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Has Google finally hit on a winning mobile payments strategy?

By
June 1, 2015

Google wants to dominate mobile payments on Android

Google wants to dominate mobile payments on Android

Google unleashed a series of mobile payments initiatives at its annual developer conference last week – including a hands-free payments pilot with McDonald’s and Papa John’s – as the technology giant looks to ride Apple Pay’s momentum and guarantee its own leadership role in Android-based transactions.

From details about Android Pay as well as tokenization and fingerprint identification initiatives to a list of big-name partners such as Visa, MasterCard, U.S. Bank, Coca-Cola and others, Google clearly recognizes that the moment to make a claim in mobile payments has arrived. With Samsung Pay and MCX solutions expected to arrive soon as well as growing momentum behind Alipay, Google wants to ensure it does not have a repeat of what happened with Google Wallet, which has floundered over the past few years, failing to gain significant adoption by merchants or consumers.

“I think [Google] made real strides,” said Thad Peterson, senior analyst at Aite Group, Atlanta, GA. “It appears that they will be using issuer tokenization, which is a big step forward in security, and their anticipated use of the fingerprint to override the lock screen should get them either close to or equal to Apple Pay for the user payment experience.

“Also, their clear linkage of online/in-app and physical out of the gate is a strong starting point,” he said.

“At this point there are no other Android payment solutions that run across the spectrum so Google has a big head start on Samsung or anyone else. Alibaba/Alipay, or another Asian player could develop significant scale but in the short term, it’s all Google.”

Hands-free payments
At last week’s Google I/O conference – the company’s annual event for developers – the company provided more details on Android Pay, a mobile payments solution that was announced earlier this year.

Google is promising that owners of Android phones will be able to pay with Android Pay using their credit or debit card across multiple devices and at more than 700,000 store locations and more than 1,000 apps.

Screen Shot 2015-05-29 at 10.08.56 AM

Making Android Pay widely available is one way Google hopes to drive consumer and retailer interest in adopting the solution.

However, Android Pay was not the only payments news from Google last week. The company also briefly mentioned a pilot program currently being tested at McDonald’s and Papa John’s locations in the San Francisco Bay Area that eliminates the need for consumers to even have to find their smartphone.

Called Google Hands Free, it uses an app designed for drive-thrus and other situations where tap-and-pay scenarios may be inconvenient.

To use Google Hands Free, customers tell a cashier they would like to pay with Google and an app lets the cashier verify the customer.

When users make a purchase, their card details are not shared with stores. Once a purchase is complete, users receive an instant notification on their phone.

Screen Shot 2015-05-29 at 11.09.41 AMGoogle Hands Free is currently being piloted.

Being flexible
Google is working with wireless carriers, payment networks, banks and retailers to make Android Pay as flexible as possible for consumers.

To pay in stores with Android Pay, consumers unlock their phones, place it near a merchant’s contactless terminal and that is it. There is no need to open an application. Users will see payment confirmation and get transaction details on their phone.

Android Pay will also be integrated with loyalty programs and special offers for some retailers.

For example, when users tap to buy a Coke at a vending machine, their MyCokeRewards will be automatically applied.

For retailers that integrate Android Pay into their apps, customers will be able to checkout by selecting “Buy with Android Pay” without the need to enter their credit card and shipping information.

Some of the retailers where Android Pay will be available in-store when it launches are Macy’s, McDonald’s, Best Buy, Bloomingdale’s, JetBlue, Petco and Walgreens.

Apps that will accept Android Pay include Chipotle, Domino’s, Dunkin’ Donuts and Priceline.com.

Industry partnerships
Google has lined up a strong list of partners to boost its push into mobile payments, something that is key to its success here given the complexity of the mobile payments landscape.

Google has partnered with all the major payment networks in the U.S., including American Express, Discover, MasterCard and Visa, to deliver industry standard security tokenization. This means Android Pay will not send a user’s actual credit or debit card number with a payment, but will, instead, use a virtual account number called a token to represent that account information.

With security concerns one of the main stumbling blocks for consumer adoption of mobile payments, Google is following a growing number of players in getting behind tokenization to address the issue.

A lack of such partnerships was one of the things that derailed Google Wallet, which was not supported by the major wireless carriers.

For example, Google has partnered with a number of banks so that customers can add their credit or debit cards directly from bank apps for use with Android Pay.

The list of partners also includes top payments processors such as Braintree, CyberSource, First Data, Stripe and Vantiv, which will help developers add Android Pay to their apps.

Disintermediation
Following several years of lackluster growth in mobile payments, the market has been developing at a much faster pace since Apple Pay was launched late last year, as this pretty much confirmed that NFC would be the way forward in tap-and-go payments.

While Apple is the clear leader in iOS payments, Google’s role is not guaranteed as they are several other players jockeying for prominence here, including Samsung Pay and MCX, which is a consortium of big retailers such as Target, Walgreens and others.

“Part of Google’s move is catch-up to Apple, but perhaps more important is their need to try and ensure that they control the dominant player for Android payments,” said Drew Sievers, founding partner at fintech investor Operative Capital. “The open nature of Android inherently puts Google at a disadvantage to Apple who controls the entire stack for their solution.

“Google’s deal with the carriers wasn’t just a nice to have, it was a necessity in order to avoid losing complete control over their payment ecosystem,” he said.

“Globally, there are plenty of players, particularly in China, who could end-run Google on payments. When your OS is open source, and you don’t control all the hardware, you run a very real risk of becoming disintermediated on your own platform.”

Final Take
Chantal Tode is senior editor on Mobile Commerce Daily, New York

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