Yesterday, I gave my thoughts on what PayPal had going for it in its race to win or at least get bronze in the mobile transaction platform race. Here’s my take on Google.
Consumers: There are a couple of important things to look at here. First, Google is the largest search engine on the planet, has ~200 million email accounts and the largest share of smartphone operating systems. So, Google brings a ton of assets to the mobile payments starting line. Second, their launch partner is Citibank and Citi’s MasterCard credit product. Citi is the 4th largest credit card issuer in the United States and made news recently when they literally flooded the post office with millions of credit card solicitations. Clearly, they are looking to move up the ladder. At the jump, they also bring a decent number of consumers to the party. Third, their launch partner is MasterCard, and their PayPass infrastructure that gets them acceptance right out of the gate at those merchants. Fourth, for the solution to work at least for now, it has to be via an app that is accessed via a Sprint Nexus S phone, which sort of narrows the funnel and a lot. Sprint in the United States actually has a decent share of the Android OS market, so the addressable market could be OK. But at least at the outset, the number of the people running around with Google Wallets will be small, and until the app is available with other carriers/handsets, it will likely have trouble igniting.
Merchants: Google has millions of merchant relationships today via their online advertising platform. Clearly, they will leverage that asset as best they can. Their card network and issuer channel partners, though, provide powerful access to merchant relationships, too. As mentioned, since they are leveraging MasterCard’s PayPass technology, there are more than 140k merchant locations that accept the Google Wallet today. And they are really good merchants, too – drug stores, department stores, restaurants, clothing stores, etc. That, however, is but a pin dot of merchants in the United States today – like 1 percent of them. Merchant acquisition moving forward, then, becomes a little more complicated, since saying yes to Google Wallet also means saying yes to buying and installing new POS gear.
Preferred/accepted tender type: Google has embraced an open platform and wants to enable all cards in an effort to make their solution more scalable more quickly, given the ubiquity of Visa and MasterCard acceptance on both the consumer and merchant side. MasterCard/Citi is already on board. Visa just announced that they have signed on, so it stands to reason that other issuers will fall into place very soon. That is a big advantage, since it does not require anything more of the consumer than stuffing her electronic wallet with account numbers that already exist in her leather one and that she uses today at all of her favorite merchants. That is a big plus – technology issues notwithstanding.
Technology and ramp time: This is where it gets tricky. As mentioned, there are 144k locations today where Google Wallets can be used. Another 180k will come online soon. Visa’s announcement of the Google Wallet partnership will bring on all of its payWave locations too, upping the ante slightly. But there has to be much more than that to get to critical mass on both the consumer and merchant side. Yes, Google is said to be subsidizing installation, and yes, Visa has suggested that it will also create an incentive scheme to drive installation of NFC-enabled terminals as part of their EMV initiative, but that will take time. I simply don’t believe recent analysts forecasts of a 50 percent penetration of NFC terminals by 2014, unless I missed the bullet point in the President’s latest stimulus plan about subsidizing merchant terminal installation. <jk> That means that, as I written many times, the biggest risk to this entire scheme is the end-run that IP-enabled solutions, like what PayPal, Starbucks and others still in stealth mode are devising that make for a great consumer experience without the technology hassles.
Value Add: Google Wallet will support Google Offers, which is the Groupon-killer that Google is launching full-on. Offers is enabled in a number of ways and linked to Places, which will certainly include primo offers from the collection of players that Google is buying to support these propositions, like Zagat. The Offers proposition for merchants is pretty compelling too and makes the business model that Google is putting forward both interesting and attractive: no transaction fees, plus I’ll drive traffic to your storefront.
Bottom Line: Google is a serious, well-funded player in the mobile payments space. They have assembled a bunch of powerful channel partners who bring consumers and accepted payment types – that is a big advantage over PayPal. Their digital wallet enables the existing accounts that people have in their physical wallets today. Their big Achilles heel is the current technology platform. NFC introduces a lot of moving parts: (a) handset manufactures and manufacturing cycles, (b) POS systems and refresh cycles and (c) operators and their business models. Google’s acquisition of Motorola makes them less dependent on (a) in the long run, their deep pockets presumably less hamstrung by (b) but nothing gets them away from (c), at least for now. They also have to persuade consumers to install the app (and likely buy the phones or switch carriers), which is not impossible but still a hurdle. Of all of the players who could pull off an NFC solution, I believe they can be the one, given the assets that they bring to this space. But it is still a slog, and their big risk is the (by comparison) easier lift associated with enabling mobile payments via an IP-enabled solution.
Karen Webster is the CEO of Market Platform Dynamics (MPD), a consulting firm that helps companies find, implement and monetize innovation. She serves as an advisor and member of the board for a number of companies operating in the payment, technology and digital media industries. More info here.