Google Inc (NASDAQ:GOOG, NASDAQ:GOOGL) announced a new mobile payment platform at today’s Mobile World Congress. It’s called Android Pay, and it’s taking aim at Apple Inc. (NASDAQ:AAPL) and its nascent Apple Pay platform.
GOOG and AAPL have been bitter rivals for years. But it’s a battle that — at least on Wall Street — Apple has been winning in pretty compelling fashion, with GOOG stock off about 7% in the last year and AAPL stock up an incredible 70%.
From Google Wallet to Android Pay
Android Pay isn’t GOOG’s first crack at the mobile payment game. Google Wallet actually beat Apple Pay to market by a few years, debuting in 2011. But the service, which used near-field-communication (NFC) technology — tech that allows phones to communicate with payment systems in proximity at the point-of-sale — was essentially blackballed by the major wireless carriers.
Verizon Communications Inc. (NYSE:VZ), AT&T Inc. (NYSE:T) and T-Mobile US Inc (NYSE:TMUS) all refused to play nicely with Google Wallet, citing security concerns. The real issue for the wireless triumvirate, however, was economics. VZ, T and TMUS had partnered on their own mobile payments service, Isis (the name was changed to Softcard last year). When Softcard was late coming to market, GOOG had to sit idly by and watch AAPL catch up as Google Wallet stagnated.
No more of that. Last week, Google bought Softcard for an undisclosed sum. The biggest plus for GOOG? All three major carriers will pre-install Google Wallet on their Android devices.
That’s great. But Android Pay is another opportunity altogether, and should give AAPL fanboys who believe Apple Pay will become dominant some degree of caution.
Android Pay vs. Apple Pay: Two Different Beasts
Android Pay, rather than a payment application, is a payment API. In the spirit of the open-source movement, GOOG will yet again give developers the freedom to use its skeletal software as a launchpad for their own third-party payment systems. The idea is that developers won’t compete with Android Pay, they’ll build on top of it. Google Wallet itself will run on the Android Pay system.
It’s an idea completely alien to AAPL and its tyrannical obsession with controlling every aspect of the user’s software and hardware experience. Of course, that tyrannical obsession has helped cultivate a distinct brand that’s been largely responsible for sending the AAPL stock price skyward for the last decade.
AAPL’s high-value users are part of the reason Apple App Store revenues exceed Google Play revenues by about 60% despite 60% more downloads coming through Google Play.
But that dynamic may begin to change with the rollout of Android Pay. After all, like Apple Pay, Android Pay supports NFC and will eventually accommodate biometric sensors like fingerprint scanners. The Verge believes that “this is likely to lead to single-tap transactions within Android apps, as well as fingerprint-authenticated purchases in stores for users carrying the right hardware.”
It’s very early in the game, and we still have much to learn about what exactly Android Pay will look like. But if enough big businesses embrace the flexible API in an effort to control and brand their own payment apps, there could eventually be a strong incentive for those companies to freeze out Apple Pay.
And don’t discount the business opportunities that could arise for GOOG by its decision to build an API like Android Pay. In 2013, Facebook Inc (NASDAQ:FB) announced the launch of Facebook Home on Android — a skin that transformed the way users could interact with their phones, essentially making core features like the home screen and notifications Facebook-centric.
FB CEO Mark Zuckerberg ranted and raved about Android’s openness at the Facebook Home release. Six months later, GOOG and FB entered into a large-scale advertising partnership.
While we don’t yet know all the details, one thing is certain: the Android Pay vs. Apple Pay battle will play a major role in deciding how mobile payments evolve. If third-party developers embrace Google’s API, AAPL will need to watch its back.
As of this writing, John Divine was long shares of GOOG stock, GOOGL stock, and AAPL stock. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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