Google Wallet 2.0: Now Open to All Cards, But Can It Attract Users?

Google Inc. on Wednesday announced an overhaul of its struggling mobile wallet product that the online search giant hopes will make the product more attractive to consumers and banks alike. Indeed, a key feature of the new Google Wallet is that is now open to any credit or debit card from American Express Co., Discover Financial Services, MasterCard Inc., and Visa Inc.

The first version of the wallet application, introduced in May 2011 and launched commercially in September, allowed payments only with a Citibank MasterCard or a Google prepaid card, both of which were stored in a secure chip in the phone. With the version released Wednesday, consumers will be able to load card credentials onto Google servers. A MasterCard-branded virtual card embedded in the secure element will trigger contactless connections to point-of-sale readers and identify users to the Google cloud. Google will match user IDs with the user’s designated card and send the transaction on to issuers through any of the four networks. Transactions with online merchants, by contrast, will flow directly from the cloud-based cards.

While Google is not abandoning near-field communication (NFC) technology for in-store transactions, it is clearly looking to add consumer appeal by using the cloud to open its wallet to cards most people are already carrying. “Users have been telling us they want all their cards added [to the wallet],” Robin Dua, head of product management for Google Wallet, tells Digital Transactions News. “This will enhance our distribution because [limited card availability] was a barrier to usage.”

The new app has other features Google hopes will add to its appeal. Consumers can switch off cards in cases of lost or stolen phones, for example. And financial institutions will be able to store customers’ cards on the wallet without fees. Competing wallet providers like Isis, a joint venture of the country’s three biggest mobile carriers, plan to charge issuers rent for stored cards.

Dua says free card storage is a critical feature for Google. “There’s a lot of friction over charging space-rental for storing cards,” he says. “We’ve heard from a lot of financial institutions that the idea of paying a space-rental fee is not something they’re comfortable with long-term. They don’t want to see an additional cost burden.”

The new Google Wallet offers application programming interfaces (APIs) and other tools that will let financial institutions more easily link their customers’ cards to the wallet through the institutions’ online-banking programs. The tools also allow banks to upload card art to reinforce branding.

With the new app, Google has also merged in-store and online functions, so users can rely on one wallet for all transactions. Before, payment methods consumers added online did not show up in Google Wallet. “A primary feedback was that people wanted one wallet” for point-of-sale and online use, Dua says.

It remains to be seen if the new features can overcome limitations faced by both Google Wallet and competing products. Google Wallet so far is available on just six NFC phones and one NFC-enabled tablet, and on just one carrier network, Sprint. AT&T, Verizon Wireless, and T-Mobile, the networks behind rival Isis, have effectively shut out Google Wallet. At the same time, Google has signed just one bank, Citigroup Inc. Some 25 retail chains have signed up for SingleTap, the electronic offers system Google created as part of its wallet product. But only a small percentage of U.S. retail outlets, about 200,000, are equipped to handle contactless payments.

While Google is sticking by NFC, it is dropping card emulation, the process by which electronic versions of plastic cards are stored in the secure element of an NFC-enabled phone. This frees Google from having to sign bank issuers one by one by letting users move their cards into the wallet on their own. “They obviously were struggling to get banks to participate,” says Rick Oglesby, a senior analyst at Boston-based Aite Group LLC who follows mobile payments. ‘That’s no longer a requirement. It really makes sense.”

The move to the cloud will likely raise transaction costs, says Oglesby, since payments with the new wallet will incur card-not-present interchange pricing. But he figures Google will be in a position to reimburse merchants for incremental costs from the revenue it expects to earn from the consumer data it will generate. “Google might have to eat a little bit of margin,” he notes.

Still, the race in NFC and in mobile wallets will ultimately go to the provider that signs up the most consumers, Oglesby says.  Here, Google’s new wallet may have given the search titan a chance to get ahead, one it will have to act fast to exploit. “This opens the door to consumer enrollment, but they’ve still got to get consumers to enroll,” Oglesby notes. “Google has a tremendous consumer business. They’ve got the eyeballs. But they’ve got to prove [they can sign up consumers for Google Wallet].”