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Secure Transactions News

Google starts its wallet

Thursday 2 June 2011


Stephanie Tilenius, Google VP of Commerce and Payments said “we’re making a big bet on it as a company. There is a lot of potential there”. She added "2011 and beyond will be the age of 'molo' - mobile local commerce".

Google Wallet is currently in a field test and will be available to consumers this summer. Google, Citi, MasterCard, First Data and Sprint introduced Google Wallet and invited additional issuing banks, payment networks, mobile carriers, handset manufacturers, point of sale systems companies and merchants to join the initiative. Google’s intention is that Google Wallet will be an open mobile wallet holding all the cards and coupons you keep in your leather wallet today.

“E-commerce is still only 8% of total retail,” added Stephanie Tilenius. “This means 92% happens in the physical world. With smartphones, geo-location and NFC technology, we're about to embark on a new era of commerce, where we bring online and offline together.”

At commercial launch, Google Wallet will support payments with two payment solutions: a PayPass eligible Citi MasterCard and a virtual Google Prepaid card. Most people who already have a PayPass eligible Citi MasterCard can simply add it to Google Wallet over the air, using First Data's trusted service manager (TSM) service. Or, they can fund the Google Prepaid card with any payment card.

Google Wallet uses Near Field Communication (NFC) to make secure payments fast and convenient by simply tapping the phone on any PayPass-enabled terminal at checkout. Google Wallet will require an app-specific PIN and in the first release, all payment card credentials will be encrypted and stored on the Secure Element, which is separate from the Android device memory and is only accessible by authorized programs.

Google Wallet is built to work with the MasterCard PayPass network—a merchant point of sale service that enables consumers to tap to pay. As a result, Google Wallet will immediately be accepted at more than 124,000 PayPass-enabled merchants in the USA, and more than 311,000 globally.

Google is also working with point of sale systems companies and top retail brands to create a new SingleTap shopping experience. Consumers will be able to pay for an item using a credit card or gift card, redeem promotions and earn loyalty points—all with a single tap of their Google Wallet. Google is working with VeriFone, Hypercom, Ingenico, ViVOtech and others to develop these new point of sale systems. According to sources, Google considers subsidizing terminals for points of sales.

Retailers participating in the new SingleTap experience include: American Eagle Outfitters, Bloomingdale's, Champs Sports, The Container Store, Duane Reade, Einstein Bros. Bagels, Foot Locker, Guess, Jamba Juice, Macy's, Noah's Bagels, Peet's Coffee & Tea, RadioShack, Subway, Toys"R"Us and Walgreens.

Starting now, the first Google Wallet field tests are focused in New York and San Francisco, where many retailers, Coca-Cola vending machines and even taxis are PayPass-enabled, including major outlets such as CVS, Jack in the Box, Sports Authority and Sunoco. First Data is actively recruiting thousands of new merchants in these areas and will soon expand those efforts to deploy more contactless merchant terminals across the country.

Google has also been testing a variety of consumer deals that can range from a 20%  discount on a new pair of boots discovered on a Google search advertisement; to a US$ 5 (EUR 3.50) off check-in offer received upon entering a store; to a "deal of the day" offering a US$ 20 (EUR 13.90) lunch for US$ 10 (EUR 6.95) at a local restaurant. Whenever you buy or save an offer, you will be able to automatically sync it to Google Wallet.

The first release of Google Wallet is expected to be released on the Nexus S 4G on the Sprint network. Sprint is estimated to have around 11% marketshare in the US. Additional devices with NFC capabilities will follow. For non-NFC phones, Google is offering an NFC sticker that can be connected to a credit card and communicate with the virtual wallet app through the cloud. Google mentioned that Google Wallet would not function if a phone's battery is dead.

In the Nexus S, the Secure Element, delivered by NXP, is on a chip embedded in the mobile phone during manufacturing. Google does not state a definitive position on where the Secure Element is to be. Other options exist, for instance, Isis, as an emanation of mobile operators considers the only right location for the Secure Element is within the SIM card. Another alternative, is to have the Secure Element in the form of a SD card, as Tyfone or a few others are doing. Most analysts anticipate the upcoming RIM Blackberry will have a Secure Element built on the mother board at manufacturing stage. Apple has yet to announce anything about NFC. Sprint, which partners with Google for Google wallet, is the only major operator in the US not to take part in Isis.

Google say they are open to adding more partners for each part of the ecosystem. However, the way new partners might be included in the ecosystem remains unclear, especially, as Google wants to keep control over the Secure Element. Also, the relationship between Google and First Data, which plays the role of TSM, might hinder the access to the system for other players.

NXP provides the complete embedded, secure NFC solution for Google Wallet and was instrumental in building this new application with Google. The NXP PN65 NFC mobile transaction solution incorporates the NFC radio controller, the embedded secure element and NFC software in a single device.

Google also announced “Google Offers” to bring end users deals on products and services at local or online businesses. Whenever you buy or save a Google Offer, it automatically syncs to your Google Wallet so your offers are always with you. Google Wallet can also store loyalty cards for participating merchants.

Google Offers will begin by providing a 'deal of the day' service but there are plans to expand this to other promotional services over time. As Eric Schmidt, Google CEO, announced earlier this year (cf. Smart Insights Weekly #11-08), Google’s vision is to link advertising with payment. Detailed knowledge of consumers' shopping habits, combined with knowledge of their current location, can be used to identify their likely intention to make a particular type of purchase in the near future and to change their intended purchase from one product or merchant to another.

Payments processing for the Google Prepaid Card and the Citi MasterCard will be conducted through MasterCard's PayPass network. Google will not receive a cut from the transaction revenues. Google, in line with its traditional advertising-based business model, which represents 97% of the company revenue, intend to make money through “Google Offers”, using data gathered from web search and shopping by consumers, using NFC interactivity and other data it collects on shoppers’ locations, buying habits and preferences.

Consumers will be able to store payments cards, offers and loyalty cards in their Google Wallet and view a transaction history.

“In short, Google now has the capability to own location-based advertising with a level of granularity pertaining to consumer behavior that will be virtually impossible for anyone else to replicate”, said Nick Holland, from Yankee Group.

As a reaction to Google wallet announcement, Doug Bergeron, CEO of VeriFone said "If these recent successful trials lead to wide scale deployment across the industry, we expect that our US growth will enjoy an incremental boost of US$ 100 to US$ 150 million (EUR 69 to 104 million) per year over the next several years, and even more than these amounts internationally."

Most reactions have been very positive to Google’s announcement. “The announcement from Google and MasterCard regarding mobile money is the detonator we have been waiting for. The western world has been more than slow in adapting mobile money infrastructures. Infrastructures that pave the way for consumers to easily use their smartphone to pay for every day necessities, i.e. bus tickets, newspapers, grocery, museum tickets, etc. But today’s announcement, the dance of some big elephants, is definitely an important breakthrough for mobile payments. We hope that this could solve the chicken and egg problem where handset providers has been waiting for the demand to come and the market has been waiting for the handsets to create the demand”, said Magnus Rehle, Managing Director Greenwich Consulting, Nordic. However, he notes a challenge is the absence of Apple, and the lack of NFC support in iOS. 85 % of all mobiles sold in some western countries are smartphones and a large part of those are iPhones.

An additional reaction came from Paypal and its parent company eBay, which are suing Google claiming that the internet search giant stole its technology for turning smartphones into digital wallets. In the lawsuit, eBay claimed Google poached two senior executives, Stephanie Tilenius and Osama Bedier, who then recruited other employees from eBay. Those employees used PayPal trade secrets to develop Google digital commerce products, the lawsuit alleges. In particular, eBay alleges that Bedier transferred digital documents outlining PayPal's mobile payment and point-of-sales strategies just days before leaving the company for Google. EBay says those documents were critical to its mobile payments strategy.
 "Bedier has in fact misappropriated PayPal's trade secrets by sharing its mobile payment, point of sale, and digital wallet information with Google," the suit says. Mr. Bedier was hired by Google in January of this year (cf. SIW #11-05).