Google Wallet makeover leaves merchants with yet another mobile payments choice to make

Google Wallet makeover leaves merchants with yet another mobile payments choice to make

The payments industry has been abuzz with Google's release of a new, cloud-based version of its Google Wallet app. By moving to the cloud, the slow-to-catch-on app will, for the first time, support all credit and debit cards from the major issuers -- Visa, MasterCard, American Express and Discover.

Google touts its digital wallet as a time-saver and wallet-replacer for shoppers. Yet merchants are faced with questions about updating equipment -- and questions about how exactly Google Wallet payments will be processed.

How the new version of Google Wallet works
With the new setup, consumers can link their credit cards via the Google Wallet smartphone app to a virtual MasterCard -- which is automatically issued when a user sets up Google Wallet. Instead of swiping a card, customers can tap the phone on the payment terminal to complete a transaction. Google Wallet boasts a list of 25 participating national retailers, including Macy's, Old Navy, Subway, The Container Store and American Eagle.

Google Wallet's expansion doesn't just open its virtual billfold to new credit and debit cards (and consumers who carry those cards). Some experts believe it could also push open the door (if only another inch or two) to widespread mobile payment adoption and acceptance. Technology blog Gizmodo, which refers to Google Wallet as "the future of money," envisions a "theoretical" future in which Google Wallet transactions are effortless.

Complications and barriers
Right now, however, Google Wallet transactions aren't quite effortless for businesses.

One of the significant barriers, if not the barrier, in merchant adoption of Google Wallet seems to be its choice of technology - namely near field communications (NFC). NFC is a wireless, secure connection that transmits payment information to the merchant. Although many believe NFC could be the wave of the cashless future, others have reject it outright - including retail giant Walmart, which has questioned NFC's longevity and the cost-effectiveness of updating its equipment.

If and when NFC technology does catch on, merchants who want to compete will be expected to complete expensive equipment upgrades. As Mercator Advisory Group's EMV Essentials for the U.S. Merchant research brief states, "Every POS terminal and every ATM's card acceptance sub-system will require either replacement or enhancement."

Another wrinkle -- the logistics of payments processing. Although customers think they're using their Discover, Visa or AmEx cards, the payment is actually being processed via the virtual MasterCard that links those cards to Google Wallet. Via lawsuit settlements with Visa and MasterCard, merchants recently gained the right to offer customers discounts for using certain card networks with lower swipe fees. If a customer insists on using her Visa to take advantage of a discount and then takes out her phone to pay with Google wallet, that could present a problem.

These payment processing complexities appear to be why American Express wasted no time in saying it's not necessarily on board with Google Wallet. As TechCrunch explains, Google Wallet essentially leaves AmEx flying blind by filtering payments through MasterCard. If a customer uses Google Wallet to pay with an AmEx card, AmEx won't be able to see the purchase and merchant data it would normally see when a customer use its cards -- info it uses to learn about its cardholders and improve its business. For the time being, cardholders can link AmEx cards to Google Wallet. Yet AmEx would have the ability to yank its cards from Google Wallet at any time if it doesn't reach an agreement with Google.

In an e-mail to CNET, American Express' Vice President of Social Media Communications Brad Minor said, "We want to make sure Google's mobile wallet product meets the standards we set for our card members in terms of the transparency and clarity about transaction detail."

A game-changer on the horizon?
For many merchants, the increased flexibility of Google Wallet adds to a dilemma they already have -- which type of mobile payments should they throw their limited resources behind? NFC?  Or GPS-based applications like Square? Each has different technology requirements, costs and compatibility issues. Should a merchant, for example, go with Google Wallet (which only works on some Android handsets) -- or a GPS-based application that would be usable for customers with nearly any smartphone?

There's been speculation that Apple's highly anticipated iPhone 5 - expected to be released later in 2012 -- will include an integrated NFC chip and antenna. If it does, it could be a game-changer for NFC adoption -- and make the technology a clear front-runner for merchants and customers alike.

"If Apple gets NFC in smartphones right -- something that Google hasn't managed to do with Android -- then it could be the biggest thing to hit smartphones since apps, and the industry as a whole needs to be ready to take advantage of the opportunities it will present," wrote technology author Adrian Kingsley-Hughes, in a column for technology news website ZDNet.

In the meantime, however, merchants are left with a guessing game as Google Wallet -- and the growing crowd of other mobile payment applications -- compete for mainstream acceptance.

See related: What merchants need to know about the Senate's mobile payments hearing, Will consumers reject mobile payments?

Published: August 10,2023