Google today launched its long talked-about push into mobile payments with the introduction of a new payment platform called Google Wallet based on near field communication (NFC) technology. The company said it will enable tap-and-go wireless payments through NFC-equipped phones and will pair payments with Google Offers to help retailers and merchants strengthen their ties to consumers.
Google said it is partnering with Citibank, Mastercard, Sprint and First Data to enable the digital wallet, which will go into immediate trials in San Francisco and New York, followed by a wider geographic rollout this summer. Executives stressed that the wallet is a first step in helping build momentum for NFC technology and helping create an ecosystem that can build off this platform.
The effort will limited at first because there is only one NFC-enabled Android phone model, the Nexus S, available today. And the only credit card that works is Citibank’s Mastercard, although Google is enabling its own PayPal-like Google Prepaid card that can store payments from other accounts in the wallet. And it will still take the cooperation of merchants, who will need to buy point of sale hardware that can handle Mastercard’s PayPass technology. Currently there are 120,000 merchant locations in the U.S. and 300,000 worldwide that are currently capable of handling Mastercard NFC payments.
But the move should provide a solid boost for NFC technology, which is turning a corner now as more manufacturers, operators, financial companies and others are ramping up efforts to tap the technology for payments and offers. With Google now firmly backing the technology, it can serve as an additional driver in catalyzing this market.
Bringing Offline and Online Together
“We believe the shopping experience hasn’t yet been transformed by technology or offered a truly magical experience,” said Stephanie Tilenius vice president of commerce at Google. “With smartphone technology and NFC we are about to embark on a new era of commerce where we bring offline and online together.”
Here’s how it works: Consumers who have an NFC-enabled Android phone launch the Google Wallet app. They can associate Citibank Mastercard cards for now or load up their Google prepaid card with funds from other accounts. Users can also enter in loyalty card information for retailers and merchants. The app will also work with Google Offers, Google’s daily deal service, so users can load up the offers right on to their phone. They can also transfer discounts offered through Google Shopper online and also by tapping NFC-enabled chips embedded on retailer posters. In the future, the app can store boarding passes, tickets, IDs and keys.
When checking-out for a transaction, users unlock their wallet and tap their phone on a PayPass terminal to pay. With a single tap, a user can also present their loyalty card and also redeem coupons at the same time. Google said it is not taking a cut of the deals or transactions and is just trying to make money off of its own Offers product. But it will be able to use some of the sales data to help target offers for user if they opt in. Google’s new VP of payments Osama Bedier, who was recently lured away from PayPal, said Google is trying to solve the chicken-and-the-egg dilemma with new technology that has no immediate audience by pushing its platform ahead.
“We think we’ve created a compelling model for why NFC should exist in the market,” he said. “This is about creating an open standard and compelling model and value proposition and asking people to join.”
Google spent some time today talking about the security of the application and the technology. The financial information will be placed on a secure chip on the phone that will self destruct if tampered with. Google can wipe financial information from phones remotely in the event a phone is lost. The credentials are encrypted on the phone and payments will not happen unless the app is unlocked using a pin. Users, however, can tap for offers and coupons by just waking up the phone.
Payments Game Still Wide Open
We’ve been talking a while about the potential for NFC. While the technology has a lot of big potential, it’s also going to have to go through a settling out phase as different players figure out how to compete or work together in this area. Three of the four major carriers – AT&T, Verizon and T-Mobile – recently said they are ramping up their own NFC efforts with a project called Isis, and are expanding their partners to include credit card companies and more banks. It’s unclear how successful Google will be in recruiting other carriers to cooperate with Google’s Wallet when they’re still pursuing their own digital wallet model. Visa has also been conducting its own NFC trials and recently announced a digital wallet for payments, which will eventually incorporate NFC. And Google’s version of the Nexus S for T-Mobile customers has the same NFC capabilities, but appears not to be part of this initial rollout.
Mobile handset companies like Nokia and Research in Motion have their own plans for embedding NFC chips in upcoming phones and it’s not quite clear how it will all work together. Tilenius said non-Android phone manufacturers can participate if they give access to their NFC chip or Google Wallet could be enabled on competing platforms through an NFC sticker on the back of a device. Amazon is also said to be looking at its own payment service using NFC. Another major player will likely be Apple, which has been reportedly looking at the technology but has not formally said if it will include NFC chips in future phones.
Google has been very vocal about the benefits of NFC, not just for payments but for an array of uses. The company included NFC support in Android 2.3 (Gingerbread) and has already started testing Google Places stickers with NFC chips in a trial in Portland, OR. Google chairman Eric Schmidt has talked about it as a form of ID as well as an easy way to check-in to a location. Tilenius said Google will work to push out location-based offers to users, which should leverage the work that Google has done in location and maps.
Closing The Loop
And as we’ve discussed before, the biggest payoff will likely being in serving up instant offers and acting as a loyalty card for retailer and merchants. By following a digital ad or offer all the way to point of sale, Google will be able to close the loop and determine the efficacy of these marketing efforts.
Now, the test will be to see how fast it can get merchants on board, which will be key. Google is working with a number of partners including Macy’s, Bloomingdales, American Eagle, Subway, Walgreens, Duane Reade, Radio Shack and others. Retailers will need to buy new hardware to support contactless payments unless they already have the proper equipment. And so it will be important for Google to show how valuable its Wallet and Offers platform can be for retailers beyond simple credit card purchases. Google will also need to convince partners to simplify the check-out process. In a demo, Google’s Bedier, demonstrated a check-out that included signing for the transaction. Those kinds of older security steps undercut the value and speed of tap and pay with NFC.
This is, again, just a start. Google envisions a lot more happening with NFC and tying phones into local purchases. The bigger task will be marketing this whole effort and getting the word out about why people should care, especially when there’s limited opportunities to get involved right away. That doesn’t necessarily play to Google’s marketing strategy, which is more about viral campaigns. But if Google keeps pushing hard on signing up partners and building up the right messaging around this for not only consumers but local merchants, we could see NFC finally start to come to life.