Google's Gambit in NFC: Suddenly, mobile wallets are hot.
Google Inc. on Thursday officially entered what is rapidly becoming a highly competitive sweepstakes for dominance in the nascent business of mobile wallets. The Web search giant announced it is working with four partner companies and some 16 retailers to offer consumers a payments-and-rewards system based on its Nexus S smart phone, which comes equipped with a near-field communication (NFC) chip for point-of-sale transactions.
A beta test for the payments component, called Google Wallet, is starting now in New York City and San Francisco, with a consumer rollout planned for this summer. The rewards component, dubbed Google Offers, will launch this summer in those two cities plus Portland, Ore.
The new system currently incorporates MasterCard-branded credit card accounts from partner bank Citigroup Inc. as well as a so-called Google prepaid card that can be funded with any card. Besides Citi and MasterCard, First Data Corp. is serving as trusted service manager, a role in which it provisions card-account details to the Google phones. The huge processor is also marketing the new Google products to merchants. And Sprint Nextel is the carrier network for the Nexus S, which Google launched late in 2010 with its signature Android operating system.
Payment details in the wallet are PIN-protected, and only what Google calls "authorized programs" can access the chip, or secure element, where the credentials are stored.
Google executives took pains to say, during the elaborately staged announcement and demonstration at the company’s New York office, that more banks, cards, carriers, and processors will be added over time. “Our goal is to bring together all the pieces of the ecosystem,” said Stephanie Tilenius, a former eBay Inc. and PayPal Inc. executive who recently joined Google as vice president of commerce and payments.
Any merchant that accepts contactless cards can accept payments from the Google wallet. Consumers who want to redeem offers stored in their wallet can show their phones to store clerks, who can scan the screens or enter the necessary data manually. With a system Google calls SingleTap, however, merchants can redeem offers with the same tap that effects payment. Some 16 chains have signed up to offer SingleTap, among them American Eagle Outfitters, Bloomingdale’s, Duane Reade, Foot Locker, Macy’s, Radio Shack, Subway, Toys “R” Us, and Walgreens.
With Google Offers, consumers will receive a Groupon-like daily deal from participating merchants that they can store in their phones by clicking or touching a button on their computer or phone screens.
The Google announcement, word of which leaked earlier this week, has been the subject of much speculation regarding the search giant’s strategy with NFC. Not only does the new venture propel the e-commerce company squarely into the physical world, it creates an opportunity for the company to ultimately act as a sort of switching point for a potentially enormous volume of data on consumer transactions.
Some 92% of transactions still occur in the physical world, according to numbers Google presented Thursday. This payment information, coupled with the geolocation capabilities of mobile devices, could have tremendous value to marketers, helping them to decide which offers to extend, and when. “It’s going to impact you when you’re most likely to buy—when you’re in the store,” says Einar Rosenberg, chief technology officer for Narian Technologies, a developer of NFC applications and other software for mobile payments. “It’s a brilliant move on Google’s part.”
At the announcement, Google officials said the new application would be free to users and issuers. The company did not respond to an inquiry from Digital Transactions News regarding its potential revenue streams. But Rosenberg argues Google will most likely charge fees to marketers for access to users.
Still, Google’s path is not without obstacles. After years of languishing on the sidelines of the payments business, NFC has heated up in the past year. The nation’s major wireless carriers late last year launched Isis, a joint NFC venture with Discover Financial Services and Barclaycard USA. And Visa Inc., which was conspicuous by its absence from the Google announcement, has sponsored several NFC trials with major U.S. banks and earlier this month introduced its own mobile wallet. Isis recently said it too will focus on a digital wallet, setting aside its original plan to build a competing payments network.
At the same time, the point-of-sale readers needed to interact with NFC phones remain relatively scarce. Just 124,000 U.S. merchant locations are equipped with contactless devices. That could create opportunities for independent sales organizations and other acquirers, says Markiyan Malko, program manager at Merchant Warehouse, a Boston-based ISO. Smaller retailers that have not been interested in installing readers for contactless cards could be enticed to put in the equipment for a mobile-phone application that includes not just payments but the ability to send and redeem rewards, he says. But, he adds, they’ll need lots of help. “Somebody needs to set that merchant up with Google for ads and loyalty,” he says. “Merchants need their hands held on things like that.”
Merchant Warehouse may not be waiting long to try its hand at this. Approaching Google about selling its wallet and offers solution “is absolutely on the drawing board for us,” says Malko. “We’d love to be among the first to work with Google.”
For all Google’s emphasis on openness, it doesn’t seem likely the search giant will enable its wallet for non-Android phones. “This is an Android wallet,” says Rosenberg. “They’re not going to be building a wallet for other people.” That means merchants that install NFC readers and want to serve customers with iPhones and BlackBerries, says Malko, would have to do three separate integrations. That tempers his enthusiasm somewhat. “I think that’s a problem,” says Malko. “Development time is pretty expensive.”
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