TL;DR – Google Wallet could have been a disruptive force in payments, if it had the courage to attempt to eliminate the point-of-sale rather than retrofit it with NFC. Also, Google seems to be overly reliant on the incumbents in the payments industry, instead of opening up their wallet api and inviting the wider android developer community to build innovative solutions that could have jump-started its adoption without being impacted by the slow progress of NFC at the point of sale.
UPDATE: – Apparently, rumors are abound that Apple may be planning to launch an update to its retail store iOS app that will allow consumers to utilize self-checkout for purchases of accessories and other shelf-stocked items at the company’s retail stores. With this move, Apple is taking the first step to disrupting the POS. Apple understands that it can provide a better customer experience and more profits by leveraging cross and up-sell opportunities if its store representatives were engaging customers instead of sticking them behind a POS. Apple store customers who just need a quick accessory purchase can now pick out their item, pay for it themselves and walk out, all with out having to stalk any available store represenatives. More over, Apple’s margins on these accessories may be quite thin that it makes sense for them to invest their store resources to selling Apple products with considerably higher margins. More info here.
By now, Google Wallet has launched with much fanfare in NY and SF. Unencumbered by the weight of our plastic credit cards, we are on the path to swifter transactions at the point of sale, buoyed by dreams of loyalty programs that know us by our past purchases and enticing contextual offers based on present location. Despite all the enthusiasm that permeates the ecosystem, the reality is – things are not as rosy as they look. Even though Google’s initiative is in its nascent form, they are off to a bad start. The emerging mobile payment ecosystem is fraught with much fragmentation and uncertainty on day one, and everyone including Google, Issuing Banks and the Carriers are responsible for the ambiguity that permeates the ecosystem today. There are considerable challenges (and opportunities) that await NFC based mobile payments at the point of sale, and I have covered many in my whitepaper. This post, is focused on what Google could have done better.
Recently, Citi – the only card issuer currently participating in Google Wallet, called on other issuing banks to quit waiting on the sidelines and sign up. Citi’s call to action reflects a painful reality in the nascent mobile payments ecosystem – despite Google, Citi, First Data and Master Card marshaling considerable resources to getting Google Wallet off the ground, everyone else wants atleast a couple more mobile wallet solutions out there before deciding to choose sides. Dickson Chu of Citi specifically stated that for most issuing banks, retailers and others, they can expect to participate in more than one mobile wallet initiative. Though he did not name it, he meant ISIS, the carrier led initiative that is currently six months away from a pilot in Utah and Austin. Chu wanted banks to consider Google Wallet even if they had their sights set on ISIS or other competing systems, and for them to know that it is absolutely normal to be wanting to be polygamous when it comes to mobile wallet partnerships.
On the other hand, “Mobile Payments” is fast becoming synonymous with NFC based proximity payments, with initiatives like Google Wallet and ISIS, and that is not necessarily a good thing. Mobile payments entail allowing the use of a mobile phone as the payment form factor instead of plastic to make a payment. Whether that transaction is enabled by NFC or not, every benefit proffered by adoption of a mobile wallet will still apply. Whether they be loyalty programs or contextual offers at the store, all of them are possible despite the presence or absence of NFC inside the phone or at the point of sale. Sure, delivering these offers or registering our purchases on specific loyalty programs could be achieved differently and in certain cases easily, by employing NFC at the point of sale. But there is nothing stopping someone from developing solutions, in fact there are a handful that exists today, that can already achieve these goals without NFC.
This Saturday, as we normally do on weekends, I found myself at Costco, Walmart and our neighborhood grocer along with the rest of the brood. I timed myself at the point of sale, the time it takes for me to take out my wallet, swipe my credit/debit card, and enter a pin before the receipt prints. At all three locations, it took an average of 12 seconds to do so. Armed by my smartphone, and using a mobile wallet solution, I could have potentially reduced it by a couple of seconds, or drawn it out further, depending on how well trained the employee is at the point of sale, or how convoluted or simple the overall mobile wallet experience may turn out to be. Now, I also timed myself from the moment I entered the checkout line, up till the moment I took out my wallet to pay. That turned out to be about 15 minutes at Costco, 12 minutes at Walmart and about 8 minutes at our grocer. In an environment where mobile wallet adoption rides on the benefit to the customer, there is nothing offered today by Google Wallet (or ISIS from what I hear so far) that will help shave a combined 35 minutes off of my weekend trip that could have been well spent with my feet up on the couch and holding a cold beverage. Now, do you agree that we are focusing on solving the wrong problem?
Married to NFC: A missed opportunity
By being married to a technology, NFC in this case, ISIS and Google Wallet, the two major initiatives in the mobile payments ecosystem have chosen to be directly dependent on its scale of adoption at the point of sale. However infectious the excitement that permeates the mobile payment ecosystem, it apparently missed the merchants who argue that investments in new contact-less point of sale systems must be balanced by a reduction in the interchange fees that at times dwarf merchant profits. More over, consumers are not exactly banging on their doors screaming for the ability to pay with their smartphones. To add to this, the uncertainty about competing initiatives, questions about interoperability, scarcity of NFC-enabled handsets – each plays a counter productive role.
Google has maintained that Google Wallet will be based on an open standard and more importantly (to current stakeholders) will not expect a part of the interchange fees, It instead will focus on the potential advertising revenue. However, It almost seems that Google sacrificed a lot more for being invited to sit at the table. To placate the existing stakeholders in the payments chain, it seems that Google has chosen to ignore its capacity to innovate, the potential to disrupt the point of sale, or even eliminate it altogether. To cite my weekend experiment, a mobile wallet enabled smartphone could have allowed me to browse the aisles, compare prices at competitors and when ready, check out using my mobile wallet without needing to load up my cart with items, carry them to the front of the store, unload, pay, and re-load the cart before leaving the store. Instead, I could have scanned these items using my mobile phone as I added them to my cart, and paid for them when I was ready, without ever worrying about the checkout lines, the customer who pays with dimes, and the guy who has second thoughts about the life-size R2-D2 replica. The merchant, equipped with a smartphone, running an equivalent merchant app, could verify the items in the cart on my way out of the store. Square fired the first salvo in disrupting the point of sale, but even there, the merchant is still present at the point of sale, equipped with a Square card reader attached to a mobile phone. Instead of the checkout counter being anchored to the front of the store, they let it loose inside the store. Google should have taken it one step ahead, and eliminated it altogether. Google chose the easier way out, and despite the considerable clout it has, opted to play nice with the current players in the payment ecosystem and pawning its membership card in the innovator’s club. Sounds like missed opportunity to me.
Opportunities for others:
Though ignored by Google, this opportunity is not lost on others. For one, this is where I believe Paypal is heading with their suite of acquisitions – Milo, RedLaser, Where etc. Recently, they launched the Paypal Access Online Identity Program to allow customers to carry their payments identity to various retailers on the web. And they are steering clear of NFC at the point of sale, for multiple reasons – because of the scarcity of handsets and point of sale infrastructure to support NFC. More importantly, if PayPal were to begin to support NFC transactions which rely on existing POS and Card Infrastructure, PayPal’s gains will be much smaller compared to its current online e-commerce revenue, owing to existing cost structures for processing payments at the point of sale. Though Paypal has so far only rolled out solutions that augment existing POS infrastructure, I believe that once they have a comparable merchant footprint, they will circumvent the POS and Card infrastructure and create their own new service framework. A cloud based competitive backbone to the traditional payment networks could disrupt the current interchange environment. Sounds something like what Google should have done? Absolutely.
Open API? Define Open..
Google Wallet and its partners have touted its openness as one of the key advantages to issuing banks, retailers and others considering a partnership. But, the Wallet API has so far been closed to anyone beyond partners. What surprises me is that, with no discernible competition from other mobile OSes on the mobile wallet front, Google could have put considerable distance between them and any competitor mulling a mobile wallet launch (Apple? Microsoft?), by calling on its considerable android developer pool to create applications that leverage its Wallet API. By choosing to be overly reliant on NFC and hampered by its partnership with incumbents in the traditional payments framework, Google has missed an opportunity to engage and empower the numerous start-ups and developers who would have built their solutions on top of the Google Wallet framework. Such a scenario would have allowed Google to scale customer on-boarding and provisioning aspects of their Wallet framework, and more importantly – decoupled the success of Google Wallet from adoption of NFC at the point of sale. Google Wallet as a consumer oriented product at this time is no match for what it could have been – a developer oriented wallet framework at the heart of numerous solutions deployed through retail partnerships.
Once again, Paypal knows better – it has focused its X.Commerce offering squarely at developers, treating them as customers. Despite Paypal’s numerous apparent failings in keeping its customers happy, it has definitely displayed a capability to understand the opportunities and challenges involved. Google?
Why Google ever chose to limit its wallet to NFC equipped devices is a mystery(or not – depends on who you ask). It both limited its viability and adoption, though this is expected to change in oncoming years. Though Google currently hones its product through a controlled rollout, it sounds as if it could have had millions more early adopters who would have created their own mobile wallets. Google could have utilized this opportunity to test user provisioning and onboarding, allowed users to set up Google Pre-paid accounts to fund transactions online and offline, at merchants equipped with their own Google wallet powered mobile wallets. All, with out ever worrying about the lack of enough NFC enabled POS systems. But to do that, Google had to be disruptive. Instead I believe it sacrificed its soul, its innovative spirit to pursue something far less disruptive and far easier for it to accomplish: advertising dollars. Sounds like a missed opportunity to me.
If you agree or disagree, please voice them below under comments: