Two Google employees closely associated with its Google Wallet initiative have recently either left the company or moved on to other projects in a possible reflection of the challenges that Google is facing in the mobile payments space.

Google’s head of consumer payments Vikas Gupta has resigned while vice president of Commerce Stephanie Tilenus, who played a key role in the roll out of Google Wallet last year, has been moved to a more global role, according to recent reports. The news comes at a time when competition in the mobile payments space is heating up from PayPal and other solutions that are cloud-based as opposed to Google’s NFC-enabled mobile wallet.

“From my discussions with merchants, banks, and consumers, Google Wallet is not lighting the world on fire,” said Drew Sievers, CEO of mFoundry, Larkspur, CA.

“Mobile payments are hard and trying to sign merchants while simultaneously attracting customers and banks is really an ocean boiling exercise,” he said.

“I think that Google is finding out first hand just how difficult, expensive, and time consuming it will be to create a paradigm shift in payments to Google’s NFC-oriented solution.

Google did not respond to a request for comment by the press deadline.

Uphill struggle
One of the Google’s challenges in the mobile payments space is the limited nature of its offering.

The Google Wallet app officially launched in September for Samsung Nexus S 4G phones and is currently available at retailers such as Gap and Toys R Us.

“I think Google is up against something of a brick wall in terms of scaling Google Wallet,” said Nick Holland, senior analyst at Yankee Group, Boston.

“Google probably really needs to rethinks what they need do to here,” he said.

“They have one handset and one mobile operator. It is by no means universal and it is directly in conflict with what Isis is doing, which has the other operators.”

Mr. Holland said that unless Google partners with Isis, something he thinks could happen, or Google Wallet is rolled into a cloud-based solution, it is going to have an uphill struggle.

One of the problems Google is facing in the payments space is that NFC technology is still a few years off before it comes widely recognized and uses.

The question that the market is focused on is when George Costanza’s wallet will become virtual,” said Gary Schwartz, author of The Impulse Economy and CEO of Impact Mobile. “Not soon.

“With mainstream NFC payments in the U.S. four to six years away, companies like Google have acknowledged that they need to focus on winning revenue channels,” he said.

Recently, cloud-based payments solutions such as PayPal is offering are gaining traction. Home Depot and Office Depot are both using PayPal’s new POS terminals that let customers pay by typing in a mobile phone number and a PIN or swiping a PayPal card and entering a PIN.

However, cloud-based POS systems also face a challenge in terms of convincing consumers to use them.

“What would be the incentive for the consumer to putting in their phone number to pay rather than swiping a card,” Yankee Group’s Mr. Holland said.

“Just the payment being conducted via a different form factor is not enough to get the consumer to do it,” he said.

“Traditional POS works pretty well already. These companies are trying to solve for a problem that is not there.”

The incentive for merchants to use the systems is that the transactions are cheaper to process than ones completed via credit or debit card.

There is also growing use of mobile devices by store associates to support a variety of interactions with customers, including completing transactions. Or, mobile devices that let shoppers scan their purchases as they do not have to wait online to check out.

“There are some initiatives that don’t look just at the checkout as the end all and be all,” Mr. Holland said.

Universal commerce
The winners in mobile payments this year are likely to be those that are universally accepted and have real value. This means NFC-based solutions may not be ready for prime time as not a lot of consumers own NFC-enabled phones yet.

“There has been an overemphasis on NFC as the Holy Grail,” Mr. Holland said. “It is a great technology and clearly it is not there yet.”

Cloud-based services, which can be made more widely available, may have the upper hand this year.

“What we are going to see is more universal commerce with a wallet that is accessible in the cloud for online transactions and mobile purchases and then, eventually, via set top boxes and gaming consoles,” Mr. Holland said. “You have a secure wallet that is accessible via whatever portal you are going through.”

“The focus should be less on payments and more on the entire retail experience,” he said. “And mobile can be very important to that.”

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