May 28, 2015
By Kevin Woodward
Google Inc. is betting its latest mobile payments incarnation—Android Pay—will work better than Google Wallet did. Announced Thursday at Google I/O, its developer conference, Android Pay is poised to compete directly against Apple Inc.’s Apple Pay, PayPal Inc., and the upcoming Samsung Pay for a piece of the burgeoning mobile-payments market.
Android Pay will have in-app and contactless payment capabilities.
Android Pay, which Google says will be available in coming months, will work with smart phones using KitKat and Lollipop versions of the Android operating system. Nearly all of these phones also have near-field communication (NFC) technology. Together, those two OS versions account for 49.5% of Android phones. That’s about 26% of all U.S. smart-phone subscribers, according to Digital Transactions News estimates. By contrast, the iPhone 6 and 6 plus, which work with Apple Pay for in-store transactions, account for about 8% of U.S. subscribers, DT estimates.
Android accounted for 52.4% of U.S. smart phones in the first quarter of 2015, compared with 42.6% for all models of Apple’s iPhone, according to research firm comScore Inc.
Android Pay will be available on Google Play, and will come pre-loaded on new Android smart phones from Verizon, AT&T, and T-Mobile.
Though details on such matters as fees and how Google will make money from the service are scant, Google says Android Pay will work like this in stores: As a consumer holds an Android Pay-equipped smart phone near an NFC point-of-sale terminal, touches a fingerprint sensor, and taps the phone against the terminal, payment-confirmation and transaction details appear on the screen. Android Pay also will offer in-app payments.
It is unknown whether or not Android Pay will use host card emulation (HCE) or a secure element inside a smart phone to lock down payment credentials. Google did not say, and referred inquiries to its blog post, which does not mention that aspect of the service. HCE, which uses cloud servers to load credentials, is a feature of KitKat and newer versions of Android.
More than 700,000 merchant locations will accept Android Pay, the same as with Apple Pay, though tens of thousands of these locations are almost certainly vending machines. USA Technologies Inc., a supplier of contactless technology for self-service machines, said on Thursday its technology will support Android Pay at 210,000 machines.
Among the brick-and-mortar chains announced Thursday are Best Buy, Staples Inc., Walgreen Co., and McDonald’s. In-app merchants include Etsy, Dunkin’ Donuts, JackThreads, and OpenTable.
As with rival Apple Pay, Android Pay will use tokenization, which replaces the consumer’s actual card number with a random set of data. Google says it is working with American Express Co., Discover Financial Services, MasterCard Inc., and Visa Inc. on the service. Visa says Android Pay is the first international participant in its Digital Enablement Program that is meant to boost payment security.
In addition to sending payment information, Android Pay also can send loyalty and special-offer data in the same transaction, possibly relying on contactless technology acquired earlier this year from the carrier-controlled Softcard venture.
Google’s strategy, which is a close replica of that of Apple with Apple Pay, makes the most sense from a business and technology standpoint, says Rick Oglesby, head of research at Double Diamond Group, a Centennial, Colo.-based advisory form.
“If the major wallet players approach banks and merchants with compatible offerings, they strengthen the business cases for participation and acceptance,” Oglesby tells Digital Transactions News in an email. “Apple put the model in place to gain issuer and network participation, so Google is following that model as well. Then, Apple and Google will actually be teaming up to gain merchant participation.”
This time around, too, Google appears to have placed greater emphasis on the user experience, says Thad Peterson, analyst at Boston-based Aite Group LLC.
“There was always the issue of unlocking the screen to get to the payment,” Peterson tells Digital Transactions News. “By releasing the fingerprint API [code to enable apps to use the fingerprint sensor] and using the fingerprint API and immediately linking it to the payment, circumvents that step.”
That could make the Android Pay user experience comparable to Apple Pay, he says. The demonstration video looked good, but the test will be when Android Pay becomes available, he says.
Google’s mobile-payments experience might best be viewed as one of opportunities, Peterson says. No company has had more opportunities to learn. “They had time after Apple Pay launched so they know what they’re working against,” he says. “They deliberately built it to be an open platform on Android.” They can achieve scale as well as Apple, Peterson says.
Given that NFC handsets using Android are already in use, Android Pay could make NFC even more of a common payment method, says Henry Helgeson, chief executive of Boston-based Cayan, a payments technology company. Cayan’s Genius platform, which enables merchants to accept payments and offers, works with Android Pay.
“This is a case of a rising tide floats all boats,” Helgeson tells Digital Transactions News. “NFC has now become the standard.”
The real value, however, lies not just in the mobile-payments capability, but the combined offers and coupons, Helgeson says. “Google is now the first one that’s announced a strategy around this, where with a single touch of the phone the consumer gets loyalty points and makes a payment.”
In addition to Apple Pay as a competitor, Android Pay also likely will face CurrentC, a mobile wallet from the retailer-backed Merchant Customer Exchange, and Samsung’s Samsung Pay, both of which are expected to debut later this year.
Android Pay already has elicited the backing of financial-services provider USAA, and received vendor support from On Track Innovations Ltd., First Data Corp., and PayPal’s Braintree unit, via a software development kit for its v.zero service. Other processors supporting Android Pay include CyberSource, Stripe, and Vantiv.
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