Could Google Wallet finally give the boost that virtual wallets need to succeed within the United States?
Analysts say yes - but only if payment processors, merchants, and developers like Google work together and facilitate the experience, even if some solutions compete with one another.
Two analysts even used the same analogy: just like consumers carry a single physical wallet, don't expect consumers to want to deal with multiple virtual wallets, as well. "Whoever gets the most traction will end up winning," said Chetan Sharma, an independent wireless consultant.
Launched in beta Thursday, 'Google Wallet' is a free Android app that securely stores multiple credit cards, or a Google prepaid card linked to your credit card (one that Google provides). When opened on an NFC-enabled smartphone, you can tap your phone against a supported payment reader and the item you want to purchase is instantly charged to your credit card.
Field tests are already in place in New York and San Francisco, but when it launches commercially this summer Google Wallet will work on Sprint's Nexus S 4G, MasterCard credit cards issued by Citi, and at retailers equipped with MasterCard's PayPass terminals. The transactions will be processed by First Data, an Atlanta-based company.
"Your phone will be your wallet. Just tap, pay, and save," said Stephanie Tilenius, Google's vice president of commerce, announcing the platform at the Google Partner event in New York. (Go hands-on with Google Wallet, here.)
NFC payment processing began quietly entering the American consciousness in 2002, when MasterCard debuted its PayPass terminals; today, more than 144,000 locations in the U.S. and over 311,000 locations worldwide use the PayPass system, according to MasterCard. NFC technology has greater visibility in the United Kingdom, where "chip-and-PIN" payments have been in place for years, and "tap-and-pay" NFC devices will be installed in Tesco supermarkets and McDonalds, according to a report.
Google Wallet will also require a PIN, according to PCMag.com's Lance Ulanoff, who attended the event.
"To be honest, I hate to say it, but I think it could be a kind of catalytic event [for NFC]," said Nick Holland, a mobile transactions and security analyst for The Yankee Group. "It could be very big, if people can play nice...If they keep the perspective of the consumer and the consumer experience, it could work out."
"It's theirs to mess up," Holland said, of the opportunity for Google.
Who will join the party?
At its launch, Google spoke often about "openness," according to analysts. But history has proven that invitations to join a consortium are not always met with reciprocal affection.
Visa, for example, launched its own digital wallet on May 11, which will roll out in the U.S. and Canada this fall. And Visa itself has designed its wallet to be globally interoperable, executives said. (Next: Who's in, who's out of the NFC game - including Apple.)
A Visa spokesman declined to comment further.
ISIS, the consortium of Verizon, AT&T, and T-Mobile, reportedly is scaling back its plans to deploy a carrier-driven mobile payment platform. ISIS representatives weren't available for comment, but a source close to the company said that the Google announcement validated the movement behind mobile commerce.
Beyond the wallet, Google's Tilenius also introduced Google Offers, which delivers daily, targeted, Groupon-like deals to the Google Wallet. Users can also store coupons they find independently.
That sounds an awful lot like Facebook Deals, the service that the world's largest social site launched in Nov. 2010. On the surface, at least, Facebook Deals promised everything that Google Wallet offered. To date, however, it's unclear how Deals has fared, especially after Facebook launched a daily-discount service, also called Deals, in April. Facebook representatives did not respond to requests for comment.
Other payment processors may feel the pinch, including those that have dodged the need for physical payments altogether. Randy Smith, the chief executive of MobilePayUSA, which uses a secured iPhone app to make payments at the point of sale, questioned who would pay for the point-of-sale terminals needed to make NFC transactions work.
"It's an exciting time to be in the mobile payments space. Google Wallet will only help pave the road to mass adoption of all mobile payment and loyalty service solutions," Smith said. "But like Sputnik, being first isn't always best, as NFC still needs to resolve security and merchant adoption. Someone is going to have to pay for the costly merchant upgrades for NFC to work. Question is, will Google front the bill for all merchants to adopt NFC hardware and if so, how long will it take to deliver all those upgraded terminals?"
eBay's PayPal business, which continues to drive eBay's success, also offered its own take on Google Wallet.
"While other companies are following PayPal's business model, we're already light years ahead. More than 98 million people around the world have already trusted us with their digital wallets," Anuj Nayar, a representative from PayPal, said in an emailed statement. "We expect $2 billion in payment volume to transact over mobile devices via PayPal in 2011 but mobile is just an access device. PayPal's approach has always been very simple: we make money work better no matter how you choose to pay, across devices, platforms and borders."
Groupon and Foursquare also haven't weighed in, although the latter tested NFC-based checkins at the time of Google I/O conference. For Google, combining location-based deals with payments could be a lucrative strategic move, Yankee Group's Holland said. "Google has completely locked down location-based marketing," he said.
And then there's Apple, which reports have said will include NFC technology within the iPhone 5 - or not. Holland, who said he works with Apple as a client, said he had no idea what Apple is planning: "Information goes in; nothing comes out," he said.
Part of Google's strategy will be to make available stickers with an NFC chip, which will reportedly be tied to a single credit card and not quite offer the depth of coupons and other deals that the NFC-enabled Nexus S will.
"That's a smart strategy," Sharma said. "That's going to be scary for Apple, and may force them to come out with a solution." (Next: Why the American military may turn the tide of the mobile wallet battle.)
Merchants will back the favorite
Whether or not Apple develops a competing solution, merchants are going to gravitate to the payment solutions that customers themselves want to use, said Trevor Dryer, a product manager within Intuit's Payments division. "SMBs tell us that the biggest need is that they have to accept payment in the form customers want to use," he said. "If a customer wants to pay with Google Wallet, they'll accept a Google Wallet transaction...They're reactionary - as soon as something takes off, they want to play in that space."
Intuit demonstrated GoPayment at Google I/O using NFC. The company eliminated its GoPayment credit-card fees for Visa, Mastercard, and Discover for standalone GoPayment use, and plans to bring an updated GoPayment 3.0 app for Android to market this summer, although the company hasn't said whether NFC technology will be supported.
The most important way to ensure NFC's success? Encourage the consumer to tap, not swipe, until it becomes a habit. Still, the road will be a long one, Sharma said. "We are looking at the 2013 or 2014 timeframe before you even get penetration."
The wild card: the government?
One interesting twist is that in Sept. 2010, the Department of Defense sent out a request for information on a proposed update to the Common Access Card/Personal Identity Verification card architecture. The DoD CAD/PIV smartcard is used by three million people, currently as a means of establishing identity - a huge prize for whatever chip card technology can claim it.
"One avenue under consideration expands the use of the CAC/PIV card beyond logical and physical access to include world-wide payment functionality, ATM access for management of funds, access to public transit services and management of Federal transit benefits," the DoD wrote in its ROI. "Advancements in contact and contactless chip technology present in the current CAC/PIV card offers an opportunity to add value and functionality to the current card."
The DoD said that it would like to develop a debit card that could be loaded with funds and used by soldiers and other personnel to purchase groceries and other goods while on and off U.S. military bases.
There is a twist, however: in addition to meeting Federal Information Processing Standards (FIPS) 140.2/.3 standards, the card will serve as a Geneva Convention card, with "no branding or personally identifiable information, beyond that allowed in the card topology standards, may be printed on the card or freely read from the card's chips."