With Android Pay's arrival, battlefield lines have been drawn
Another year has come and gone and with it comes another attempt by Google to unlock the winning mobile payments formula. Having a competitive mobile wallet is important to the search engine giant's grand plans because of a mobile wallet's ability to grease its e-commerce proposition with app developers and marketers alike.
A road traveled before
When its Google Wallet product was announced in May 2011, it was hyped as a service that could jump start NFC mobile payments across the U.S. Nevertheless, it floundered as it was dogged by security concerns and too many caveats for consumer adoption. When it was launched in September 2011, an interested consumer would have needed a Samsung Nexus S 4G on the Sprint network, as well as Citi-branded financial card on the MasterCard network to have even tried the product. Perhaps, most importantly it turned off merchants who feared what Google might do with the purchase data it collected. Over time, the Google Wallet strategy has evolved to the point that it will now be used only for Play Store purchases and peer-to-peer payments.
Android Pay, which Google announced last Thursday, is the encore attempt by Google to penetrate bricks-and-mortar stores with a mobile payments product. In many ways, this product has the look and feel of its fellow tech titans aspiring mobile payments products, including Apple Pay and Samsung Pay. Like the others, Android Pay will leverage NFC technology and will support fingerprint readers that will enable users to authenticate payments at the checkout with just a touch of a finger once the new version of Android is released this summer. This system will enable bricks-and-mortar merchants to accept mobile payments in store from participating consumers. In addition, online merchants can leverage an Android Pay API to embed the payments system directly into their mobile apps.
Android Pay's competitive positioning
This new offering from Google is truly the counterpart to Apple's Apple Pay system, which has gained so much press in recent months that those outside the payments industry may mistaken the Cupertino tech titan for being the inventor of mobile payments rather than just another participant. Both use similar technology to execute the payment and eventually consumers of both will be able to execute payments with just a fingerprint. Both have the support of the major payment networks in the US, including, Visa, MasterCard, American Express, as well as card-issuing banks like Chase, Citibank, Capital One and US Bank. Apple Pay has several more card-issuing banks, but undoubtedly Google's roster of bank partners will expand in time. Lastly, both use a somewhat similar security feature that sends a one-time token instead of a 16-digit code to the merchants for payments in order to improve security.
What makes this proposition from Google a bit more attractive and exciting than Apple Pay is its installed base today. Many of the mobile phones running on the Android operating system like those manufactured by Samsung Electronics have come equipped with NFC chips dating back since 2012 or before. Based on Google estimates this means that seven of 10 Android users would be able to use Android Pay at launch, which is far more than what Apple has today given that it has to wait through the natural replacement cycle of its phone models to ensure all of its users have NFC chips. Nevertheless, the reality is these two will likely not be battling for the same user given the stark division between ecosystems.
Confusion in the Android ecosystem
The big battle will be how Android Pay and the soon-to-be launched Samsung Pay will compete for the overlap within their respective user bases. Undoubtedly, these two dueling wallets will lead to mobile wallet confusion in the Android ecosystem for those with a Samsung phone in hand. At the end of the day, consumers have to pick one so they don't end up paying for everything twice.
Like Android Pay and Apple Pay, Samsung Pay will leverage NFC chips to communicate with compatible POS terminals. Unlike both, Samsung Pay acquired technology earlier this year that will enable the new mobile payments system to work with traditional card swipe readers. This technology has relevance in the US market today since it remains a big card swipe market and may also have relevance in the future for transacting gift cards, as well as loyalty and membership cards. Google's potential winning advantage is that it acquired the technology assets from a mobile carrier-led initiative Softcard earlier this year and at the same time struck a deal with AT&T Mobility, Verizon Wireless and T-Mobile USA that would mean its mobile wallets would come preinstalled on Android phones in the U.S.
What remains to be seen — and perhaps the biggest unknown — is how merchants will react to Google's recent announcement. Google has brought more merchants to the table than it did at the launch of Google Wallet, but clearly missing from the roster of clients are those 50 American retail brands that banded together to develop its own platform called CurrentC. The group has been working on plans since it joined forces in August 2012 for the yet-to-be-launch mobile wallet and for the most part have avoided joining the mobile wallets from any of the three tech titans. This merchant group will have say in how the ecosystem eventually develops since together it generates a combined US$1 trillion in payments annually. Google knows first hand that gaining merchant acceptance is critical to the success of any mobile wallet. After all, this was the Achilles heel for the Google Wallet.
Michelle Evans Michelle Evans has covered mobile payments at Euromonitor International since 2010. In her current role as Digital Consumer Manager, she follows the technological advances that are forever altering commerce. Her expertise includes mobile pay, mobile apps, e-commerce, m-commerce and mobile marketing. She is a recognized industry expert and was named to Innotribe’s Power Women in FinTech Index in 2015. www