While the recent introduction of the first Google Wallet app is not likely to have much of an impact on sales for the 2011 holiday shopping season, the longer-term benefits for merchants will include better loyalty conversion rates and an increase in qualified traffic.

Google released the first version of its Google Wallet app last week for Sprint Nexus S 4G phones. The app is one of the growing number of mobile payments options vying for the wallets of consumers and attention from retailers this holiday season.

“I would say that the wallet’s sales volume will be low this season, but expect it to quickly gain steam as new phones, merchants, and banks sign up,” said Drew Sievers, CEO of mFoundry, Larkspur, CA.

“If all goes as planned, merchants should see more qualified traffic coming into their stores,” he said.

Loyalty play
Google Wallet was first announced in May and is the result of a partnership between Google, Citi, MasterCard, Sprint and First Data.

Google is promoting the app with a $10 free bonus to users who sign up before the end of the year.

The app’s use of the near field communications chip embedded in mobile phones will enable sending offers from merchants, which in turn will drive in-store traffic.

“The tight integration of offers with purchase via NFC is slick and has a good chance of being successful,” Mr. Sievers said.

“I don’t think the economics around interchange will adjust at all, so for the merchants it’s all about new, highly qualified traffic.”

Google Wallet could also impact merchant’s loyalty programs.

The enrollment rate for loyalty programs could reach up to 70 percent thanks to NFC-enabled mobile wallets such as Google Wallet, per Matt Wise, CEO of ePrize, Pleasant Ridge, MI.

EPrize runs promotions for merchants encouraging mobile users to check-in, with the goal of giving retailers a way to reach mobile users and ask them to join their loyalty program.

However, when consumers use a mobile wallet to conduct a transaction, retailers are likely to significantly boost their efforts to enroll mobile users in loyalty programs.

“Whoever it is that is able to master NFC, we see the technology as transformative because you close the loop on the transaction with someone,” Mr. Wise said.

“The adoption rate on that will be much higher than trying to pull someone off the street,” he said.

“If you are paying with your phone, you already have the phone out so the barrier to converting someone is radically lower.”

Many choices for merchants
Achieving the right mix of available phones, interested cardholders, merchants and ease-of-use is one of the big hurdles that all of the players in the mobile payments space are trying to tackle.

However, Google has an advantage because of how big it is.

“Unlike many small start-ups, Google is capitalized to aggressively pursue these types of opportunities,” Mr. Sievers said.

This fragmentation does present challenges for merchants, who may have to adopt a variety of mobile payments offerings in order to meet as many consumers’ needs as possible.

“Even if Google expands the devices supported, businesses are going to be challenged to support Google Wallet payments,” said Raj Koneru, CEO of Kony, Orlando, FL.

“The point-of-sale infrastructure just isn’t there right now, and the competition from other mobile payment technologies is still strong,” he said.

“As such, there continue to be hurdles to Google Wallet’s widespread adoption, forcing companies to embrace the full suite of mobile payments on the market – from bar codes, to pin payment, to the NFC technologies being considered by groups like ISIS.”

There are security and privacy issues here as well, which is an area that has Google has taken some heat in recently. 

A recent survey by mobile content and mobile commerce trade associate MEF found that 26 percent of consumers identified a lack of trust in security as a reason for not making purchases more often on their mobile phones.

“We see the launch of Google Wallet as a significant step forward in the hugely expanding North American and global mcommerce marketplace,” says Gary Schwartz, MEF North America chair and CEO of Impact Mobile, Toronto, Canada. “Google’s product brings awareness to the viability of mobile payments across a wide audience of consumers and merchants.”

Final Take
Chantal Tode is associate editor on Mobile Commerce Daily, New York