With the unveiling of a mobile wallet this week, Google is making its second try at establishing itself as a major name in payments.
The new mobile payments system will use smartphones with embedded Near Field Communication chips to allow payments at the point of sale. Google’s earlier major attempt at creating an alternative payment system, Google Checkout, launched in 2006 for online purchases.
Merchants were attracted to Checkout because of Google’s brand recognition and low initial pricing, but Checkout soon had 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 that Google was trying to drive users away from the product in anticipation of shutting it down.
“People tend to flock to Google because they go to Google,” says 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, allows consumers to store multiple payment cards, loyalty cards and coupons from another service called Google Offers. Google Wallet is initially rolling the service out this week in New York and San Francisco and will make it available nationwide this summer.
“It’s important to realize we’re just getting started,” Stephanie Tilenius, Google vice president of commerce, said in a presentation. “This vision will take a while to come to fruition.”
The Mountain View, Calif.-based company initially is working 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 that include Macy’s Inc., American Eagle Outfitters, Walgreen Co., Toys R Us Inc. and others, Google executives said.
Riley says 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 says. “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.”
Industry watchers said Google’s new initiative could succeed for other reasons.
“One is that, I think, Google is recognizing they are not going to create a new mobile payment infrastructure,” says Gwenn Bézard, co-founder and a research director at the Aite Group LLC in Boston. “I think that’s why they are partnering with MasterCard and Citigroup.”
Wedbush analyst Nick Setyan said, “I’m very excited about it. I’m not sure how the public will take this, but it seems like once you get the word out, they will pick up on it.”
