AmEx Flap Is an Embarrassment, But Not Likely to Hurt Google Wallet

Regardless of how talks between Google Inc. and American Express Co. turn out, it isn’t likely AmEx will shut down its cardholders’ access to the online search giant’s newly overhauled mobile wallet. Indeed, much of the discussion now is likely focused narrowly on the use of the AmEx brand, says Rick Ogilvy, a senior analyst at Aite Group LLC who follows mobile payments. “A lot of it has to do with protecting [the AmEx] brand and how it is being used,” he tells Digital Transactions News.

AmEx caused Google some embarrassment last week when, in the wake of the announcement of the new wallet, it said it had never agreed to have its cards included in the product. Google has revised its struggling wallet to allow consumers to save any Visa Inc., MasterCard Inc., Discover Financial Services, or AmEx card to Google’s servers, removing the need for Google to certify card issuers one by one. The new cloud-based approach also removes the need to store card credentials in a secure element in a consumer’s mobile device.

In statements following Google’s announcement of the update, New York City-based AmEx said it had concerns about how much transaction data Google would collect in the new wallet and pass back to issuers. Google then said it was in discussions with AmEx about the matter. “We want to make sure Google's mobile wallet product meets the standards we set for our Cardmembers in terms of the transparency and clarity about transaction detail,” says Brad Minor, AmEx's vice president of digital communications strategy, in an e-mail message to Digital Transactions News.

“We did not provide approval to be included until we had come to agreement on terms,” Minor says, adding that at the moment there is no agreement with Google to allow AmEx cards to be used in the new wallet. A Google spokesperson did not respond to repeated requests for comment.

Google’s mobile product, along with others that rely on near-field communication technology (NFC), suffered another black eye late on Tuesday when Square Inc. announced it will process all U.S. credit and debit card transactions for coffee giant Starbucks Corp. Square’s mobile system does not use NFC, a short-range, interactive technology that relies on special chips in both phones and point-of-sale equipment.

While AmEx’s complaint raises the specter that any issuer, not just AmEx, could block customers’ access to Google Wallet, things are unlikely to go that far. AmEx, in particular, has an interest not only in pleasing its cardholders but also in protecting volume it derives from Google’s online venues, such as Google Play, notes Ogilvy. This volume for some time will remain much larger than traffic through Google Wallet. “Theoretically, they could stop [access] but politically it would be very difficult from a consumer standpoint and from a Google standpoint,” Ogilvy says.

Moreover, Google can argue that there’s nothing unusual in the way it is processing transactions through the wallet. Indeed, according to Ogilvy, its processing method for point-of-sale payments may leave it shortchanged unless it can supplement its wallet revenue with marketing-related fees.

Following a path blazed by alternative-payment processors such as PayPal Inc., Google is reimbursing merchants and then collecting payment from the cards users save to the wallet. “This is an established model that’s been out there for years,” says Ogilvy.

In Google’s case, the company includes in the secure element, which is a chip embedded in the phone, a virtual prepaid MasterCard. Point-of-sale transactions are charged to this card, after which Google charges the same amount to the user’s designated card. As the issuer of the virtual card, Google collects interchange, then pays interchange as the merchant when it charges the designated credit or debit card. This last step is what makes the transactions detectable to issuers as Google Wallet transactions. The virtual card transaction incurs a so-called card-present interchange fee, but Google must pay a higher card-not-present rate on the follow-up transaction against the designated card.

That means Google can’t make money on payments alone, Ogilvy point out, but must find ways to induce merchants and other parties to pay for the data it will collect through the use of its wallet. Through a program called SingleTap, for example, Google can allow users to redeem targeted offers at the same time they make payments in stores. Some 25 chains have signed on to use SingleTap, which has been part of the wallet offering since the original version was unveiled in May 2011.

Google may have other problems, including the slow uptake of its wallet by banks and merchants that led to the revamp. But the AmEx flap isn’t likely to have much impact. “It’s more a PR conversation,” Ogilvy says. “I don’t foresee this as anything that will slow [the updated wallet] down.”