Friday, May 27, 2011

Google wants to own your Wallet...

Or should it be –How Google will end up owning your wallet? 

Yesterday’s launch of Google Wallet was a watershed moment for the payments industry. Google announced an app that will turn shoppers’ phones into their wallets. Google Wallet enables consumers to store their credit cards, coupons, loyalty and gift cards securely on their phone, so they can pay, redeem offers, and earn loyalty points - all with a single tap on their phone. It is in a field test now and will be available to all consumers this summer. 

But what makes this so unique? - it’s putting the wallet in a single app on your mobile phone

Google Wallet is designed for an open commerce ecosystem. Since Google Wallet is a mobile app, it can do more than a regular wallet ever could, like storing thousands of payment cards, loyalty cards, gift cards, receipts, boarding passes, tickets, and Google Offers. Every offer and loyalty point can be redeemed automatically with a single tap via NFC.  Google Offer is in direct competition to Groupon, and we are likely to hear about launch sometime next week.

Google Wallet is not a simple replacement of an ordinary wallet; it is an example of the ‘Wallet of the Future’. Launched in partnership with MasterCard, First Data, Sprint, and Citi, Google wants to move your money-wallet into your phone. Here is the product launch Video.
Stephanie Tilenius, vice president of commerce at Google, announced at the launch “We are about to embark on a new era of commerce. We believe that 2011 will be the year of mobile local commerce. Just TAP, PAY and SAVE”. She said “The world of commerce is ripe for a new wave, we are on the verge of major shift in payments and therefore commerce. Google is uniquely positioned to bring about this shift and accelerate.” 
To meGoogle Wallet is the perfect coming together of Mobile and Local Commerce. It brings together Merchants, Payments Network, Carriers, banks and other pieces of the ecosystem to make this possible. 

Think of it, there are over 3 billion mobile phones worldwide, and over 40% of the world’s population carries a mobile phone, far more than using a computer or having access to the internet. Mobile Phone is fast emerging as a ‘preferred’ transaction medium. Smartphone sales grew 72% in 2010, and 300 million smartphones were sold in 2010 globally. There are several forces accelerating the pace of customer adoption. Read my earlier post on M-Commerce to understand this better. 

How Various blocs are coming together? 
Study the Google Model carefully, and you will understand the cleverly crafted master-strategy.You will see how the different blocs (refer image) are falling in place in a manner, mutually reinforcing. The Offer and Wallet model allows Google to get extremely valuable customer information, correlated directly to sales in the physical world, and allows to place relevant offers and serendipitous advertisement, when shoppers are in stores, ready to spend money and even more receptive to coupons and other discount offers. 

Currently, Google is not taking any 'cut' from the payments revenue; However Google would make money by selling coupons and advertising that come along with the experience. This isn't Google's first attempt at electronic payments. Google "Checkout”, online payment service launched in 2006, met with limited success.

Evolution of Payments: 
In the past few thousand years, the world of payments has not changed much—from coins to paper money, to plastic cards. Now we’re on the brink of the next big shift. In the Initial phase of e-commerce, it was about leveraging the HTML and web technologies to bring consumer online, very similar to how we shop today. In 1994, it started with Amazon and eBay, and even today continues in a similar manner. But, this is about to change now. 

With smart phones, mapped Geo-locations, and NFC- the online and the offline world are converging. The Payments industry is moving beyond plastic and is fast embracing the digital currency. Smart phones have fundamentally changed how consumers interact with mobile technology. This new centricity is profoundly changing the customer experience. 

This shift and the increasing convergence of Banking, technology and information is creating customer value and new business models. However, this is just an inflection point, the significance of this shift in Mobile Payments and Digital Money will be more apparent with rapid consumer adoption. 

Click to enlarge
Why should a customer be interested? 
Because Google has created a new kind of incentive for people to use -Google Wallet. The new system will be compatible with Google Offers, a Groupon-style deal’s program, credit cards, and store loyalty cards. If you are following the Local and Deal Commerce (aka Groupon, Living Social, etc.) space, you will understand the potential and customer interest.
Over time, consumers will be able to save each of these offers directly to their Google Wallet. That means consumers will get the benefit of carrying their offers with them at all times. 

"Unique because combining Offers, Loyalty, and Payments in an Open Platform."

However, even with strong tailwinds to support the adoption, there are some challenges to overcome: 
  • What about Non-Android phones? If Google Wallet is an open platform, it needs to be cross-platform. How does Google plan to integrate into the larger ecosystem? 
  • Dependency on Mastercard PayPass terminals: Google Wallet only connects to MasterCard PayPass terminals. There are more than 135,000 of those in U.S. stores and restaurants, but that's only a small fraction of the total number. 
  • What about Mobile Carriers other than SPRINT? ; especially when other carriers are planning their own Mobile Wallet. AT&T, Verizon Wireless, and the T-Mobile USA have formed their consortium to create a wallet- ISIS, that will compete with Google's.
  • Competition from other Payments and Card Companies: Visa has also launched a similar initiative, read the blog announcement. It plans to launch a digital wallet product in the U.S. and Canada later this year and already offers a mobile payment program at retailers around the world. Visa has agreements in place with Bank of America, Chase, U.S. Bank and Wells Fargo for mobile payments. 
Benefits to Retailers: 
With the integration of coupons or offers into Google Wallet, Retailers can target customers by providing discounts directly within search ads to check-in offers to offers in Google Places  (Think Ad-sense, FourSquare, GrouponNow, and Facebook Places, etc.).

The integration of offers into Google Wallet will enable merchants to close the loop by directly connecting their online and mobile advertising with offline purchases. Also, Google Wallet provides merchants with targeted foot traffic and a way to engage with customer’s in-store; thus enhancing the customer experience. Check this video: 

So what else happened in Payments space this week? 
Earlier this week, Square, the company founded by Twitter creator Jack Dorsey announced its mobile payment plans. On Monday, Dorsey showed Square’s way of replacing wallets and cash registers without using NFC. 

Using this Square App, instead of NFC, users order and pay with an iPhone application, which stores their credit card information. At checkout, buyers give their name to the cashier, who will need to use an iPad as a register to complete the transaction. This App just might render the cash register and POS terminal useless, but that calls for a separate post some other time.

Also, there are two other stories worth following:
Why is Paypal suing Google Executives?  And Who will win at Mobile Payments Google or Square?

Please do leave your comments and share your views. I look forward to reading them.


Andrew Goleman said...

Good insights!Although Google is well poised to leverage the 'strong tailwinds' and accelerate, I think, the biggest challenge will be in terms of 'shift in customer behavior' and 'security'.

Anonymous said...

Google wallet as well as other wallet apps are no longer the wave of the future. The word is convenience. It's not only easy to use but very convenient! So what's the new gadget and toy that will get our attention?