Fighting for Mobile Payment Future
Google is mounting a serious challenge to Apple and Samsung Electronics in the global mobile payment market. The search engine giant launched Google Pay before Apple and Samsung launched their equivalent services, but it found itself floundering. Now, Google is launching a full-scale counter-offensive in partnership with the major U.S. mobile carriers.
On Feb. 23 (local time), Google Payments Vice President Ariel Bardin revealed via googlecommerce.blogspot.com that Verizon, AT&T, and T-Mobile decided to expand the distribution of Google Wallet, in partnership with Softcard, a mobile payments venture established by the three carriers. Experts are saying that this partnership may cause a change in the dynamics of the U.S. mobile payment market, since the three mobile carriers account for more than 80 percent of the U.S. market.
According to Google, the carriers will pre-install this mobile payment service on smartphones running Android 4.4 KitKat or higher versions of Android starting later this year. The wording is a little vague, but it could mean that Google Wallet will be pre-loaded on not only new models but also old ones. The latest version of the Android operating system is Android 5.0 Lollipop, released in November 2014. KitKat was released in October 2013.
So far, Google has been unable to expand its mobile payment service in the U.S. due to Softcard. When the three carriers debuted the Softcard app, Google Wallet became a rival. The decision by the Internet search giant to acquire the mobile payment company appears to be part of its strategy to ally with the carriers.
Latest Move Comes after Several False Starts
The industry is paying attention to Samsung and Apple's responses to Google's move. The three companies compete to bring their influence over the mobile market into the mobile payment market through different technologies and strategies.
Google introduced its NFC-based mobile payment service in 2011. The service allows people to make payments by holding their NFC-enabled Android phones with credit card information near credit card magnetic swipe terminals at affiliated stores. Google's partnership with Softcard can mean that the tech giant intends to expand its existing service by pre-installing it on Android phones, rather than releasing a new payment service.
On the other hand, Google's new Bluetooth-based payment service, Plaso, is expected to be fully fleshed out at Google I/O 2015. It will be possible to conveniently use the service without touching mobile devices to credit card terminals at affiliated stores, since it can recognize users' smartphones and make payments automatically.
Samsung's Responses
Samsung is also gearing up to unveil its own payments service after it recently bought U.S. mobile payments company LoopPay. Related to that, Samsung Electronics Vice Chairman Lee Jae-yong reportedly met PayPal founder Peter Thiel at the Hotel Shilla in Seoul on Feb. 24 and discussed ways to cooperate in investments into fintech and electronic payment systems.
Industry analysts expect that the Korean tech giant will feature a new payment service on the Galaxy S6, which is scheduled to be showcased at this year's MWC. The new mobile payment system made by LoopPay sends magnetic information stored in credit cards via a magnetic field. People will be able to use the service at stores with magnetic card readers, and thus mobile payment terminals won't be necessary. However, separate terminals will be needed for those with smart card readers to make the service available.
It is possible to use Apple Pay at 27 stores in the U.S. right now, but Samsung's mobile wallet solution will be usable at 10 million stores, which constitute 90 percent of the total, according to Samsung.
Apple's Strategy
Apple Pay was rolled out in October of last year, and Apple is expanding the use of the service to Apple Watch in addition to the iPhone models. A million cards were registered for the mobile payments system just three days after its introduction. In particular, Apple Pay is expanding its influence, as it is used in an increasing number of apps, including taxi service app Uber and social commerce app Groupon.
As in the case of Google Wallet, Apple's mobile payments solution is based on NFC technology. Once a credit card terminal and a mobile device recognize each other, the payment system encodes and sends user payment information to payment terminals. When the iPhone of the user who previously requested mobile payments finds a payment terminal nearby, the iPhone's NFC module begins to operate. The iPhone and the payment terminal are connected after the iPhone is asked for a connection by the payment terminal. Then, the mobile device opens its communications window and exchanges payment information. A growing number of people are using Apple Pay, helped by the huge popularity of the iPhone 6 and iPhone 6+. Nevertheless, the problem is that the service is only available in stores with NFC-enabled payment terminals equipped to handle iPhones. Apple is in partnership with 750 banks in the U.S. to make this possible.
Security is Critical
Security technology is the most important factor to dominate the mobile payment market. The industry is paying attention to a change in Google's security technology. LoopPay is likely to strengthen security with a finger recognition solution based on technology related to magnetic secure transmission. Apple encodes payment information with a payment card technology called tokenization, and stores information on a security chip in the iPhone to respond to information leakage. Google, on the other hand, stored payment information on Google Wallet after its launch in 2011, but temporarily discontinued the service in 2013 due to the possibility of hacking. After that, it resumed the service in a way that does not store payment information. However, the service is widely acknowledged to still be vulnerable. Unless Google improves the security of its payments service, Google Wallet is likely to be a tempest in a tea cup.
Partnerships with financial, card, and retail industries are also important in competition. Google is likely to maintain its partnerships with its U.S. carrier business partners. It already built partnerships with City Card, Visa, and Sprint. However, it will be difficult for Google to use the pre-installation strategy in overseas markets like China and India.
The strength of Samsung's mobile payments service is its potential to spready rapidly. Currently, Samsung is cooperating with credit card companies like Samsung Card, Visa, and Synchrony. It is possible to use the service at retailers with magnetic card readers without separate terminals. But the problem is that the global market is switching from magnetic to smart card readers owing to security problems.
The alliance between Google and three U.S. carriers is also expected to have a profound effect on Samsung, which is preparing its own mobile payments system Samsung Pay. Since the three carriers are likely to demand that Google Wallet be pre-installed on Galaxy phones, the industry is paying attention to whether or not Samsung will accept their demand despite its intention to popularize Samsung Pay. Samsung phones will probably end up with both Samsung Pay and Google Wallet at the request of U.S. carriers.
Current Standings
Google started its mobile wallet solution in 2011, but it is showing mediocre performance. PayPal made up 78 percent of all digital payments in the U.S. as of November 2014, Google Wallet 4 percent, and Apple Pay 1 percent. However, observers say that Google Wallet lags behind Apple Pay in the market, since Apple's payments service has been logging strong growth after its release on October 2014.
Apple announced last January that its mobile payments system represents more than two thirds of all contactless mobile payments in the U.S. using Visa, MasterCard, and American Express credit cards. Data released by market research company eMarketer shows that 1.6 million consumers in the U.S. used mobile payment services last year, which totaled US$3.5 billion. The size of the mobile payment market is expected to increase to US$118 billion by 2018.
The worldwide mobile payment market will reach 1 quadrillion won (US$899 billion) in 2018, according to market research firm IDC. The market is expected to grow 30 to 40 percent each year. Transaction fees are likely to amount to 5 trillion won (US$4.5 billion) in 2017.
Jong Jae-hoon, senior researcher at LG Economic Research Institute, said, "Not only Google, Apple, and Samsung, but also ICT giants like Facebook and Amazon have entered the mobile payment market." He added, "I think that any company who can secure a new business model capable of syncing with a mobile payment service will be able to lead the mobile payment market."