Google wallet is a mobile app that stores virtual replicas of our existing credit cards and uses this information to make our payments seamlessly with the help of NFC or near field communication.
This payment system has gone live recently on September 19th and has got rave reviews from various users. The project though is currently in a nascent stage with only one working phone, the Nexus S 4G and is powered by a Paypass-enabled Citi Mastercard and Google Prepaid cards. The phone is also available only on the Sprint wireless network. These seem to be reasons enough for the critics to write away Google Wallet as a grand launch that will fail spectacularly in a matter of time.
Competing payment systems
In addition, there are other competing technologies like the ISIS which is an alliance between AT&T, T-Mobile and Verizon Wireless, payWave system from VISA, the Square payment system from Jack Dorsey of Twitter and potentially the biggest competitor for Google, the big Apple. The ISIS and payWave systems are based on NFC, but the ISIS is backed by 3 of the major wireless carriers in the US. The ISIS payment system though has not been launched yet and is expected to go for trials next year. They are basically aiming at scale rather than the first mover advantage taken by Google already and are earmarking $100m for this project. But the ongoing anti-trust motions against AT&T over its merger with T-mobile can delay the process.
Android to the party
Taking these reasons on merit we can immediately say that out of the current competition only Google Wallet is active and is successfully launched on a small but significant scale. It is based on the Android OS and thus can be easily ported onto any smartphone that features it. Android based smartphones currently have a 40 per cent market share compared to Apple's iPhone iOS' 28 per cent and 19 per cent of RIM's Blackberry. Future NFC phones that launch with Android OS will be creating an ecosystem for Google Wallet app payments. These phones necessarily need not be smartphones as there are a lot of low range feature phones that have NFC and can be used for transactions. The transactions also can be anything from acting like ID cards, key cards or even travel cards. But this will create the crucial launchpad and trust for users who want to upgrade their phones that can support mobile payments.
Apple as a competitor
The iPhone on the other hand is a high end smartphone and is Apple's only product. The main advantage that Apple has in this respect is that it already has the payment ecosystem in place. The credit card information and purchasing data of around 200 million iTunes customers are already with Apple. The iPhone 4S, rumoured to be iPhone 5, was expected to launched this month with an NFC chip and the payment system may be slowly rolled out over the next few months. The iPhone can also work with the Square dongle. It is clear that Apple and Google are the two main smartphone competitors and it is a no-brainer that the technology Apple goes with will be crucial in giving a definite shape to this market.
History and strategy of Google
There are around 30 NFC phones currently in the market from different companies like Nokia, Samsung, LG, Huawei and even Blackberry. NFC based mobile payment technology has already been in use since 2004. There are around 60 million phones with the Sony FeliCa chip in use in Japan and around one-third of them are used for payments actively. Consumer trust in terms of security and ease of use are very important for this project to succeed and these acted as deterrents from the technology to explode in this region.
So what can be done differently to entice both consumers and merchants to use the technology on a large scale? On the face of it, Google wallet is just a mobile app which enables contact-less payment. But that would be missing the big picture and the target of Google, which would be to create an open commerce ecosystem. The money is not in the transaction part according to me, but the revenues that can be generated from offers, discounts, gift cards, loyalty cards, and so on.
Google also charges nothing for this service, hence leaving a better cut for the merchants. The tons of consumer data that will be collected is the gold mine that Google is after. This data can be used to study consumer patterns and help businesses model their strategies. Google Wallet will thus be a unique tool which will give insight into consumer spending similar to Google search which studies user browsing patterns to give targeted ads.
(The author is a Research Analyst with GBI Research, a leading business information company providing global business information
reports and services.)