The Google Wallet business model seems sound enough and is the ultimate evolution of a highly connected, highly mobile society but these are really early days for mobile payment in North America. The challenges ahead include the dog fight that’s going to occur over fees between the carriers, the banks and the processors. Beyond everything else, the biggest challenge is going to be consumer acceptance, which will, as always, come slowly until we reach the all-important tipping point. Considering Google Wallet will be available at first on a single device, have few consumer incentives and will work only with Mastercard’s PayPass system, it might be hard for the technology to get off the ground. People I’m talking to in the industry are projecting that mobile payment won’t mainstream and become commonplace for up to 10 years. I’ve been talking about it in several forums for 3 years now and when combined with the Asian experience, I believe it’s more like 5-7 years away.

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