Broad Merchant Involvement Crucial To Google Wallet’s Success, Expert Says

The emphasis on broad merchant participation at the outset of development of the Google Wallet sets it apart from certain other initiatives and could be the crucial element in driving consumer adoption, according to at least one smart card industry executive.

“Getting the merchant element right is vital to getting Near Field Communication-based mobile-payment technology off the ground, and it’s what’s been missing so far in the marketplace, Randy Vanderhoof, executive director of the Princeton Junction, N.J.-based Smart Card Alliance, tells PaymentsSource.

Merchants so far have been “lukewarm” toward tap-and-pay technology because it lacks any real value proposition versus the two-way communication NFC provides enabling merchants to offer consumers targeted, customized promotions and loyalty programs through mobile handsets, Vanderhoof says.

But the venture Google Inc. announced May 26 (see story) that brings together First Data Corp., with its deep expertise in U.S. merchant acceptance, along with Citigroup Inc., MasterCard Worldwide and Sprint Corp., goes further than any other NFC venture proposed so far in creating a viable opportunity for merchants, he suggests.

PayPal Inc. on May 26 sued Google and two former PayPal employees, alleging they stole the company’s trade secrets (see story).

The “SingleTap” shopping service Google Wallet features will enable consumers to redeem promotions immediately and earn loyalty points through initial participating retailers including Walgreen Co., Duane Reade Inc., Foot Locker Inc. and Bloomingdale’s Inc., to name a few.

So far, Google has tested consumer deals ranging from a 20% discount on boots advertised on Google to $20 off at a restaurant through a rotating “deal of the day” promotion.

First Data, in serving as the venture’s trusted service manager, plays a key role because of its relationships with banks and merchants as a processor and at the point of sale through its merchant-acceptance offerings, Vanderhoof says.

“In the U.S. in particular, First Data, with its various relationships with different industry sectors and its role with merchants, brings a lot of options that could make the pieces work,” Vanderhoof says.

That said, many questions remain about costs and revenue for participants and how that might affect merchant participation, he says.

“It’s not clear who’s going to foot the bill for various investments to build this and where the revenues will show up. ... Some participants will receive some financial benefit, and others will be putting out more costs, at least initially. So there will have to be some leveling of those factors,” Vanderhoof says.

Most mainstream merchants, constrained by thin profit margins, may not be eager to foot the bill to pay “rent” to the venture’s participants in exchange for gaining sophisticated new mobile-marketing platforms. But “there may be ways merchants can shift costs from … less-efficient types of advertising and marketing,” Vanderhoof suggests.

Before merchants sign on en masse, they will also need Google Wallet to deliver on its promise to be an open ecosystem, Vanderhoof says.

The venture eventually aims to invite broad industry participation from other banks, payment networks, mobile carriers, handset manufacturers, point-of-sale systems companies and merchants to join the initiative, but which ones come aboard and when could help to make or break its success.

“Visa will have to wait for Google to open the doors for them to participate, and if all other major payment players join in, Apple Inc. and its iPhone would be hard-pressed to stay out of it,” Vanderhoof says. “Apple has stuck to a model where it has been relatively isolated and kept its NFC plans very close to the vest, but you’re going to have to factor Apple into this equation at some point if it’s going to succeed because the iPhone has so much consumer appeal.”

Visa reacted to Google Wallet’s announcement with its own promise.

Jim McCarthy, Visa head of global product, said in a May 26 blog post that launching NFC payments in the U.S. this year is “just one small aspect” of its digital wallet development plans, which the issuer outlined earlier this month (see story).

“Visa is fully embracing the spirit of competition, and we are pleased to see the industry’s growing excitement and investment in the mobile space. I’m confident Visa will continue to lead the way in this important category and we have significant momentum on our side,” McCarthy said.

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