Google’s lofty mobile payments goals face significant threat from retailers
Google continues to move away from near-field-communication with a bigger bet on a cloud-based system that makes mobile payments accessible to more marketers even though retailers are still skeptical on the Internet giant’s intentions.
Ariel Bardi, head of payments at Google, Mountain View, CA, discussed how the manufacturer plans to stay ahead in mobile payments earlier this week during a presentation at the Electronic Transactions Association’s Transact 2014 show. Google Wallet originally made a big bet on near-field-communications when it launched in 2011, but will now leverage host car emulation — or HCE — to store credit card credentials versus accessing the secure elements found in SIM cards.
“With well over 90 percent of revenues derived from advertising related activities, savvy merchants are well aware of Google’s intentions — it’s after data,” said Jordan McKee, analyst for Yankee Group, Boston.
“Larger merchants, and especially tier one merchants, want Google nowhere near their transaction data,” he said. “They also view Google as a social intermediary, an entity that is coming in between their brand and the customer. The fear is that brand engagement will be diluted.
“However, merchants should not completely disregard third-party payment applications such as Google Wallet. While merchant-branded payment apps are great for already loyal customers, an app like Google Wallet can help bring in new customers.”
In addition to the low adoption of NFC-enabled mobile devices, Google’s move towards cloud-based systems is also a cheaper alternative for retailers.
NFC has taken a number of blows in the past year from retailers, most recently with early adopters Best Buy and 7-Eleven choosing to shut it down (see story).
Both 7-Eleven and Best Buy are involved in the joint venture mobile payment service Merchant Customer Exchange that includes numerous participations from big retailers including Target, Walmart, Kohls and Gap. The mobile payment service has not announced a launch date, but the system is believed to include white-label services that let marketers add mobile payment and wallet features to their own branded apps.
Similarly, Isis has failed to attract a lot of retailer interest because the technology relies on NFC.
To tackle the issues with NFC, Google is leveraging the HCE technology that is already available in devices with its current Android 4.4 operating system in hopes of attracting new users and application developers.
Specifically, the cloud-based features of Google Wallet could be compelling at winning over marketers and consumers with the ability to access payment information on any device.
“Moving to HCE gives Google a bit more flexibility since it makes NFC no longer mobile carrier-dependent,” said Drew Sievers, former CEO at mFoundry and now founding partner at fintech investor Operative Capital.
“With the card networks like MasterCard publicly supporting HCE, there is a greater opportunity for NFC to see more widespread adoption,” he said. “Of course without Apple supporting NFC, you still have the fragmentation issue that will slow the ultimate growth of a universal mobile payment approach.”
Despite the promise of a universal mobile payment and wallet the past few years, mobile payments continue to crawl in terms of adoption and scale.
A number of other retailers, including Express, Starbucks and Wendy’s, are choosing to develop their own branded mobile payment apps as an alternative to waiting for the momentum around mobile payments to grow.
To lure in more retailers and marketers, Google Wallet could position mobile wallets and payments to integrate with other customer service options, such as in-store pickup, according to Wilson Kerr, vice president of business development and sales at Unbound Commerce, Boston.
“Google needs to get past the in-store POS integration barriers that have long stymied mobile wallet adoption, at the retail checkout calendar,” Mr. Kerr said. “It’s a safe bet that the path of least resistance here is to partner with retailers and dominate online mobile wallet checkout, and then hope that this filters down to the in-store experience.”
In addition to customer service, integrating loyalty and other types of value into mobile payments is becoming a bigger issue for retailers that Google needs to address.
“The biggest challenge for any mobile payment provider is balancing enough value for the consumer and the merchant while leaving a small profit for the provider,” said Peter Olynick, card and payments practice lead at Carlisle & Gallagher, Charlotte, NC.
“Google needs to improvement merchant acceptance either by improving the value to the merchant or decreasing the cost of adoption,” he said.
Although not all retailers will want to align their strategies with Google, the Internet giant does have two factors working in its favor: Brand recognition and a solid user base.
This could be particularly appealing for smaller merchants looking to attract new consumers.
“Google’s biggest challenge is going to be the same challenge all mobile payment providers are facing, which is user adoption,” said Nathalie Reinelt, San Francisco-based analyst at Aite Group.
“First, all existing Android users will need to upgrade their software to Android 4.4 in order for the HCE technology to work and second, they will need to find value in using Google Wallet for in-store transactions beyond merely payments,” she said.
“That said, Google has both brand recognition and a large existing user base that it can capitalize on, which puts them at a distinct advantage over smaller mobile payment players who are growing organically.”
Lauren Johnson is associate reporter on Mobile Commerce Daily, New York