Recently on a train, I witnessed (everyone in the car did, you couldn't miss it) an altercation between two commuters. A large young man had left his overstuffed briefcase out in the aisle, as he does almost every day, and a slight, older man had kicked it down the car either by accident or out of pique. The two men got into a shouting and shoving match in the vestibule. A woman sitting in the middle of the car bellowed in a husky, Ethel Merman-like voice, "Leave him alone! He's smaller than you. Leave him alone!" The fighting stopped.
I thought about this episode while reading statements from Verizon and Google yesterday about Verizon's demand that Google strip its Google Wallet application from its soon-to-be-released Galaxy Nexus phone.
In most situations Google has the muscle and clout to stand up for itself, but in this instance it's the meek underdog. Its "do no evil/let's all collaborate" philosophy is bumping up against Verizon's old-school crush-the-competition approach, and Google appears to have less moxy than the older gentleman on the train. All the search company will say is, "Verizon asked us not to include this functionality in the product." Verizon is developing its own mobile payment system, along with fellow telecom operators that are members of Isis.
If no one intervenes in this fight, Verizon will bully competitors out of the mobile payment business. And there are at least four reasons why this would be bad for customers, payments technology, and the industry.
1. Fees. As a Verizon customer, I can attest to the fact that Verizon is fee-crazy. Unexplained fees get added to my bill on a regular basis. Calls to customer service enmesh you in the nightmare that is Verizon Customer Service, you wander a maze of useless repetition of your complaint to various people until you give up. (And in Westchester County, New York, if you want high speed internet access and/or reliable cell phone service, there is no viable alternative). What I pay for internet access, basic television channels and my iPhone is obscene.
One critical difference between the telecom providers' approach to mobile payments and Google's is that the telcos see mobile payments as a new source of fee income, an add-on to their basic service plans. Google has no plans to charge fees, it makes its money through advertising. While I don't love being bombarded with ads every time I search for something, it beats getting nickeled and dimed to death.
2. Openness. Google has said that it would like to work with any and all financial services providers, network providers, merchants and other players, without restrictions. Its partnership list is already extensive and includes Citi, First Data, MasterCard, Visa and more than a dozen large merchants. The telecom operators have made vague claims of openness but have already shown a territorial, monopolistic attitude.
3. Security. Google has put thought and effort into mobile payment security. It's created technology in which First Data sends cardholder and account data to a secure hardware element embedded in the phone. Google's approach to security is not flawless, but it does protect the most important pieces of customer information, such as PIN and account number. The Isis/Verizon security model has yet to be unveiled, but in its statement yesterday, the telecom giant objected to any use of a hardware security element embedded in a phone. "In order to work as architected by Google, Google Wallet needs to be integrated into a new, secure and proprietary hardware element in our phones," the statement said of the company's objection to Google's app. The telecom operators have committed to storing payment data on the less secure SIM card that comes with most phones and can be transferred from one phone to another. But most security experts agree that a secure hardware element is needed to protect sensitive customer and payment information.
4. Availability. Google's mobile payment technology has been tested in several cities and is being actively rolled out in others. The Isis mobile wallet is still under development, it's due to be piloted sometime next year.
Google has won the first heat of the mobile payment race. For competitors to try to knock it off the playing field this early in the game is unsportsmanlike, to say the least.