When Google Wallet launched last month I wrote that it was important but mostly symbolic because of its limited availability. Wallet is only available on the Nexus S (from Sprint) and relies on the availability of NFC-enabled credit card terminals. The NFC technology on which Google Wallet is based requires a physical chip in the phone, effectively requiring that people buy new handsets before it can be used.
While NFC technology can also be embedded in a sticker affixed to the outside of an existing phone, Google Wallet’s full functionality (e.g., simultaneous payment and coupon redemption) wouldn’t be available to “sticker-users.” Google said it’s studying the approach and is currently undecided about whether to distribute these stickers.
We’ll find out tomorrow whether the new iPhone has NFC support. If it does that might quickly expand the reach of Google Wallet — if the company develops an iPhone app. Regardless, future Android devices will have NFC chips. The speed at which Android devices are selling should ensure that many millions of people have NFC-capable phones by next year.
Payment rivals PayPal and Square have both expressed skepticism about the near-term viability of NFC-based payments systems. They argue it requires new consumer behavior and new infrastructure. And I was quite skeptical too. However my experience with Google Wallet has wiped away some of my prior skepticism.
I used Google Wallet last week at a 7-11 store near my house. I didn’t say anything to the clerk. He rang up several items and then I simply held the activated phone up to the terminal, which had a pre-existing NFC card reader. There was a beep, transaction occured and there was nothing for me to swipe or sign. The clerk was impressed and we had a short discussion about it.
I had formerly thought that there was no obvious reason for consumers to use the system; credit cards are simple and familiar. I had assumed there would need to be coupons and deals or other incentives to lure customers into the new world of NFC payments. Google will enable multiple payment cards, loyalty cards and coupons to be stored and accessed within Google Wallet. Those features will certainly encourage adoption.
But the simplicity and efficiency of the transaction convinced me that convenience may be the biggest driver of NFC-based mobile payments. Even the relatively simple steps involved in pulling out a wallet and using a debt card or credit card and signing a receipt seem awkward and cumbersome by comparison.
Beyond the physical handsets, I now think that the biggest “gating factor” for Google Wallet is not new consumer behavior but the availability of the NFC-payments infrastructure. However MasterCard PayPass terminal already exist in more than 300,000 locations globally, including over 100,000 in the US. These include places such as McDonalds, 7-Eleven, CVS, Duane Reade, Home Depot, Best Buy, Sports Authority, Shop-Rite, Foot Locker, BP and others.
In speaking to Google last week I also discovered that Google doesn’t get as much data about the transaction as I thought it did. I was told that Google only sees that a transaction took place and the general location (city level, not store). This means that in the immediate future it won’t provide the “closed loop” analytics data I had previously anticipated. Longer term there will be more data and more precise analytics I’m sure.
Right now there’s a battle among a range of competitors — they include credit card issuers, mobile carriers, PayPal, Google and others — which advocate differing approaches to mobile payments. It’s hard to know whether several mobile payment systems will co-exist or whether there will be a dominant standard that will emerge in the next several years. To some degree it will be a function of the financial and promotional resources put behind the various competing initiatives.
Google correctly sees mobile payments as a long-term effort. And it goes without saying that few companies have the brand strength and the resources to match it.