Meet Apple Pay’s New Old Competitor: Google Wallet

Robert McCarthy, Technical Advisor

There is a war coming to the US, and its battlefield will be the countertops of every merchant grocer and quick-serve restaurant across the nation during the summer of 2015.

Google announced on Monday that they would be signing a new distribution deal with the “Big 3″ carriers in the US, T-Mobile, AT&T and Verizon, after purchasing the assets that remained of the mobile wallet called SoftCard (née ISIS). SoftCard was a joint venture of these same three carriers, and was the fundamental stumbling block to Google competing with Apple Pay in this brave “new” world of NFC mobile payments.

With this latest deal, Google Wallet is poised to be a strong and direct competitive threat to Apple Pay’s staggering growth, provided Google can make the right moves, and that will mean following in the footsteps of Apple with respect to building partnerships, adhering to tokenization standards, and getting the wallet pre-built for distribution.

Even though Google Wallet has been around for four years and has gained about 4 percent of the market share, it never developed the same right-out-of-the-gate momentum as Apple Pay, largely because it did not execute on partnerships the way Apple did. In fact, Google was often seen as a direct threat, rather than a partner, and it showed in their paltry list of supporting partners. Apple spent years prior to its release ensuring foundation merchants, banks, card brands and payment providers were on-board with the product and were willing to put their marketing resources behind it. Google now has some work to do in fixing their partner’s image; they’ll need to mend their somewhat contentious relationship with the ecosystem and growing support amongst card brands and financial institutions in order to be on a level playing field with Apple Pay.

Since 2012, Google Wallet has operated with one virtual hand tied behind its back on account of its difficult relationships with the Big 3 carriers, especially Verizon. In an effort to give competitive advantage to SoftCard, these carriers prevented Google’s Wallet from taking full advantage of the hardware, namely the Secure Element (SE). The SE is the hardware-encrypted device built into mobile phones that enables the secure storage of sensitive information like credit card data. Without access to that SE, Google Wallet was forced to emulate the secure storage in the cloud, using a concept called Host Card Emulation (HCE). While HCE worked, it introduced network dependencies and latency into the payment experience that others, like Apple Pay, did not have. Adding to that, Google could not often control their manufacturing partners and the deals they struck with the carriers distributing these devices, which made Google Wallet often appear as an “add-on” solution to the core mobile offering by the manufacturer, and much less like a baked-in, integrated solution.

Apple didn’t experience this same barrier to entry because Apple designs the devices, operating system and core applications, manufactures the hardware (and manages

its own marketplace for the vending of hardware), software and accessories. In short, the entire supply chain of an Apple mobile device is connected or touched by Apple, and therefore Apple has no barriers to making their applications run in the most efficient manner and leveraging the most appropriate hardware to get the job done.

Google, on the other hand, operates in an ecosystem of dependent partners that collectively work to distribute the mobile device. While it defines a blueprint hardware footprint within which the Android OS can run, it allows device manufacturers like Samsung to construct and distribute the mobile devices with a simple license. This means that device manufacturers are free to augment distribution to take advantage of unique hardware features that differentiate each in the marketplace. This also means they’re free to negotiate deals with the carriers for distribution.

And that difference in supply-chain ecosystem and partner relationship management has, to-date, made all the difference in the world with respect to mobile wallet adoption. Apple Pay is one of the fastest growing digital wallet solutions ever with 1.8% of the market share in mere months, and is set to go worldwide in 2015 across multiple verticals, including use in public transport, private access and kiosk vending.

Google Wallet, until now, has been unable to find that same explosive growth path. But with this latest deal, the massive barrier to accessing the Secure Element, and in turn, the consumer’s sensitive card data appears to be eliminated.

In order to truly compete and win against Apple Pay, Google must now:

Modify the Google Wallet payment process to incorporate the SE and leverage the tokenization scheme defined in EMVco’s “EMV Payment Tokenisation Specification”Determine how to incorporate loyalty seamlessly into the payment processEstablish better partnerships with more banks and card brandsEntice the current SoftCard developer groups and merchants to join the Google Wallet ecosystemWork with hardware manufacturers to pre-build the Google Wallet app into distributions

For merchants, preparations should be made to expect a deluge of new marketing, loyalty and sales programs and incentives to come from both wallet providers as they battle for shares of the market. If Apple Pay is already accepted, no change will likely be needed to accept Google Wallet. If, instead, there is no NFC solution yet, now is the time to connect with the payment provider and POS vendor to explore the cost of upgrading to an EMV- and NFC-compliant solution.

(Image source: googlecommerce.blogspot.com)