Google's Android Pay Cherry-Picks the Best of Apple, Google Wallet

Google plans to release a new mobile payment system called Android Pay, which will include many of the same features as Apple Pay, while the Google Wallet brand will live on as a peer to peer service.

Android Pay presumably has its roots in Google Wallet and the earlier Google Checkout, but its newest features — including fingerprint recognition for in-store and in-app payments — build on the foundation Apple established with the October 2014 launch of Apple Pay.

Android Pay also includes features and functions built into the current Google Wallet, such as the ability to make a contactless payment without opening the wallet app. Android Pay, like Google Wallet, will work on all versions of Android operating system back to KitKat, which launched in 2013 and enabled Host Card Emulation (HCE) technology for contactless payments.

But this is more than a rebranding of Google Wallet; it's also a divorce of Google's commercial and P2P payment systems. Android Pay will be the Android Solution for in-store and in-app payments, while Google Wallet will be a dedicated P2P app for Android and iOS, Google spokesperson Anaik Weid said in an email.

Google's earlier approach to mobile payments was to catch all money movement under the umbrella of the Google Wallet brand. This involved absorbing its earlier online Google Checkout system into Google Wallet in 2011, and also launching a Google Wallet app on iOS that could not make contactless payments, even though the same app on Android handsets could.

Its new approach is far more streamlined, launching with a brand that distances it from consumers' preconceptions about Google Wallet while also choosing a name that invokes the familiarity consumers may already have with the rival Apple Pay system.

But Google isn't bringing on every feature of Apple Pay. The Apple wallet requires access to a handset's secure element, but Google is sticking to its model of using a virtual MasterCard for point of sale purchases instead of storing account details on the phone itself. In this manner, Google can sidestep some of the concerns raised by the inconsistent enrollment processes issuers used to link their cards to Apple Pay.

Despite this streamlining, Google is also setting the stage for a more collaborative mobile payment system. "We believe the same partnership model that fueled Android's growth will enable Android Pay," said Dave Burke, vice president of engineering for Google, during a presentation at today's Google I/O developer conference.

Android Pay is an open system, Burke said, meaning it will allow developers to support in-app payments for third party applications, accessing features such as fingerprint authentication to create a consistent experience across the Android operating system.

"Android Pay is cloud based, which provides the flexibility for all of the players [in mobile payments] except for Apple, which is hardware based," said Richard Crone, a payments consultant. "This will spur everybody on to develop mobile pay technology."

That difference will not be apparent to consumers, but will allow Android Pay to scale quickly, said James Anderson, a group executive for platforms and emerging payments at MasterCard.

"We have been working for the past year and a half on HCE, so we are excited that Android is taking it to the next level," he said.

MasterCard will also be able to leverage its digital enablement service, a program designed to accelerate the development of payments technology, to boost Android Pay.

"Issuers that are part of that initiative will be able to seamlessly incorporate Android Pay," Anderson said.

While Apple has been gaining market share with every new iPhone model released, Google's operating system still controls a majority of the mobile phone market in the U.S. and worldwide. Samsung is also planning its own mobile payment system for Android handsets, using an alternative technology that does not require most merchants to upgrade their point of sale hardware.

Google is also working with financial institutions to secure support for debit and credit cards, as well as AT&T, Verizon and T-Mobile. Financial institutions such as U.S. Bank and USAA announced their support of Android Pay shortly after Google's presentation.

Burke did not mention whether Android Pay incorporates technology Google purchased from Softcard, the defunct mobile payments initiative developed by the three mobile carriers that now support Android Pay. Google purchased the venture's technology this year ahead of Softcard's shutdown, and also secured an agreement with the carriers to pre-install its mobile wallet in the Android handsets they sell.

Debit, prepaid and small-business cardholders will be able to use their Android phones for purchase in store and within Android apps, MasterCard said, citing Federal Reserve statistics that show 30% of all mobile payment users with smartphones have made a point of sale payments. MasterCard contactless payments are accepted at more than three million merchants in 68 countries, and MasterCard also has a Digital Enablement Service to speed delivery of new payments technology.

As such, Android Pay will work at more than 700,000 stores that accept contactless payments, including Macy's, McDonalds, Bloomingdales, Walgreens and Whole Foods; as well as m-commerce providers such as Lyft and Grubhub, Burke said, adding a new Target app scheduled for release later this year would also support Android Pay.

Google has made numerous changes to its mobile payment strategy over the years to address issues ranging from its ability to lure merchants to Google Wallet to security to its originally cumbersome process for onboarding banks.

Visa will also support Android Pay, which will be the first global partner of the Visa Digital Enablement Program, which is designed to enable issuers and technology companies to shorten the time to market for payment and e-commerce products. The program provides a framework for financial institutions and technology partners to gain quick access to the Visa tokenization program.

"With so many people using Android devices and a passionate developer community, we couldn’t be more excited to have Google as a partner in our program launch,” Jim McCarthy, executive vice president of innovation and strategic partnerships at Visa, stated in the May 28 press release. “Through our new program, financial institutions can take advantage of our secure token technology to deliver the most popular mobile and digital payment services on the market today to their customers.”

Visa, MasterCard and Amex have been network partners for Apple Pay the product's launch, with Discover signing on at a later date. The virtual card used in the current version of Google Wallet is also a MasterCard-branded product.

David Heun contributed to this story.