Fans of Domino’s Pizza (DPZ) are no doubt thrilled that they can now pay for their online pizza orders through Google Wallet, the tap-and-go payment system Google (GOOG) introduced to the world in May 2011. Since then Google has been in a pitched battle with Paypal, Square and other payment systems that want to rule the mobile world.
Gmail and Google Wallet
At the end of March, Google updated its Gmail platform so that users of its email service could send money using Google Wallet. Quartz author Christopher Mims points out that Google isn’t interested in whether you send money via Gmail or not; it simply wants to capture your bank account and credit card information so that it can devise countless ways in the future to benefit from users paying for things.
With 425 million active Gmail accounts — only Apple (AAPL) has more active accounts with 575 million – Google is potentially sitting on a very lucrative revenue stream that doesn’t really exist yet. Just as important is the fact that it has found a good way to counter Apple should it decide to enter the fray.
Google Wallet in the Cloud
CNETs Marguerite Reardon does a good job breaking down Ariel Bardin’s keynote speech from Transact 2014, the annual trade show put on by the Electronic Transactions Association. Bardin, vice president of product management for Google Payments, reiterated that Google is in the payments business for the long haul.
And why shouldn’t it be?
Everything Google does to make Google Wallet a better user experience also ensures that the service provides advertisers with the most targeted ads possible. Ultimately, like its Google Fiber business, it will make money. How long that takes is almost irrelevant given that the company generates more than $11 billion in annual free cash flow. Any mistakes made on the path to global domination are easily covered over.
Reardon’s most revealing point is Google Wallet’s transition from near-field communication (NFC) for the storage of credit card credentials to that of host card emulation (HCE), which allows all of this information to be kept safely in the cloud without merchants having to spend money on expensive upgrades for their point of sale terminals. Even better, because the information is in the cloud, new credit and loyalty cards can be added to Google Wallet without having the application installed on your phone or tablet. In essence, it really does become your virtual wallet.
Google Wallet vs. Peers
Let’s face it — payment technology is big business. In 2013, venture capitalists invested $1.2 billion in this burgeoning field. Chief among these up-and-coming companies is California-based PayStand, a startup that launched just last week with 1,000 customers and $1 million in initial funding. PayStand helps small- and mid-sized businesses reduce the fees they pay for processing transactions by passing them on to their customers.
PayStand provides merchants with everything needed to set up shop online for one monthly fee. It makes money solely from those monthly subscriptions and not by skimming a piece of every transaction. Who knows if it has the staying power to compete with Google Wallet, PayPal, Square and the rest of the big boys, but the initial premise makes a lot of sense. Educate consumers on how much merchants pay in fees and maybe things will change.
Google Wallet Bottom Line
If online payments were a football game, it’s safe to say we’re still late in the first half or early in the third quarter. A lot can happen in the next 2-3 years to upset the status quo, but from where I sit the latest announcement by Domino’s, combined with Google’s efforts to integrate Google Wallet into its other products and services, is an indication that Google is still very serious about its online payment system despite losing several executives in recent months.
Google rarely plays to fail. In the long term, I have no doubt about Google Wallet’s success. Whether it can steal PayPal’s thunder is another question altogether. But I think we’ll know the answer soon enough.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.