by Brad Moon | November 8, 2012 9:26 am
We’ve written extensively on the topic of mobile payment recently — and for good reason. The sheer number of schemes involving payment by smartphone, like the Google (NASDAQ:GOOG[1]) Wallet, or by using online payment systems in stores, such as eBay’s (NASDAQ:EBAY[2]) PayPal, seems to just keep on rising.
Smartphone makers are busy sticking near-field communication[3] (NFC) radio chips in their devices for this very purpose — although Apple (NASDAQ:AAPL[4]) chose to leave NFC out of the iPhone 5[5].
With that in mind, Google’s latest move does seem to warrant some head-scratching: The tech giant is introducing a plastic Google Wallet card[6]. Yes, you heard correctly. Google is hedging its mobile-payment bet and taking a step backwards with a physical payment option.
I know what you’re thinking: Didn’t Google say just six months ago that the whole point of Google Wallet is to save consumers from the hassle[7] of carrying around a credit card?
Precisely.
Google Wallet[8] has been one of the leading mobile payment players to date. The basic premise is that a single virtual wallet in the cloud is tied to all your credit cards and bank accounts. It is intended to simplify online shopping (at websites that support the option) and allow for tap-and-pay capability at brick-and-mortar retailers that 1.) support Google Wallet and 2.) are equipped with a NFC terminal.
So in the end, a consumer with a smartphone (and doesn’t just about everyone have one of those by now?) needn’t be weighed down with cash or credit cards.
The latest smartphones from Google’s Motorola division, as well as its new Google Nexus phones and tablets are NFC-equipped. Plus, Google’s Android operating system — the dominant mobile OS — includes full support for NFC payment[9].
Still, Google’s move back to plastic is just a response to the tough reality of the mobile-payments space — a reality that looks something like this:
Let’s elaborate.
The hoopla from smartphone-makers and widespread availability (there are around 100 NFC-enabled mobile devices currently for sale) is all well and good, but mobile payment is far from standardized — and Google Wallet has yet to catch on in a big way. As Wired points out, some of the most popular NFC-equipped smartphones have had Google Wallet blocked[10]. The Galaxy S III on AT&T (NYSE:T[11]), for example, ditched it in favor of ISIS — yet another mobile payment standard[12].
Another challenge is the fact that credit card companies aren’t about to take this incursion on their turf sitting down. Credit card processing fees from merchants are highly profitable, so to protect any threat from third parties, they are introducing their own high-tech solutions.
MasterCard (NYSE:MA[13]) has debuted “tap-and-pay” terminals and its own mobile payment software, for example. Other credit card companies offer a hybrid solution: the familiar, plastic credit card equipped with a radio frequency identification (RFID) tag. Systems like VISA’s (NYSE:V[14]) payWave[15] and MasterCard’s PayPass[16] use this approach and are less intimidating to consumers — especially those who aren’t tech savvy. They provide customers with a standard credit card in case a merchant lacks the latest technology.
So for Google, coming out with its own card — even if one that’s virtually linked to another piece of plastic as opposed to having its own account — keeps Google in the game when NFC is out.
Why does Google want all your transactions coming through Google Wallet in the first place?
The service is free to consumers, so there’s no revenue from user fees (in fact, it may be losing money on the fees[17] it eats for every transaction). However, there is money to made in location-awareness — something a smartphone has — and consumer purchasing data.
This information is golden to Google in terms of driving the value of its mobile, location-based search[18] and ad revenue businesses, as well as its traditional advertising services. So long as a transaction goes through Google Wallet, you can bet Google is leveraging that data to boost revenue in its core business.
With that in mind, you can see how a card would be worth the effort to Google. The question, though, is how to convince consumers to adopt yet another piece of plastic — and one they have to configure online (or with an app).
Screenshots obtained by TechCrunch suggest Google is pitching that consumers can “leave all the cards you used to carry at home” (yawn). They also tout the fact that “if lost you only need to cancel your Google Wallet card!” (which I guess is moderately useful). Plus, the biggest incentive of all: Consumers gain access to exclusive offers.
All in all, while it may seem like a move in the wrong direction for the payment world — and while Google’s not saying much about the Google Wallet card — the new card doesn’t seem like a terrible idea. I suspect you’ll see people carrying one before too long … even if it’s just a stopgap until payment-by-smartphone really takes off.
As of this writing, Brad Moon did not own a position in any of the aforementioned securities.
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