For years, technology companies have promised to revive mobile payments, persuading people to put away their credit cards and pay with mobile phones instead. But in the past few months, with the release of Apple’s Apple Pay app, Samsung’s LoopPay, Google Wallet, and more new entries jumping in, the mobile payment space has turned into a grid for a loomingaggressive war.
Now, Google’s acquisition of a new technology and its new partnership with US cellular carriers could mean Apple Pay is finally going to face some fierce competition.
GOOGLE BUYS SOFTCARD
On February 23, 2015 Google hammered out a deal with three wireless carriers, in addition to the acquisition of their jointly-owned mobile payments platform, Softbank to beef up its own sagging Google Wallet by having it preinstalled on Android phones sold by the three US carriers.
Softcard (formerly ISIS Mobile Wallet) is a joint venture between AT&T, T-Mobile, and Verizon. A five-year old mobile payment consortium based on near-field communication, it allows users to pay by tapping their mobile device to a payment terminal.
In a blog post announcing the acquisition, Softcard said that the deal with Google will not only help advance mobile wallets, but also power up the next generation of mobile payments. For now, users will be able to continue using the tap and pay Softcard app. At this moment, it doesn’t look like any of Softcard’s employees will be joining Google. It’s going to just another acquisition where Google acquires for assimilating technology and talent into Google’s hive mind, yanking the plug off the product.
WHY SOFTCARD?
As a part of the deal, Google said, it also acquired Softbank’s technology as well as its intellectual property. Google Wallet app will no doubt, use some of Softcard’s technology one day. Although, the only immediate change in Google Wallet app for now, is going to be its tap-and-pay functionality.
But clearly, one of the most important part of the deal is Google’s distribution deal, according to which, all three carriers will pre-install Google Wallet payments app on the Android phones they sell. This means that in a very short time, Google Wallet will become a de facto standard on millions of smartphones, particularly those that use Kitkat or higher versions.
With the latest move, Google Wallet becomes a much stronger rival to Apple Pay – which, by the way, only works on the latest iPhones.
For Google, Softcard’s patents are going to be an equally important aspect, giving Google some sort of ammunition to negotiate or fight, in case Apple decides to challenge Google Wallet in some way or another.
The biggest reason for the consolidation is of course Apple Pay. It works only on the latest iPhones, and in about 220,000 stores with checkout terminals that can accept Near Field Communications radio technology. But, since its release in October 2014, it has become the most compelling mobile payment apps, partnering with dozens of retailers and banks, with Apple changing the game and showing weaknesses of all other existing players in the market, right from Softcard to PayPal and Google. During an earning’s call in January, Apple CEO Tim Cook revealed that Apple Pay now accounts for more than $2 of every $3 spend on purchases.
Apple Pay has a tokenized backend infrastructure and works well without an accompanying app, showing that the phone itself can work as a payment wallet. Apple Pay makes card payments secure by creating a number or token that replaces user’s card details.Softcard’s technology dwindles next to Apple Pay, which has been widely praised for its ease of use and security. The only area where Softcard would be valuable are the possible support of all three carriers and the cooperation of retailers that would agree to accept Softcard’s wallet.
APPLE TO FINALLY FACE A WORTHY COMPETITIOR?
Analysts speculate that with the growing competition in the mobile payments space, especially with Samsung’s last acquisition of LoopPay, a mobile payments startup whose technology allows smartphones to use magnetic- stripe technology.
The mobile payments space in the U.S. continues to be fierce and fragmented as more and more companies with dark horse technologies vie to get consumers attention. For PayPal and a few other payment startups, there’s going to be another elephantine company – CurrentC, a part of Merchant Customer Exchange, a group that includes Target, CVC, Wal-Mart stores and other retailers.
Although, Google and Apple are two companies leading the mobile payments space, and it’s not clear whether other companies and startups will be able to challenge the goliaths at this point of time.
One of the biggest challenges that both the companies face at the moment is that only a small fraction of the 10 million retail outlets in the U.S., i.e. 220,000 outlets have checkout readers that accept Near Field Communication antenna to accept payments. It’s expected to take years for most stores in the U.S. to upgrade to their POS systems with the said technology.
Google is going to need a certain level of cooperation from the three cellular carriers that had earlier blocked Google Wallet on their phones and were chiefly responsible for Wallet’s failure.
According to research firm Gartner, mobile payments will surpass $270 billion a year by 2017, i.e. up from $235 billion made in 2013.
