Google Wallet Work New Role, New Risk for First Data

Google Inc.'s decision to rely on First Data Corp. to link its new mobile wallet to consumers' payment accounts puts the merchant processor and acquirer in a role that is new and, some say, risky.

First Data functions as a trusted service manager, performing a process called over-the-air provisioning to bond a consumer's payment account to a smartphone running the Google Wallet software.

This role "is definitely a newer area for us, but a lot of other elements of the role, such as being safekeepers of consumer card data and managing card life cycles, are not new to us," Dom Morea, First Data's senior vice president of advanced solutions and innovations, said in an interview.

Experts say that the risks have to do with scale. Google Wallet today works with just one phone model, one carrier, one card issuer and one card network. Over time things will become much more complex as other parties get involved.

"It's not necessarily a huge technical challenge to put together a relatively small program like the one Google has outlined that only involves one bank," Rick Oglesby, a senior analyst with Aite Group LLC of Boston, said in an interview.

"The big challenge comes when you try to scale it, getting multiple financial services players involved," he said. "Then it becomes far more complicated. No one has done that yet, and the big gray areas are business questions, not technology questions."

First Data, a unit of the private-equity firm Kohlberg Kravis Roberts & Co., is not going it alone. It will lean heavily on the South Korean company SK C&C Co. Ltd., an expert in trusted service management and e-wallet services, through a partnership First Data signed last year.

The partnership with an experienced player "will result in a solid, market-tested approach," Morea said.

At the launch of Google Wallet, the only accounts First Data will have to work with are tied to MasterCard-branded cards issued by Citigroup Inc., and the only phone it will have to work with is the Nexus S, a smartphone that runs Google's Android software and is offered to Sprint Nextel Corp. customers.

As long as Google has not revealed how it plans to expand Google Wallet, the effort is "not much different" from other mobile payment systems proposed so far, Oglesby said.

"I'm surprised at how very similar Google Wallet is to the Isis mobile payment project," a venture of the major telecoms, "and what Visa is working to develop in various markets," he said.

First Data may have no direct experience acting as a trusted service manager, but the company's Go-Tag contactless payment sticker, introduced in 2009, has helped to "inform" it on various aspects of the role it will play in connecting consumers' phones with their bank account, Morea said. The Go-Tag sticker is meant to be adhered to a user's phone, simulating the experience of using a phone with a built-in payment chip.

Besides the Go-Tag, First Data last year also began offering memory cards supplied by Tyfone Inc. that contain electronic wallet software.

First Data also faces uncertainty over "how open Google plans to be with its open platform," Todd Ablowitz, president of Double Diamond Group LLC of Centennial, Colo., said in an interview.

"To deliver on the promises Google has made will require the founding companies to get very innovative in designing these mobile payment platforms from the start, and we have yet to see if the rhetoric matches the actions," he said.

First Data also will lead the initial movement to recruit and set up new merchants to accept contactless payments to participate in Google Wallet, including providing merchants with contactless payment terminals and the Google software that merchants will need to handle payments through Google Wallet, Morea said.

First Data, of Atlanta, also will "help sell" Google Offers, the mobile coupon system being paired with Google Wallet, to merchants, Morea said. He would not specify how the service will be promoted. Google plans to make money from Google Offers, allowing banks to keep their full share of transaction revenue from Google Wallet payments. Analysts say First Data's various roles in Google Wallet's initial phase will provide at least a short-term advantage, but it will be unlikely to endure when Google opens the program to multiple financial services providers, vendors and networks, as it promises.

"At least initially, First Data has a big opportunity here to be the only company offering Google Wallet services, and it's a window they should maximize before it opens up further to competitors," Ablowitz said.

For reprint and licensing requests for this article, click here.
Bank technology
MORE FROM AMERICAN BANKER