Google may have unveiled a digital wallet, but it's not your money they care about. It's your data.
The Internet giant announced plans to roll out the Google Wallet this summer, a mobile app that allows users to swipe their phones at the register using near-field communication (NFC) technology, instead of carrying a credit card. Google has partnered with Citibank, Mastercard, First Data, Sprint and certain retailers to back up the product, making it the first digital wallet to launch with such a comprehensive collection of partnerships.
But analysts say despite Google's speed in getting its product to market and the range of its partnerships, the digital wallet space is still too young to proclaim Google the definitive victor, especially given that the Google Wallet will work on only one phone, with one credit card, from one bank, for a handful of retailers.
And it may not even be competitors in the payment space that truly have cause for concern, but rather the other Internet companies looking to tap into the consumer data Google now has special access to.
"They have some very significant challenges ahead of them," said Rick Oglesby, senior analyst at the Aite Group, a financial research and consulting firm. "There are a tremendous number of players in the space. Google's hitting the ground first. They have a big first mover advantage, but they have to work hard to continue the momentum."
Experts say that Google's approach to its Google Wallet sticks with traditional payments methods: It relies on users' existing credit cards and uses the infrastructure that has been in place for years. By partnering with the companies that manage payments at every level--the banks that issue cards, the card companies, the companies behind cash register technologies, the security management for the card data--Google makes it clear that it's not trying to displace traditional financial institutions or ways of paying. Google won't be taking a cut of transaction fees, leaving credit card companies' revenue untapped.
Instead, Google Wallet targets at other companies aiming to provide their own digital wallet systems. The field is already crowded with players ranging from credit card company Visa to upstart startup Square to wireless-carrier effort ISIS. Though not yet official, it's also been rumored that Apple's next iPhone will have near field communication.
"Moving data back and forth to effect a payment -- they're not going to try and worry about that," said Oglesby. "What they're also trying to do, what all these providers are trying to do, is this new business component: providing a wallet."
Though the Google Wallet is the most complete iteration of a digital wallet to hit the market, its limitations mean that for ordinary people, it won't make much of a splash.
"I would say from a consumer perspective this isn't terribly significant," said Oglesby. "But for the payment business it's very significant. It's someone getting on the ground and taking NFC and saying, 'I'm going to make it work today.'"
Analysts say the ultimate benefit Google gains from controlling such mobile wallet technology may have very little to do with the payments space. Through the Wallet, Google could gather huge amounts of customer data keyed to local actions and mobile use, a hugely valuable set of data that everyone on the web is working to get their hands on.
"The competition will be with the coupons and the targeted offers," said Aaron McPherson, a practice analyst at IDC Financial Insights, a financial technology research firm. "Because that's where you have to get customer information -- that's the holy grail."
Google could use its access to customers to drive the successful deployment of its Google Offers, the system of local deals and discounts tied to the Wallet. By serving up these special offers at the time people plan to spend money, specified to the place they are shopping, Google will have a huge advantage over rival deals sites like Groupon.
"They get very, very granular information pertaining to what you buy, when you buy, and that information is gold," said Nick Holland, senior analyst at the Yankee Group, a tech research firm. "In one fell swoop they have trumped anything from Foursquare or Groupon. Now Google owns location-based advertising in the physical world."
While Visa has announced plans to utilize NFC in the future in conjunction with its own digital wallet, and wireless-carrier backed ISIS has also decided to turn to credit card companies for a mobile wallet service, neither has actually delivered a concrete plan for how they might do so.
Despite the fanfare, Google Wallet will have to work towards widespread customer adoption to achieve success. Though the digital wallet may appeal in a futuristic way, it's not clear that it will actually be more convenient than carrying a physical wallet. After all, if your cell phone runs out of battery, there too goes your money.
"When it comes to making payments with your primary credit card in North America, it's really not that difficult. It's not like it's a big challenge for me to take my credit card out and swipe it," said Brad Strothkamp, a principal analyst at Forrester Research, a tech research firm. "Any time we try to get the customer to change habits, there has to be a significant incremental benefit to the customer to essentially change behaviors they've had for 20 years. That is not a small task."
Google and its competitors face the difficulties inherent in forging a path through unexplored territory. It's worth noting that the three major contenders in the field all come from entirely different industries, with Visa as the only company that actually deals in payments as its primary business. Google has managed to sidestep the rest by bringing in the wide cast of operators that control the different aspects of the payment industry, though it remains to be seen if financial companies like Visa, also pursuing mobile payments, will prove to be uncooperative in the future.
Still, experts suggest that competitors might have anywhere from 12 to 18 months to ready their products without falling too far behind, as customer adoption of such technologies will likely be hampered by the lack of NFC enabled phones, small number of participating retailers, and the cooperation of credit cards and banks.
"It's great that they're doing this and it will get everybody moving a little more quickly, but it's not going to take over the world tomorrow," said Oglesby. "It's still going to take some time to play out."
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