Google Wallet Will Struggle to Win Merchants

Google has made an attempt to bolster its mobile wallet by opening it to more consumers and incentivizing them to use it, but it is unlikely that these changes will help the in-store payment component.  

Interoperability will likely be paramount to the success of any widespread mobile wallet so Google’s initial announcement of its wallet in 2011 could have set the stage for how to ignite a new payment system. From the onset Google started off by partnering with a number of companies across the ecosystem. In theory, those partnerships gave Google Wallet immediate access to millions of customers. Google Wallet, however, needs a lot more partners in order to become ubiquitous.

Google Wallet was hyped at its launch as the service that could jumpstart NFC mobile payments across the US. Nevertheless, the uptake of the mobile wallet remained sluggish as it was dogged by security concerns and too many caveats for consumer adoption. When it was launched two years ago, a consumer would have needed a Samsung Nexus S 4G on the Sprint network, as well as a Citi-branded financial card on the MasterCard network. Despite these setbacks, Google has demonstrated a willingness to revise its product to appease the naysayers and to generate more public interest.

In one of the first revisions, Google changed its approach to working with financial institutions, which allowed for more issuing partners beyond Citigroup and enabled the wallet to work across all four major payment networks. It did so by storing card details on Google's cloud services rather than on the handset's secured element. In the process, Google stepped inside the transaction and became the merchant of record for all in-store transactions.

Google also tried to make its service more appealing to consumers. Earlier this year, Google Wallet gave consumers the ability to send money using Gmail to anyone with an email address.  It also beefed up its loyalty point feature by allowing users to add their loyalty cards to the app—a move that positions Google Wallet to compete with Apple’s Passbook. Users also are able to join select loyalty programs within the revamped app. The latest version of the wallet also incorporates Google Offers, which allows users to store their offers in the app, redeem them at the checkout and access coupons through a partnership with Valpak. Google also released an Instant Buy API for developers that allows for one-click online and mobile purchases in an effort to streamline the shopping experience for users within the Android app ecosystem and across the Web.

In September, it also opened the wallet to all Android devices running on version 2.3 or higher, as well as all AT&T, T-Mobile and Verizon subscribers. For the first time, Google Wallet also was made available on Apple’s iPhone, which does not have NFC. The version for Apple devices was redesigned so that the app doesn’t require an NFC chip. Unfortunately, that also means that Apple users can’t use the wallet for in-store payments. Despite all the revisions to Google Wallet over the last two years, it isn’t likely the product will ever displace more traditional in-store payments.

One of Google Wallet's biggest challenges is it has not been embraced by the public because it didn’t solve a pressing need.  The move toward the integration of loyalty offers is interesting, but not enough to entice wide acceptance given that the deals are limited and not tied to consumer preferences. When I launched the Google Wallet from my home in Chicago, I was offered two deals in my vicinity, but most were several miles away and certainly not worth traveling out of my way to redeem. In addition, consumers can already store loyalty cards in a variety of apps and send person-to-person digital payments through other products, such as Chase's QuickPay. The bundling of functionality within a single app could be advantageous, but there are likely limited scenarios where having these two functions in the same app is a big win. Google is onto something by integrating loyalty functionality into its wallet, but the overall product still falls short.

Secondly, Google Wallet has not been embraced by merchants and, if anything the product more likely became an inspiration for the retailer-led Merchant Customer Exchange that could one day compete against Google Wallet. From the onset, Google wasn’t concerned with making money on the actual payment transaction because it was focused on collecting consumer data that it could use for targeted ads. Ever since Google Wallet was unveiled, merchants have feared that Google would collect their customer data and then send promotions on behalf of their competitors. Many merchants didn’t see the value of adding a third-party player into the mix. As a result, nearly 50 US merchants have banded together to form MCX, which plans to store consumer data for its retail partners in separate silos so competing brands can’t use the data. Retailers know that consumer data is vital to understanding consumer behaviour and driving future sales.

Michelle Evans is an analyst covering financial cards and the payments industry at Euromonitor International. Follow her on Twitter @mevans14.