Google Inc.'s unveiling of a mobile wallet Thursday is the company's second chance to establish itself as a major name in payments.
The new system will work using smartphones with an embedded near-field communication chip to allow payments at the point of sale. Google's earlier major attempt at creating an alternative payment system, Google Checkout, was launched in 2006 and facilitated online purchases.
Merchants favored Checkout because of Google's brand recognition and low initial pricing, but Checkout soon attracted critics who claimed the service lacked polish. After Google changed its pricing for Checkout transactions in 2009, raising fees for many merchants, some observers speculated the company was trying to deliberately drive users away from the service in anticipation of shutting it down.
"People tend to flock to Google," said Brian Riley, a senior research director in the bank cards practice at TowerGroup. "But if [Google execs] are banking on that strategy this time, it just won't work."
The new mobile payment service, Google Wallet, will let consumers store multiple payment cards, loyalty cards and coupons from another service called Google Offers. Google is rolling the service out this week in New York and San Francisco and will make it available nationwide this summer.
Google would not take a cut of transaction revenue from Google Wallet payments. The company said it plans to make money by running a coupon system within the Wallet application.
"It's important to realize we're just getting started," Stephanie Tilenius, the vice president of commerce at Google, said in a presentation. "This vision will take a while to come to fruition."
Osama Bedier, Google's vice president of payments, said during the presentation that Google made sure to forge strong ties with the payments industry in anticipation of the mobile wallet's launch. "The most important thing is that we have some very credible partners that are from that space," he said.
The Mountain View, Calif., company is initially partnering with Citigroup Inc., which is the first issuer to allow its cards to be used with the Google Wallet app. Google is also offering a prepaid account that consumers can fund using any of their existing payment cards.
MasterCard Inc.'s PayPass contactless payment technology will be used with the Nexus S, a smartphone available to Sprint Nextel Corp. customers that runs on Google's Android operating system and contains an NFC chip. First Data Corp., a unit of the Kohlberg Kravis Roberts & Co. private-equity firm, will be the program's trusted service manager, which loads a consumer's payment card credentials to a secure chip through a process called over-the-air provisioning.
Initially, consumers will be able to use the service at retailers including Macy's Inc., American Eagle Outfitters, Walgreen Co., Toys R Us Inc. and others, Google executives said.
Riley said Google didn't put enough "juice" into selling its Google Checkout product in the past.
Payments is "a major-league business and there is a lot of opportunity," Riley said. "But, I think Google is still too Google-centric — and just because Google is ready to go doesn't mean that everyone is going to jump all over it."
Still, experts said Google's mobile payments system is more than a point of sale imitation of Checkout.
"Google Checkout is designed for the online world," said Beth Robertson, director of payments research at Javelin Strategy and Research. "These mobile trials are for POS and involve MasterCard and Citi as well. I think the mix of stakeholders will add value to the trials, with each supporting unique aspects of the requirements to build both consumer and merchant adoption."
