Google: Flexing its mobile payments muscles

Founder and CEO of Proxama, Neil Garner, examines what sort of impact Google’s wallet proposition will have on the market…

With the total value of mobile payments for digital and physical goods, money transfers and NFC (Near Field Communications) transactions expected to reach $670 billion by 2015, up from $240 billion this year*, it’s no surprise to see activity in this sector starting to get very busy with a number of big brands flexing their mobile payments muscles. One of those is Google.

It’s great to see Google re-launch its NFC wallet proposition that supports the new Android-based handsets. The slicker consumer proposition that now supports a much wider range of cards via its clever transaction switching technology is a welcome enhancement.

However, there are still major limitations to its usage as:

• This is STILL a US-only proposition designed for US magstripe payment networks
• It relies upon connectivity to the cloud to be able to authenticate the user and switch cards, AND
• It ONLY supports Android handsets which have the secure element that Google’s used to pre-issue its own pre-paid MasterCard PayPass card, plus the original Citibank card.

Google’s ‘Achilles Heel’, which is even more of an issue with this approach, is that it will be taking the risk AND paying the cost for all contactless transactions, NOT the bank that has its cards linked into the Google Wallet Cloud. Google is effectively translating its own ‘card-present’ contactless card transactions into less secure e-commerce transactions in the Cloud.

Also, given that this is a Cloud-based proposition, mobile connectivity will be required for switching or activating cards and logging into Google Wallet. Contrast this with the NFC wallet propositions being deployed in Europe that work with the EMV card technology, which supports offline functionality for essential tasks such as card switching and PIN authentication. MasterCard and Visa are now mandating that US banks also migrate to EMV, implying that Google will need to do likewise in the very near future or it’ll need to invest a lot of resource in winning the banks over with this new Cloud-based proposition.

An interesting future direction for Google with this approach is that it is possible to get its pre-paid card into network operators’ SIM-based wallets and maybe migrate Google Wallet onto other non-Android devices. It’ll be fascinating to see where Google goes next in the US and other markets with this approach, especially now the network operators and banks are gearing up for their own non-Cloud-based wallet roll-outs.

When evaluating the Google move it is worth considering what has happened in Japan. It used a proprietary early version of NFC from Sony called Felica which was rolled out by DoCoMo the dominant operator in Japan, so did not require buy-in from multiple stakeholders to roll it out.

It now is in common use for travel, access control and payment for goods with 47 million people reported to have adopted ‘tap-and-go’ phones in the past few years**. However, Japan has not been able to export the service to other markets as it is not interoperable and is therefore updating its systems to support the internationally standardised NFC technology, which is now available in many leading smart phones, so in the future, what works in Japan will be able to work everywhere else.

One of the key learnings from Japan’s experiences is that consumers will adopt this type of technology if there is a concerted effort made to take a coordinated approach.

And what about Apple I hear you cry? Well, the market doesn’t need to, and won’t, wait for Apple to get NFC on the iPhone as there are plenty of other device manufacturers who are already shipping NFC phones like the Samsung Galaxy S3 – widely acclaimed as the best mobile on the market at the moment. The issue for Apple is can it afford to lag behind the market for long and how it will it face the challenge of catching up?

Sources:
*Juniper Research, July 2011, estimates include mobile ticketing, NFC contactless payments, physical goods purchases and money transfers.
**IDTechEx (R&M), Feb 2011