Tuesday, June 14, 2011

Time to ditch that wallet

Payment so far has mostly assumed three forms – coins, paper money and payment cards. Using phones and near-field-communications (NFC) technology, Google wants you to forget all that by popularizing a fourth way with its Google Wallet app.

What is it?

Google Wallet is an, so far, Android only app that stores a users payment, gift and loyalty card details on a phone and uses NFC for payments at a MasterCard PayPass-enabled terminals.

So far Google is partnering with a few banks and mobile carriers in the United States but there are plans of worldwide expansion. For users without a partnering card, 'virtual' prepaid credit cards are available.

Payment using NFC is not new. Trials using NFC are being conducted in nearly 100 countries. In the UK, Barclaycard recently introduced 'Quick Tap' which allows NFC mobile payment using Samsung's Tocco smartphone.

So why should consumers, banks and retailers suddenly take notice?

Apart from the fact that its Google's project, the NFC payment scenario is on the brim of exploding as can be seen below:
  • According to a research by multichannel marketing specialist Acxiom, one in 5 UK consumers is willing to pay via NFC.
  • Juniper Research found that the adoption of NFC mobile payments will reach 300 million devices worldwide, with one-fifth of all smartphone devices having NFC capability.
  • The worldwide mobile payment market is estimated to be at $618 billion by 2016, according to Edgar, Dunn & Co.
But how will it commercially benefit the consumers, merchants and banks?

To begin with, Google Wallet has been designed as an 'open commerce ecosystem'. This allows the development of features to store not only payment card information but also loyalty cards, gift cards, receipts, boarding passes, tickets etc. This offers banks and retailers the flexibility to create solutions relevant to their businesses and consumers choices in terms of how they benefit from the system.

  • Google Wallet will offer users a single source to store all their payment details, loyalty cards, gift cards, receipts and deal offers. Combining it with Google Offers, which automatically syncs with Wallet, consumers will have a convenient way of purchasing products while availing the offer with a single tap at the NFC terminal.
  • Using transaction history and geo-location, finding the best offers and discounts will be easier.
Retailers: The benefits to retailers and banks will be influenced by how the behaviour of the consumer will change.

  • Google Offers requires users to have a Google account. By having all the information of users on their device, retailers and Google can track almost all their buying behaviour and possibly connect their phone number to their profile.
  • A poll by Steria showed that 65% of UK residents want more personalised loyalty schemes services and real-time offers on their mobile devices while shopping.
  • According to a research by the Atlanta and Boston Federal Reserve Banks, merchants can reduce the cost and risks of storing sensitive data as magnetic-stripe data exposure is eliminated.

  • An Accenture research has found that banks which provide mobile device support can achieve returns on investment (ROI) as high as 300%.
  • According to a research by the Atlanta and Boston Federal Reserve Banks, NFC payment will improve fraud reduction capabilities. Currently, credit card fraud costs the UK economy about £610m every year.
The primary factor promoting Google Wallet amongst retailers and banks will be the fear of becoming a late adaptor. Of course, there are going to be issues like cost of deployment and revenue uncertainties but according to a white paper by SBJ Research, following some best practice guidelines can create profitable possibilities.

But what about security?

To prevent abuse, purchasing with Google Wallet requires a PIN. Beyond that, encrypted payment card credentials are stored on a separate computer chip called the Secure Element, which runs separately from the operating system.

But according to McAfee security researcher Jimmy Shah. an attack is still possible by fooling the chip to reveal user credentials. However, Lookout Mobile Security CTO Kevin Mahaffey believes that the combination of the PIN and the chip will create a secure environment.

On balance, it does appear that Google Wallet is turning out to be the NFC payment dream that both businesses and technophiles had been dreaming of. If anything is to support that point, it would be that the NFC forum promoting this technology, of which Google is a part of, comprises of almost every major mobile and semiconductor OEM, platform provider and financial institution.

I am totally up for this. What about you?