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Google Wallet: Who'll Buy In?

The company wants to play a key role in electronic mobile payments, but faces big challenges and big competition.

Google announced an app and a number of partnerships that could help it become a key gatekeeper in mobile electronic payments—a space that many expect to boom over the next few years.

Money manager: Google Wallet is demoed at its launch in New York. The app lets users upload credit card information to pay for products by tapping their phones.

Google Wallet, announced today at an event in New York, is a app that lets users tap their smart-phone in stores to pay for purchases using near-field communication (NFC) technology—but only after they’ve entered their credit or debit card details. A related product called Google Offers will let users send coupons to their virtual wallets, via a Google search, for instance, or an advertising billboard using NFC.

Ubiquitous and increasingly sophisticated smart phones make mobile payments possible, and many companies are vying to play a role in the development of the underlying technology. Last November, AT&T, Verizon, and T-Mobile announced a similar mobile payments platform called Isis, and recently they revealed plans to partner with Visa and MasterCard.

Several startup companies are also jostling for a place in the market. Among them is Square, which provides technology that lets smart phones take credit-card payments. Apple, meanwhile, is rumored to be working on a NFC payments system for the iPhone that could be tied to users’ iTunes accounts.

“Your phone will be your wallet. Just tap, pay, and save,” said Stephanie Tilenius, Google’s vice president of commerce, at the New York announcement.

Google has partnered with a number of major retailers, as well as Citibank, MasterCard, and the merchant processing service First Data in field tests, beginning today, and plans to release the product this summer in San Francisco and New York. Retail partners include Macy’s, Subway, Walgreens, Toys”R”Us, Noah’s Bagels, Peet’s Coffee & Tea, Foot Locker, The Container Store, and American Eagle Outfitters.

One problem for Google could be a lack of suitable devices. Currently, there is just one Android device with NFC technology built in: the Nexus S, and only those devices running on Sprint’s network will be compatible. Sprint plans to release several other NFC-equipped Android phones later this year.

Bill Maurer, professor of anthropology and law at the University of California, Irvine, who studies payments systems, says there may also be cultural and behavior hurdles. “It’s really just a very different way of paying, and we have lots of ways of paying that work just fine,” he says.

Alistair Newton, a research vice president at Gartner Research who researches mobile payment systems, points out that there is little customer and retailer demand for mobile payment systems, and there have been few success stories so far. Many have tried to implement NFC swipe-as-you-go payments in the past, he notes, particularly in Asia and Europe, with little success.

“This Google application is really going to be a supplementary payment utility for those consumers who chose to use it,” he says. He also suspects that many people won’t want to try it because “people are inherently quite conservative about money.”

Another obstacle will be convincing retailers to buy new point-of-sale terminals to read the NFC phones. While some retailers have already signed on to accept Google Wallet, it may not be enough. “For this thing to really scale and be accepted everywhere, every merchant is going to need a new point-of-sale system that can read NFC, and that’s a really big commitment,” says Maurer.

But he believe Google may succeed where others have failed if NFC becomes widespread on smart phones, and if the company can encourage developers to create apps that use the technology—an app that lets restaurant customers split a bill, for example.

Newton believes Google Offers could also be vital to the strategy. “The one area where we see the mobile payments working is where you see a convergence between mobile payments and loyalty and coupon [programs],” he says.

“I think there’s a strong and robust future for mobile payments, but it isn’t going to happen overnight, and it isn’t going to be for everyone,” he adds.

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