Mobile Payment: The Fight for Your Digital Wallet

A war is brewing and I’m not talking about the one for your smartphone between iOS and Android. No, the next step in a war for our identity is in the mobile payment space. Companies want you to discard the plastic cards in your wallet and use that one converged device you almost always have on you: your mobile smartphone. There has been much news and progress in this space over the past two weeks and quite a bit of drama over the past year.

The Path to True Mobile Payments

The prelude to mobile payments came with the advent of the internet and digital payments. Digital payments aren’t new. After all, by this time, consumers had become accustomed to paying for products online. One popular service that many are looking at for the mobile payment space is PayPal, which came to fame through its partnership with eBay. However, the two early shakers in mobile payments came in the form of Square and Starbucks, the wildly popular coffee chain.

Square’s application used an attached card reader for customers to swipe their credit cards. The information is then transmitted through the phone’s data connection and processed. Alternatively, a seller could manually input the customer’s credit card information for processing. While this was a good start, it really did not allow customers to ditch their credit cards. Instead, it allowed transactions to take place just about anywhere. Square has evolved their service but still focuses on card readers since its business model skims 2.75% of every credit card transaction.

Another early mover was Starbucks. Starbucks’ approach was different in that it used its own app and QR code system to process payments. Customers would reload their Starbucks account through credit cards and then spend out of their account via a Starbucks app. The app would use the QR code to get around the limitation created by different mobile operating systems and the lack of technological standard such as Near Field Communication (NFC). The app has been very popular with customers, a friend of mine in Washington, preferring the app to newer forms of payment such as Google Wallet because the Starbucks app also stores his Starbucks gold card and discount information. However, Starbucks is slowly making a transition into the mobile payment space with its new partnership with Square. Both Square and Starbucks are helping consumers and businesses make the transition from physical to mobile.

Google Wallet vs ISIS

Google entered the mobile payment space with its Google Wallet app, which it first demonstrated a little over a year ago on May 26, 2011. The app itself did not go live until September 19, 2011, and only on Sprint’s Nexus S 4G phone, one of the first phones to support NFC. Adoption of Google Wallet was one of the larger hurdles as few stores carried a Mastercard PayPass terminal; outside of prepaid Google credit cards, only Citi Mastercards could be directly added to the app; very few phones had NFC; and even fewer phones even had access to the app since Sprint was the only U.S. carrier to buy into Google Wallet, the other big three carriers, AT&T, Verizon, and T-Mobile rallying behind its own mobile payment system, ISIS.

This led to some controversy late last year when Verizon’s Galaxy Nexus shipped without Google Wallet. Many Android enthusiasts felt the Galaxy Nexus was no longer a pure Google experience and that Verizon wrongfully blocked Google from putting their app on the phone because of its loyalty to ISIS. Verizon went on to say it did not want Google Wallet to be installed on its phones because the app itself poses a security risk and that guidelines for liability for mobile payments were not developed enough for them to expose their customers to. For example, if a Verizon customer’s phone is stolen and used to charge thousands of dollars via Google Wallet, the customer would most likely call Verizon first, thinking they are the first gatekeeper. However, Verizon doesn’t want such a liability; especially since researchers found out just how unsecure Google Wallet really is (even more so for rooted devices). Verizon’s actions did not stop both rooted and non-rooted users from finding another way to get the Google Wallet app onto their phone. Some employed a trick on Google’s Play Store website to download the app while others simply sideloaded the apk, one of the benefits of Android’s OS.

Earlier this month, less than a year since the official unrolling of Google Wallet, Google made a giant step in the right direction by updating their app to support most credit cards and not just Citi Mastercards. While this is great and I have since added my credit card to the app for fun, there is still the problem of NFC payment terminals. In addition, while many phones (particularly newer Android phones) have NFC with some analysts expecting 53% of phones to have this technology by 2015, not everyone is aware of Google Wallet’s app. Recent news points to Verizon openly allowing its NFC-enabled phone owners to download the app from the Play Store now.

Google has made significant progress in opening up the mobile payment space and another landmark moment was achieved just a few days ago when the four major carriers, ISIS, and Google joined together to form a Mobile Payments Committee. With all of them together, hopefully the battle between Google Wallet and ISIS can finally come to a close and we will finally have a unified method for mobile payments.

Or will we?

Enter U.S. Retailers

Looking to not be left out  of this growing market are large retailers in the U.S. such as Best Buy, Target, and Walmart. These big U.S. retailers along with a number of other retailers are joining forces to create Merchant Customer Exchange (MCX), which promises to give customers a mobile-commerce experience both at the checkout line and in terms of offers. As many know, Target has a robust data analytics system that matches customers with offers based on what they buy, their age, gender, etc. – a famous example was when Target knew a teenage girl was pregnant before the girl’s father knew.

Thoughts on the Future of Mobile Payments

There’s no question that mobile payment will be a part of the future as technology advances and people become more and more attached to their smartphones. The question is whether or not there will be a single standard or not. Many of the commentators on various blogs regarding the announcement of MCX lament the fact that we as a society are not moving to a single standard – whether it’s Google Wallet or ISIS or whatever else the big four, Google, and ISIS decide on or something entirely different. To me, it doesn’t really matter as long as everyone, OEMs, businesses, carriers, developers, and consumers all decide on the technology standard. Imagine what would have happened if a credit card reader was not the standard and there were other forms of paying with a plastic card. Businesses would either have to buy into all of them or simply choose the most popular. It’s terribly inconvenient and costly (not just monetarily) for both consumers and businesses.

At this point, most of the pieces are moving toward NFC adoption, which is good. As long as NFC is the standard, I do not mind having multiple apps on my phone – after all, I have multiple credit cards and loyalty cards in my wallet or lying around the house. Having all of that stored on my phone, which I have on me at all times, would be much more convenient than going to Panera or some other destination and realizing I don’t have my customer loyalty card.

Don’t get me wrong, I would love to have a single standard app, but it is looking less and less likely. In the end, people (customers) are being given the option to choose. For people who only use one credit card, they can simply opt to use Google Wallet. For people who shop frequently at Target or Walmart, they can choose to have their MCX app for shopping at those retailers. It will end up no different than people who have an Amazon credit card or a Macy’s credit card in my mind. As for me, I mostly stick with one credit card to make keeping track of my finances simpler, so Google Wallet does the job of replacing my credit card. However, until NFC payment is widely adopted, I will still have to carry my credit card. Heck, some places still don’t accept credit card today and for places like that, I need to have cash.

One wild card here is Apple though. The iPhone is popular and widely adopted, so any mobile payment technology will have to be adopted by Apple’s flagship smartphone in order to get the penetration and buy in it needs. Rumors point to Apple including NFC in its next iPhone, but the Cupertino company could easily deviate by developing its own proprietary solution that links with its iOS6 Passport service. We would also be foolish to discount the strength of Microsoft’s brand name and what it will bring to the table with Windows 8, which aims to connect desktop, smartphone, game console, and tablet: a powerful value proposition for many consumers.

Beyond Mobile Payment

The convergence of the money in our wallet into our mobile phone is just step one. Beyond that is our identity. Imagine using your phone as your driver’s license, passport, or any other form of identification. This is the plane that Facebook is fighting on and it is getting competition from one of the biggest in the world: Google.

Many people question why Google is so adamant about pushing their Google+ (Plus) service and it’s exactly for this reason. Google is already one of the keepers of your online identity, using keyword searches, bookmarks, e-mail, video/blog creations, and more to “manage” who you are online. Facebook is the other big keeper of your online identity with access to all of the information it can gather from your interactions on its site.

The war for our identity is the next battlefield after mobile payments and it is already heating up – Google trying to grow its social hub with Google+ and continual rumors of Facebook trying to fill the mobile space with its own phone (despite Zuckerberg’s denial).

Where do we draw the line on privacy and how much a non-government regulated entity can have access to about who we are is going to be a key topic as we move forward. Another topic as we continue down this path of technological convergence is security. We’ve already seen how insecure the cloud and other internal processes can be when Gizmodo writer Mat Honan was hacked earlier this month. Do we really want to trust our identity to companies such as Google or Facebook? How secure would our information be in a world where hacking and identity theft are becoming more and more rampant?

It is up to us to decide where we draw the line since many of these issues have not been addressed by the laws of our society in the U.S., much less the world. I’m fine with Google knowing what I search for, what sites I visit, and what I write in my e-mails (although I’m less fine about any negative conclusions that may be drawn from such data – on that note, judges and the Court of Appeals have passed various rulings that the collection of data is not against the law, but how the data is used for wiretaps and GPS tracking), but honestly, my identification is probably where I would draw the line. Food for thought as we walk down this path.


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