Google Wallet: Has the Payment Revolution Finally Arrived?

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Last week, Google announced Google Wallet, its mobile wallet initiative. The development signifies that major wireless and banking players and market innovators see the importance of working together; this cross-industry collaboration is fundamental to driving tomorrow's multi-channel consumer experience. Google's steep growth rate on top of aggressive smartphone penetration creates a compounded effect that will help to drive near-field communications technology (NFC) adoption.

The mobile wallet is much more than NFC convenience at the point of sale (POS) as an in-store wireless payment. Here are some core opportunities:

• Personal financial management and banking
• Shopping, product comparison, and tools
• Payment and card services
• Promotions and couponing
• Loyalty and customer services
• Tickets, passes, and event integration

Google, Citibank, and First Data are already bringing some of those value-added services, and it certainly is no coincidence to see the relative benefits and tie-ins of Google's investment in the mobile couponing, location-based services, and command in the search space.

The Past: Why the Tech Companies Were Needed to Disrupt

If you rewind to five years ago, banks and wireless carriers were battling over mobile banking in anticipation of the payments revolution. Both sides were arguing, "We own the customer," and major players in the banking and wireless industries were not going to be able to make it happen alone. It has taken 21st century companies, Google and Apple, to drive collaboration and change within deeply entrenched players in the payments ecosystem. Without the brand clout and cultures of change and innovation that both Google and Apple possess, we would still be waiting for the payments revolution, whereas now, it has arrived.

Current Opportunities for Retailers

The market continues to evolve while NFC infrastructure gets built out and connected. Although there's a long road ahead for ubiquitous adoption for NFC in North America, there are promising developments. Retailers are innovating, leveraging mobile opportunities to improve customer experiences with their online store, empowering in-store employees, and better connecting with consumers. In some cases, retailers are making it possible for a consumers' smartphone and an employee's tablet to replace the store POS and not just wirelessly connect to it.

The Future: Threats to Retail Banks and Global Opportunities

With the launch of its mobile wallet, Google has introduced a significant threat to retail banking institutions around the world. Google has now positioned itself at the point of sale in a way that will drive convenience, transparency, choice, and help customers make more informed choices. Today, retail banks around the world generate significant revenue at the point of sale from the exact opposite reasons, and we should expect the pressure on margins for retail banking products to significantly increase.

One of the greatest outcomes of Google's efforts in the mobile wallet race may be the acceleration of globally-enabled payment solutions and NFC services that can be leveraged for and across emerging markets. As Google is driving down the barrier for the greater mass to obtain smartphones, it's not just a smart chip shoved into a dumb phone anymore; it now adds more connective tissue to our increasingly connected global economies.

Keys to Mobile Payments Success

Our recommendation: start small and gradually grow when the consumer is ready. Avoid the attempt to be everything at launch. Google Wallet's go-to-market strategy does just that by:

1. Starting with solidifying the mobile payment experience, first by helping consumers ease into NFC payments using two concepts already on the market:
   
   a. Google prepaid card – Taking a cue from Starbucks' mobile payment app, consumers see value in treating their phone as a virtual prepaid gift card that acts as a middleman for payment, rather than directly linking and storing their payment info on the phone in risk of theft and fraud.
   
   b. Mastercard PayPass – PayPass has had some challenges penetrating the credit card market with a concept that was just too close to what we have today with magnetic strips. Now Google Wallet has extended the existing RFID capability in the POS hardware, and user concept of the PayPass system by trading a card wave for a phone wave. For retailers that already accept PayPass, this is a critical selling point to enable the Google Wallet system in their stores because there is minimal additional investment on hardware and infrastructure.
2. After building confidence of the core payment aspect of the Wallet, Google will be able to introduce other aspects of the Wallet, such as couponing and loyalty programs, for a single tap experience, and given that Google Deals recently launched, mobile couponing may end up being the first step to adoption for many consumers.

Conclusion: NFC Adoption and Google Wallet's Quest for Victory

Google's joint venture with leaders from banking, retail, and wireless introduces the digital wallet with an existing active community. By leveraging the existing consumers of Sprint and Citi Mastercard, the Google Wallet hopes to have a head start on acquisition growth. However, consumers initially will need to connect a lot of dots by working with a compatible device, network operator, financial service, and participating retailer. The one thing that doesn't have to be realized is the consumer and business benefit that awaits once the connected experience gets geared and optimized.