With Its Softcard Deal, Google Cements Carrier Support And Turns up Heat on Apple Pay

When Google Inc. launched its Google Wallet mobile-payments service nearly four years ago, it quickly ran into a formidable obstacle: three major mobile carriers, including two of the nation’s largest, wouldn’t let Google Wallet work on their phones.

Now Google has finally found a solution, and it’s one that could catapult its mobile wallet into what some observers say is an advantageous competitive position with rival Apple Inc.’s Apple Pay service.

At mid-day Monday, the online search giant announced a deal with the same trio of carriers that once boycotted Google Wallet. The deal will result in the carriers—AT&T Inc., T-Mobile USA, and Verizon Wireless—building the Google service into the Android-powered mobile phones they sell. The agreement also includes the transfer to Google of technologies developed by Softcard, the mobile-payments venture the carriers launched in 2010.

Terms for the transaction were not announced. It remains unclear what the deal means for Softcard, which like Google Wallet has struggled to catch on with merchants and consumers, but it appears Google has acquired virtually all of its tangible assets. “Softcard technology and capabilities will be transitioned to Google, and we anticipate that Softcard will eventually cease to exist as a standalone business,” a Softcard spokesperson tells Digital Transactions News by email.

For Google, the deal could have momentous implications, experts say. It calls for the three carriers to start including Google Wallet before the end of the year in all Android phones sold in the U.S. that run KitKat or an even newer version of Android called Lollipop.

Since Android devices enjoy a significantly larger U.S. market share than Apple’s iPhones, that part of the deal could ultimately give Google Wallet a huge boost in its competition with the 4-month-old Apple Pay service, which runs in-store only on the iPhone 6 and 6 Plus (though the introduction of Apple Watch, expected in April, will extend Apple Pay to the iPhone 5, 5c, and 5s). For now, KitKat and Lollipop combined already acount for about 22% of all U.S. smart phones in use, according to data from Google and market researcher comScore.

Overall, Android commands a 53.1% share of U.S. smart-phone subscribers, compared to a 41.6% share for all iPhone products, according to comScore. Potentially, Google now has “the ability to field mobile payments across all of the handsets that aren’t Apple. That's the lion's share of devices in the market,” Nick Holland, a senior analyst who follows mobile payments at Javelin Strategy & Research, a Pleasanton, Calif.-based consultancy, tells Digital Transactions News.

Another key advantage for Google is that the deal gives it access to the so-called secure element (SE) in those phones—the very access the carriers had blocked for years to protect Softcard. This could prove crucial as some observers say the secure element—a chip in the phone that houses card credentials for mobile payments—is coming to be seen as a more secure option than a cloud-based approach called host card emulation (HCE). Apple, for example, has staked the reputation of its SE-based Apple Pay service on security.

“The conversations are hotting up on HCE vs. secure element,” says Holland. “There’s more of a conversation that the encryption keys need to be on [the] device rather than hosted in the cloud. Apple clearly had a more elegant and secure situation by having the credentials stored on the device.”

Google, Softcard, and the mobile operators all said they would not comment beyond announcements posted by Google and Softcard.

The technologies Google has acquired from Softcard likely include a large portfolio of patents the company developed during its relatively short tenure. Among these is a patent for a technology called SmartTap that combines loyalty and offers programs with payments. SmartTap depends on near-field communication (NFC), a wireless technology used by both Softcard and Google Wallet.

SmartTap has been built into a range of newer-model NFC-capable terminals, including devices used with vending machines and other unattended points of sale. It’s unclear, however, how SmartTap differs from a similar technology called SingleTap that Google unveiled with Google Wallet in 2011. Word first leaked a month ago that Google, along with several other interested parties, was negotiating to acquire Softcard from its three carrier owners.

“I foresee a lot of innovation being fostered with this new combination,” says Steve Mott, principal at BetterBuyDesign, a Stamford, Conn.-based payments consultancy, in an email message. “Softcard brings a lot of practical integration experience to the table.”

Clearly, Google has made a play to step up Google Wallet’s rivalry with Apple Pay. “It’s now much more of two-horse race,” observes Holland.