Google’s NFC Entry Impresses Experts, But Leaves Key Questions Unanswered

Google Inc.’s entry in mobile payments and marketing, which the online search titan unveiled last Thursday, swept many observers off their feet with its comprehensive roundup of key players but also left a number of crucial questions unanswered.

Experts agree, though, that the uncertainty swirling around these questions only underscores the significance of Google’s entry into the business of mobile wallets, particularly those tied to near-field communication (NFC) technology for contactless payments. Google’s move is widely seen as breathing new life into NFC, a promising technology that has been hobbled by endless squabbling between banks and wireless carriers. “We’ve seen with Google jumping into this one of the biggest announcements in my career in payments,” says Todd Ablowitz, president of Centennial, Colo.-based Double Diamond Group, a consultancy with a focus on mobile payments.

While Google has repeatedly stressed its NFC-based Google Wallet and Google Offers system, which is based on its own Android operating system, is open to any interested bank, merchant, carrier, or other participant, it remains unclear whether the system will at some point work on non-Android devices. If not, it will exclude a significant subset of users who carry, for example, iPhones and BlackBerry handsets. “There are no current plans for different operating systems, but we’ll keep you posted,” a Google spokesperson tells Digital Transactions News.

Experts are split on the question of whether non-Android systems will ultimately be enabled. “I haven’t seen anything to say anything other than Android, and that will be a limitation,” says Beth Robertson, managing director of Javelin Strategy & Research, Pleasanton, Calif. But Aaron McPherson, practice director for financial services at IDC Financial Insights, argues non-Android systems will have to be included. “It would be inconsistent with Google’s strategy to make it Android-only,” he says. “The name of the game is to get [Google Wallet and Google Offers] on as many devices as possible.”

Still, the question may not be entirely Google’s to resolve. The inclusion of iPhones and other mobile devices running the iOS system, for example, would require the cooperation of Apple Inc., the system’s creator, as much as any impetus from Google, Ablowitz points out. “It’s less about what Google wants than about what Apple says,” he notes.

Also unclear is how the new system will overcome the paucity of retail locations equipped to accept contactless, and hence NFC, payments. Just 124,000 merchant outlets currently accept contactless cards and so have the readers necessary for wave-and-pay transactions.

The rewards component may attract some merchants that shunned contactless cards because they didn’t offer enough value to offset the cost of the equipment. Already, at least 16 chains, including big names like Bloomingdales, Macy’s, and Radio Shack, have agreed to participate in SingleTap, a system Google also announced last week that will let consumers pick up discounts or other deals simultaneously with a payment transaction. Of the 16 retail companies, only seven had installed the readers necessary for contactless payments in the three cities—New York, San Francisco, and Portland, Ore.—where Offers is being tested, with the Portland trial kicking off on Wednesday with a deal-of-the-day offer. When SingleTap will go live is not yet nailed down, owing to integration time. “It will take some time for us to enable SingleTap,” says the Google spokesperson.

The number and variety of merchants enlisted for SingleTap is impressive, says Ablowitz. “These are new types of merchants,” he notes, compared to the quick-service chains that have signed up for contactless payments in the past. But Robertson argues subsidies will likely be necessary to get many merchants to install readers. “Most merchants see [the Google system] as unproven and don’t want the added cost,” she says. “So it may be necessary to jump-start it.” While the Offers component may appeal to merchants, “there are no statistics yet on redemption rates,” Robertson notes, leaving many skeptical.

Some observers are particularly impressed with how Google has marshaled support from key players, including a big bank (Citigroup Inc.), a card network (MasterCard Inc.), a trusted service manager and acquirer (First Data Corp.), a wireless carrier (Sprint Nextel), more than a dozen merchant partners, and several point-of-sale terminal vendors. “There have been a lot of companies coming out with NFC schemes, but this is the first one I’ve seen with all the pieces in place,” says McPherson.

But one key player—Visa Inc.—is missing from the mix. For the time being, that means users can’t put Visa-branded accounts in the Google wallet. Google won’t comment on whether it has approached Visa, and Visa did not respond to a request for comment. “We’ve created an open-commerce ecosystem,” says the Google spokesperson. “We’re not excluding anyone.”

Visa, which introduced its own digital wallet this spring, may want to keep its distance. That may leave a big hole in the Google wallet, but it remains the most comprehensive offering yet seen, says McPherson. “They haven’t got [all of the partners], but they’ve got more than anybody else does,” he says.