– Ask the Industry: Will Google Wallet ignite mobile payments? Share your thoughts here.
Google’s announcement today of its NFC-mobile payments scheme is, with a few exceptions, a real textbook case study in what you need to do if you want to ignite a new payments method. It’s also a real study in contrast of the struggles that others, namely ISIS, have had in trying to pull something similar together. And, as I said in an earlier post [Google Takes on NFC, Will They Crack the Code?] when speculation around Google’s plans was first leaked, their approach to NFC has the best shot of any to make it a reality at merchant points of sale. It also brings full circle the trend we have been talking about for awhile – the blending of online and offline environments. That said, hurdles remain. Now that we know more, here is my take on Google’s plan to tap and go their way to the top of the mobile payments ladder.
Google has an ignition strategy
Every new venture has to have an ignition plan, and most of the new payment schemes, never mind mobile payment schemes, simply don’t. An ignition strategy in payments has to get a new scheme to critical mass and fast enough to prevent the scheme from imploding. The longer it takes to get to critical mass, the less likely it is that it will ignite and the more likely it is that an alternative will surface that steals the customers. Ignition is often talked about as cracking the “chicken and egg” problems inherent in two- or multi-sided markets. In truth, it is more about being able to have the chickens and eggs show up at the same time, and our empirical work in this area suggests that there is a very short list of strategies that will actually make that happen successfully.
In payments, the chickens and the eggs are consumers and merchants, and you need them both. Google leveraged a number of assets that creates an environment for the chickens to show up at about the same time in a very important place – the merchant’s doorstep.
– It is leveraging its Android operating system. Android has more than 50 percent (53 percent to be exact, according to NPD) share of the “discretionary” smartphone market – that is to say, those consumers who buy smartphones and don’t have them given to them by their corporate IT departments. And this share is growing, while others, including Apple’s, are declining. When taking enterprise numbers into consideration, the market share is more than a third. No matter how you cut it, that’s a lot of people with devices that are capable of leveraging their new payments scheme.
– It is leveraging a partner with customers that have existing payment accounts. MasterCard, as its launch partner, provides it with access to its hundreds of millions of consumers with debit and credit cards who can easily and quickly populate their mobile wallet with the (Master) card of their choice.
– It is leveraging existing NFC-enabled merchant locations. With MasterCard, Google gets a two-fer – cardholders and merchants that don’t need anything more than an “open for Google business” sign to take advantage of this new scheme.
– It is leveraging its massive advertising platform. Groupon, Scmoupon. Why spend $6 billion when you can just turn on your advertising platform spigot and power deals of the day to those merchant locations who accept NFC? If you can’t buy them, beat them. As Charlie Sheen would say, “winning!”
Now, the flip side of this is that the mobile carrier that they chose to launch with is Sprint, and with their 4G product. I know, I know, despite those compelling Dan Hesse commercials, Sprint is still not exactly hockey-sticking its way to the mobile market share hall of fame with their 11 percent market share (US). But it surprisingly has about 25 percent of the Android market, according to several analyst reports that I saw and was probably a heck of a lot easier (maybe more motivated?) for Google to deal with then T-Mobile/AT&T and Verizon Wireless (who are all a little preoccupied with ISIS these days – more on that later). But, the intersection of Sprint 4G, MasterCard customers and MasterCard PayPass merchants does not an explosive launch make. MasterCard PayPass has a little less than 144,000 merchant locations – not to be confused with merchants – so when divided by the total number of merchants in the United States – roughly 6 million, is still a pretty small universe. That said, this still provides them a really interesting test and learn environment to launch, evolve and scale.
Google’s wallet is open for business in more ways than one
Speaking of scaling, Google has decided to take a very open approach to their mobile payments platform. Although MasterCard is their first card partner, it suggests that more will follow. Consumers can use their credit and debit cards – so the cards they have in their leather wallets and like to use today. Now that’s not to say that Google won’t over time, move people (just like PayPal did) to ACH, but they decided against imposing that barrier to consumer adoption at the outset and opted to support the form of payment that consumers use today and are most comfortable with. And, if debit card interchange fees plummet, moving people to debit, but offering them incentives to use debit cards may not only be a cheaper and better alternative to ACH but a good way for MasterCard to increase its share of the debit market. [You see there are ignition strategies all over the place here…]
Taking a page out of PayPal’s play book, Google also suggests that they are open to a variety of applications and other enhancements driven by third-party developers who will develop ways to enrich the consumer and merchant experience. Andriod’s app store – and now this new mCommerce platform – provides both the marketplace in which those apps will reside and the incentive/motivation for entrepreneurs to develop new applications that this platform will make available to merchants and consumers.
Google has a business model and a value proposition for merchants and consumers
Mobile NFC has struggled with a business model since the day it was first talked about. As I mentioned earlier, Google has eliminated two obstacles that have always prevented NFC from taking off: merchant terminal subsidization and hefty transaction revenue share, with the former never even giving the relevant players the opportunity to really negotiate about the latter. Google is both leveraging existing merchant NFC-enabled locations and subsidizing the purchase and installation of new ones – taking that objection right off the table – and taking a page from Visa’s playbook when it wanted merchants to accept PIN debit and subsidized the installation of those terminals.
It also has said, at least for now, that it won’t take a cut of transaction revenues. That is a pretty big deal since most other models (e.g. Apple, Facebook) do or charge merchants a lot to process those payments (e.g. PayPal). Google is able to do this because it can make money the old-fashioned Google way – through advertising revenues, and over time, probably via other interesting revenue schemes tied to customer acquisition and retention, too. At the end of the day, what Google gets is a currency even more valuable than 200 or 300 basis points – information on what people are buying and where they are shopping. That will enable them to add to even more petabytes of rich data to their already massive data warehouse and drive even more offers to consumers and merchants that will just keep their virtuous circle ever-growing and expanding.
As for value propositions, merchants like the notion that more traffic might be headed their way and without the “Groupon tax’ to boot. And we all know how much consumers like a deal.
All of this can’t make ISIS very happy or even the brand-spanking new clearXchange JV. ISIS has been flopping around for awhile trying to solve too many simultaneous equations (new mobile network, new business model, new technology) and lacked even a PowerPoint version of an ignition strategy. It was driven by carriers who wanted to create a closed network, thus requiring too many moving parts built and controlled by this set of players to all come together at the same time and no value proposition for anyone other than themselves. Their Salt Lake City coming out party in mid-2012 now really seems like the mobile payments equivalent of opening in the Catskills (anyone out there old enough to know what that means?).
As for clearXchange, that one seems lacking an ignition strategy, too. Okay, so now millions of consumers can send money to each other more easily. That does not a mobile payments ignition strategy make. Now, granted, the idea that I can do that using my e-mail address or mobile phone number is sort of cool, but not novel – others have similar functionality now. PayPal has both shown us how hard it is to make a living when all you do is P2P money transfer, but also how hard it is to get merchants to adopt a new payments system, in spite of having millions of active account holders. I suppose it remains to be seen how this evolves, but the lack of media hoopla about this announcement suggests that no one is really all that worried about it just yet.
I was musing about something the other day. Too much of the innovation that we see in every sector, especially payments, is what I call “pack-innovation.” Company A does something pink, Company B does the exact same thing in blue. Company C follows suit but in yellow. It is as if the entire ecosystem jumps on whatever bandwagon a larger company or perceived market leader hitches up. The result is a commodization of whatever that something is and/or a total abject rejection of it by the relevant stakeholders. That is the way it was with NFC in payments for a long time – the same solutions from different players fueled by analyst predictions of market share explosion. Google’s venture into mobile NFC is differentiated, in part because it has a lot of assets to leverage, but also because it was pretty level-headed about what it could bite off and chew and how value had to be created in order to get to first base (hint: moving beyond seeing the phone as simply a card substitute). Plus its management knows how hard it is to launch new payments schemes. (Stephanie Tilenius is ex-PayPal, and Google’s Checkout did not really set the world on fire). It will be interesting to watch how this venture evolves, which partnerships are next and how the merchant community responds. Oh, and how many other pack-innovators follow
Karen Webster is the President 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.