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Will Softcard deal be enough to save Google Wallet?

While Apple Pay has quickly become the mobile payments platform to beat on iOS, the ongoing leadership void for Android users could be solved by Google’s reported interest in acquiring Softcard.

Neither Google Wallet nor Softcard – previously known as Isis – has set mobile payments on fire, so a potential deal combining their efforts could boost the potential of each. Perhaps most significantly, the deal would likely come with a clause insuring Google Wallet is available on handsets from AT&T, Verizon Wireless and T-Mobile, thereby significantly expanding its availability.

“The Softcard feature set appears to be a better, more integrated solution than the outdated Google offering, but the marginal gain probably isn’t worth the cost to acquire the asset,” said Drew Sievers, founding partner at fintech investor Operative Capital.

“More important is the likely clause in the agreement that would make the Softcard carrier parties — Verizon, AT&T, and T-Mobile — fully supportive distribution partners for Google’s Wallet,” he said. “Historically, this wasn’t the case and, by itself, may be worth the cost of owning Softcard.”

Building a user base
Google Wallet and Softcard both entered the mobile payments space prior to Apple Pay but have suffered low adoption rates for a number of reasons.

Google Wallet has struggled in part because many of the wireless carriers have blocked it from the handsets they sell so as not to undermine Softcard, which is a joint venture of AT&T, Verizon Wireless and T-Mobile.

A deal to acquire Softcard could address this challenge, making Google Wallet available on significantly more Android devices. This, in turn, would encourage more retailers to jump on board and accept Google Wallet.

Softcard has been gaining some traction of late. In the fall, quick-service restaurant chains Subway and McDonald’s signed to accept the payment method.

The company released results in late 2014 that showed Softcard users in Salt Lake City, UT, are three-and-a-half times more likely to engage with offers and four times more likely to use loyalty cards than the national average (see story).

The potential deal also points to the challenges wireless carriers are encountering in mobile payments, which is characterized by a complex business model, sophisticated software development needs and growing competition.

Part of the ecosystem
Still, with mobile payments expected to play a significant role in how consumers complete purchases going forward, the wireless carriers recognize a need to continue to be a part of the ecosystem.

“Most early mobile payment industry players felt that Softcard, aka Isis, was always a losing proposition,” Mr. Sievers said. “Carrier-created software, even without the challenges of a consortium, has always been sub-par when compared to solutions developed by actual software companies.

“It makes sense for the carriers to do what they do best: distribute someone else’s software while taking a toll for access,” he said. “With better distribution on more Android handsets, Google’s Wallet now has a chance to accelerate adoption.”

Google could potentially benefit from Softcard’s learnings and intellectual properties as it looks to build a mobile proximity payment solution that is competitive with Apple Pay.

The deal — if completed — could also reinforce the idea that near-field communications have become the de facto leading solution for driving mobile proximity payments.

Stronger value proposition
For the carriers, while their actual role may be diminished in mobile payments going forward, the partnership could insure that they are still gaining value here.

“[The wireless carriers have] learned a lot, and there’s no indication that their relationship with Google would be anything but strengthened with a move like this,” said Thad Peterson, senior analyst at Aite Group, Atlanta.

“They still have the user base, and if they have Google to help drive the functionality and experience, it could potentially strengthen their value proposition in mobile proximity payments, even though their actual role in the space diminishes,” he said.

Of course, the success of any such partnership will be dependent upon how well the two companies are able to integrate their learnings to produce a superior offering.

“Simply combining two relatively unsuccessful mobile payment schemes doesn’t guarantee a one-plus-one-equals-three type of outcome,” Mr. Sievers said. “The footprint for acceptance won’t radically change, nor will the use case for either wallet.”

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