Bits of Cents

Like others in the payments space, I spent the last hour watching Google’s plans for disrupting one of the largest industries in the world.  At times visionary (Osama Bedier was great), at times awkward (Ed Larby of First Data couldn’t pronounce the name of Sprint’s CTO), here are some high-level thoughts I had as Stephanie Tilenius, VP of Commerce at Google, spoke:

• Google is leveraging the Mastercard Paypass infrastructure to make sure they have merchants who can accept Google Wallet on day one.  Not a bad idea to get the ball rolling but the truth is that Paypass is not widely distributed nor loved.  Stephanie repeatedly boasted that there are over 120,000 Paypass merchants in the US.  That’s great but there are 4.7M magnetic card merchants in the US, leaving Google Wallet penetration (and possible usage) to 2.5% of stores.
• Walgreens is the flagship retailer Google is launching with; Walgreens is the 4th largest retailer in the US.  Next most sizable is Macy’s, at number 15 followed by Subway at 32. Leveraging Paypass is what gets Google into these merchants on day one.
• Google is also working with Sprint as the carrier partner.  The carrier plays a role in the ecosystem here not only because the app runs on their phone but because card provisioning will be pushed from the processor (First Data) to the phone wirelessly. I would guess that Sprint was not Google’s first choice (check out their less than stellar financial performance and note the growth of prepaid subscribers who are unlikely Google Wallet users) but probably the only option.  The best dance partners (AT&T, Verizon and T-Mobile) all teamed up about a year ago to create ISIS, a mobile wallet solution of their own.  That left Sprint all by its lonesome and really the only option for Google. This ultimately will hurt merchant adoption since there are not going to be tens of millions of consumers with Google Wallet accounts lining up on day one, especially when you consider the product is not only limited to Sprint’s anemic postpaid customer base but to 1 specific phone on the Sprint network (Nexus S).
• The prepaid card feature of Google Wallet is interesting. While the partnership with Citi and Google Wallet allows for new Citi credit cards to be “pushed” to phones, if you have an alternative card or can’t open a Citi card, Google needs a way to get dollars into the phone.  Google could have chosen to just collect existing card information and pass that on in a card-not-present transaction but that would leave them out of the loop and out of control for interchange fees.  By offering a “prepaid” card that can be loaded off of any credit card, Google inserts themselves into the process. It also gives them the ability to load cash directly onto the phone at the merchant; imagine an NFC version of the GreenDot reload network.
• It strikes me that, given the point above, Apple is in a considerably better position to pull off the prepaid card aspect of Google Wallet off.  While Google has to go and collect credit card information from consumers who want to load money into the Google prepaid product, Apple already has 200M iTunes accounts with credit card information inputted. If Google is thinking that the majority of users will not open a new Citi product or load at the merchant and, instead, will leverage their existing card products they should be worried about Apple.
• The NFC implementation thus far is what I’d call “dumb” NFC. All the phone is doing is passing basic information that point of sale systems already accept (credit, loyalty, or coupons) to the point of sale via NFC - replacing a magnetic bit for a wireless one.  The next step is bi-directional NFC where the register sends information back.  Google suggested this feature would come in October, initially in the form of digital receipts.  I suspect the lag here is that it requires some pretty fundamental POS upgrades to enable.  It will be interesting to see how quickly this feature rolls out to merchants.
• One would think that given the attention paid to interchange, it would have come up at least once in the hour presentation but nope; the speakers were entirely silent on the topic. It may have gotten addressed in the Q&A session that Google chose not livestream but there are likely to be lots of questions around the subject.  It’s worth noting that there are rumors that Google will not be charging interchange fees on Google Wallet.  That maybe the case but it is not clear if that would apply across all Google Wallet or be limited just to the Google prepaid card (since Citi is not used here).

I’ll leave the Google Offers discussion to another post but, needless to say, there is plenty to talk about when it comes to Google Wallet.  Can Google succeed here where others have failed?  They probably have a good shot but there’s still a long, long, long road ahead with many questions along the way.

PS: Kudos to the Citi guy who spoke who read his entire speech from a piece of paper he carried on stage with him.  Classy.