|Google CEO Eric Schmidt says mobile payments is a "mega-scale opportunity."|
NEW YORK ( TheStreet) --Vying against the nation's banks, wireless carriers, credit card companies and a handful of nimble start-ups, Google ( GOOG - Get Report) faces a fresh challenge as it tosses its hat into the mobile payments ring. The search giant is reportedly looking to break into the nascent space where firms like MasterCard ( MA - Get Report), AT&T ( T) and upstarts like Obopay are all seeking a common goal: Enable consumers to purchase goods and services with a mere wave of their smartphone, while looking for a cut of the lucrative transaction fees.
Mobile payments represent a "mega-scale opportunity" for Google, CEO Eric Schmidt said in February at the Mobile World Congress tradeshow in Barcelona. (A Google spokesman declined to comment further on the company's mobile payment plans.) Google is already present in the space via Google Checkout, a service that allows users to pay for goods in the Android marketplace via their cellphones. But a deeper play into the market -- leveraging its search expertise to get closer to small businesses and the advertisers that want to woo them -- could open up new income streams for the search giant, which sees about 90% of its revenue from its core search advertising business. Entering mobile payments could allow advertisers to better target consumers by giving them access to information about what mobile users are buying. It could also let merchants push coupons and loyalty programs to shoppers. "The end game for Google is advertising and the holy grail in advertising is getting at the community level," said Richard Crone, the founder of Crone Consulting, which advises financial institutions, payment networks and phone companies. "Nothing is more local than the point of sale." Google's Role in the Fray While banks and credit card companies want to control the flow of incoming credit and debit card payments from merchants, wireless carriers want to collect fees on the data moving over their networks. Google, on the other hand, sees an opportunity with the retailers, which need a way to accept payment from smartphones. To this end, Google's project involves a partnership with electronics payment company VeriFone ( PAY), which makes terminals that reportedly will be able to accept payments from phones embedded with near field communication (NFC) technology, which lies at the heart of the burgeoning market. NFC is one technology that allows consumers to wirelessly transmit their credit or debit card information to merchants. NFC has the potential to replace cash and other payment methods, say some analysts, and could account for a third of the $1.1 trillion global mobile payments market by 2014, according to IE Market Research.
But while mobile payments have taken off in other parts of the world like Asia, the service isn't likely to go mainstream in the U.S. for another two to three years, said Chris Jones, an analyst with Canalys. Adoption of mobile wallets is somewhat of a chicken-and-egg problem: Consumers won't demand mobile payments until they know enough merchants support them, and merchants won't implement the technology until they receive enough demand, the Federal Reserve Bank of Boston said in a May policy paper. The availability of NFC-enabled smartphones also remains a problem. Samsung's Google Nexus S phone is the only device on the market that contains an NFC chip, although Research In Motion ( RIMM) and Nokia ( NOK) have said they are committed to putting the technology in its phones this year. Rumors have swirled that even Apple ( AAPL) will embed NFC into upcoming iterations of the iPhone. Apple didn't respond to TheStreet's requests for comment on this story. "What's the point of having an NFC handset if you can't use it anywhere?" said Canalys' Jones. "You want this to work not just at Gap ( GPS) and McDonalds ( MCD), but at your local coffee shop." Another hurdle: The investment for merchants to deploy the technology is high, with the required specialized readers costing around $200 on top of what they already pay to process payments, according to the Boston Fed. Most retailers must purchase these devices at their own expense. Lastly, there are the security woes expressed by consumers. About 73% of respondents polled by mobile payments and marketing company Mobio Identity Systems said security was the most important factor impacting their willingness to use mobile payments. Friending Banks, Carriers Analysts say that Google's best chance of getting anywhere serious in the market is to team up with a payment processing giant. "Google has got a challenge with its Checkout," said Mark Beccue, an analyst with ABI Research, alluding to the service's lack of widespread adoption among online merchants."
Google should really make friends with the credit card and payment guys." At this point, there appears to be lots of opportunities. Last year, AT&T, Verizon Wireless ( VZ) and T-Mobile announced plans to form Isis, a mobile wallet venture that could be introduced next year. The group enlisted Discover Financial Services ( DFS), which operates the Discover Credit Card, to process its payments. MasterCard and Visa ( V - Get Report) have also invested in the market, and have found ways to sidestep carriers. Last June, MasterCard teamed up with Citibank ( C) to offer MasterCard PayPass stickers, which are placed on the back of cellphones to enable wireless payments. The technology represents a "very high priority" for MasterCard, said Mung-Ki Woo, group executive of its mobile business. "We think 2011 will be the year of mobile payments." Visa is using technology developed by DeviceFidelity that essentially turns BlackBerrys and iPhones into payment devices that support the credit card company's contactless mobile application, Visa payWave.
Mobile payments start-ups, meanwhile, are also hoping to get in the game. Bling Nation, based in Palo Alto, Calif., has enlisted PayPal to power its mobile payments service, while Zong in Menlo Park, Calif. lets users pay for goods online using their mobile phone numbers. Obopay, based in Redwood City, Calif., gives banks the ability to deploy branded mobile payment offerings to customers. But despite the sheer number of players hoping to get a chunk of the mobile payments market, it's still early, which means anything can happen. "This is still a space that's up for grabs and every company is taking a different approach," said Meyer Malka, co-CEO of Bling Nation. "People think because Google is getting in, it's game over. On the contrary, its finally a game." --Written by Olivia Oran in New York. >To follow the writer on Twitter, go to http://twitter.com/Ozoran. >To submit a news tip, send an email to: firstname.lastname@example.org.