The number of people in the U.S. using their smartphone to pay for goods in stores through services like Apple Inc.‘s (AAPL) Apple Pay, Samsung (SSNLF) Pay or Alphabet Inc‘s (GOOGL, GOOG) Android Pay is expected to more than double over the next two years. What’s more, total transaction value is expected to increase from $8.7 billion in 2015 to $61.8 billion in 2017. And while current solutions from Apple and Samsung are pretty convenient, Google thinks it can make things even easier.
Earlier this week, GOOGL announced a pilot program that allows users to pay just by giving the cashier their initials. Google is calling the program Hands Free, and it uses WiFi and Bluetooth to connect to users’ phones while they’re still in their pocket. The cashier confirms the shopper’s identity by accessing the picture on their Hands Free account.
But investors want to know if this will help GOOGL leapfrog Apple and Samsung in the mobile payments market.
GOOGL Came Late to the Game
Apple Pay had been in operation for nearly a year before GOOGL launched Android Pay. Android Pay works just the same as Apple Pay, but GOOG only provides the software layer, relying on phone manufacturers for things like fingerprint scanners and other security features.
However, Google’s strategy allows Android Pay to be used on nearly any phone, including the iPhone.
GOOGL reports that it’s adding 1.5 million new customers every month in the United States, and 2 million locations currently accept Android Pay. Apple Pay is accepted at a similar number of stores.
But Android Pay doesn’t get the recognition of Apple Pay or even Samsung Pay. With the market set to explode over the next few years, GOOGL needs to get its brand into more consumers’ phones. It can work out pre-install deals with manufacturers, which would allow it to compete with the pre-installed apps on the iPhone and Samsung phones.
But GOOG would have to shell out some money for that privilege, whereas Apple and Samsung get it for free. A better option is to create a better product.
But Will GOOGL’s Plan Work?
It’s not clear that Hands Free will resonate with consumers. Square Inc (SQ) launched a similar app, Square Wallet, in 2011 that allowed users to check out at participating stores just by giving the cashier their name. Three years later, Square removed Wallet from the Google and Apple app stores.
Some might argue Square was ahead of its time. Mobile payment has only caught on in the last couple years, and its biggest years of growth are still ahead. With a growing number of people used to paying without cash or a credit card, GOOGL may have the right solution at the right time.
But GOOG’s plan also segments its digital payments customers. It now has Google Wallet, Android Pay and Hands Free. All three products cater to different customer segments, and that could make things complicated for consumers. Apple Pay can be used in stores or in apps, and it’s even in talks to use the same ecosystem for peer-to-peer payments.
Google fragmenting its digital payments customers could lead to it being surpassed by competitors, even if its products are better.
While GOOGL’s Hands Free is an interesting experiment, it seems unlikely that it will provide a significant boost to Google’s position in the mobile payments market. Apple had a year-long head start, and its integration with the iPhone makes it the name to beat in the space.
Nonetheless, it’ll be interesting to see if Hands Free has an impact on the rest of the market, with competitors potentially copying the functionality.
As of this writing, Adam Levy was long shares of AAPL.
