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Google: More Issuers to Integrate with Wallet; Could Pose Threat to Telco Business Case

Aug 31 2012 (All day)

Google Wallet product manager Robin Dua said the company expects more payment card issuers to soon announce support for the wallet–enabling their customers to easily add their cards to the NFC-enabled cloud-based wallet.

If true, the issuers would follow Discover Financial Services, which earlier this month announced “simple click-and-add” support for the wallet on Discover’s Web site. Like Discover presumably did, the other issuers would use one or more application-programming interfaces Google said it has introduced for the new version of its wallet, which it unveiled Aug. 1.

“We have a bunch of other card issuer partners that are going to be announcing the support for those APIs very soon,” said Dua, speaking at a Google developers meeting Aug. 23. “So users will be able to go into their Internet and mobile-banking applications to store cards into ‘Wallet’.”

The integration by card issuers with the wallet makes it easier to add the cards, but with Google’s new cloud-based approach, consumers could add any of their Visa, MasterCard, American Express or Discover cards to the Google Wallet app or through their Google accounts online. They wouldn’t need their issuers or the card brands to support the wallet.

If successful, the new version of the Google Wallet would pose a threat to the NFC business models of mobile operators, in particular, which plan to charge fees to banks and other service providers to store their secure applications on the telcos’ SIM cards or other secure elements.

Google's business model, on the other hand, is to deliver targeted promotions and offers, based on the shopping and other customer data it collects. It would charge advertisers for delivering the promotions. It has said it doesn't charge payment issuers to be part of the wallet. 

Trusted service managers also wouldn’t fare well if the new Google Wallet approach catches on, since the cloud-based credit and debit card accounts don’t require over-the-air provisioning and management of applications on the secure element.

UPDATE: But Olivier Piou, CEO of France-based smart card company and TSM Gemalto, said he doubted the company's TSM business would suffer from Google Wallet 2.0.

“Now it tends to disintermediate the banks, so I don’t think the banks will let it happen that way,” said Piou, in response to a question from a financial analyst Thursday. “And also, the banks, when you are in their shoes, the banks don’t want to address only the customer with Google with mobile phones. For them, you are a customer, and they don’t want to have to ask you, 'do you prefer a Samsung, an Apple, a Nokia?' “They want to be able to download the service whatever is your device. So they probably will each have a TSM.” END UPDATE.

There are questions about how Google’s cloud-based wallet approach, which continues to use NFC on the front end, would work with EMV applications common outside of the U.S., however. Also, Google still needs access to secure elements in NFC phones for its wallet, and telcos could continue to try to make that access difficult.

Under Google’s cloud-based wallet approach, sometimes referred to as Google Wallet 2.0, the card accounts are stored on Google's servers. For in-store purchases, Google links these credit and debit accounts to a virtual MasterCard card number stored on the secure element in NFC phones that support the wallet.

Google calls this virtual card number the “Google Wallet ID.” The virtual prepaid card, which supports MasterCard PayPass, is used for the transaction at a contactless point-of-sale terminal and this prepaid account is, essentially, funded by the cloud-based credit and debit card accounts.

That funding apparently takes place immediately and would be for the amount of the purchase. Issuers could continue to offer their rewards programs based on purchases, and that is what Discover is doing.

Enabling Nonpayment Applications
Dua said Google also plans to introduce cloud-based loyalty and couponing applications for merchants and intends to open up its wallet platform.

What we’re trying to do is make it easy for airlines, transit providers, other types of issuers of credentials–make it super simple for them to get their credentials stored in the wallet,” he said. “And this is where we envision kind of an open platform, where we will allow all sorts of partners to be able to issue their credentials into the wallet and allow the users to use them, not only with the phone but online.”

The Web giant would continue to promote its SingleTap feature to enable consumers to pay and redeem their offers and rewards with one tap of the NFC phone, Dua said, although few merchant locations have terminals that can support the SingleTap technology, at present, even at merchant locations that can accept contactless payment.

Scaling Questions
The cloud-based approach overcomes one of Google’s problems with the first version of its wallet, which it launched last September.

Google in the past has tried to recruit banks to offer their payment applications in the wallet, but had managed to sign up just one issuer, Citigroup, for the first version of the wallet, which launched last September.

It has also offered a Google Prepaid Card, which could be funded by other cards. Google’s trusted service manager has downloaded and provisioned the applications over the air.

“Under the old model, we were actually integrating with each card issuer and this integration from the time of negotiation to integration would take anywhere from six months to a year, and under this model the cards were stored in the secure element in the NFC device,” Dua said. “We just didn’t feel that this model was very scalable. It would literally take a lifetime or so to get through the 8,500 issuers that were in the U.S.”

In response to a question, Dua contended the planned Isis wallet, which will soon be piloted in two U.S. cities by the Isis telco-owned joint venture, will have trouble scaling up, since it follows the same model as Google’s first wallet version did.

“There are a lot of wallet providers out there who are stuck on this approach of, ‘let’s integrate with every issuer and let’s enable this over-the-air provisioning of cards to the secure element,’ and it’s just not a scalable approach,” he said. “I talked about the difference between our cloud-based approach and a number of other wallet providers, Isis included. (They) are working on direct provisioning of cards from an issuer to secure element, in their case, the SIM. We just don’t think that model is scalable, for the simple reason that there are 8,500 issuers in the U.S.”

Of course, while there are thousands of payment card issuers in the U.S., purchase volume is highly concentrated–with the top 10 issuers of credit and debit cards accounting for more than 75% of purchase volume, according to one estimate. So wallet providers don’t have to sign up lots of issuers to cover a large proportion of consumers.

And, in fact, one of Google’s major problems with its ability to scale remains: It still needs access to secure elements in NFC phones to anchor its wallet.

In the past, the two largest U.S. telcos, both part of Isis, Verizon Wireless and AT&T Mobility, have tried to block access to embedded chips in Android phones, in some subtle and not so subtle ways. European telcos also have given Google the cold shoulder when it comes to using their SIM cards or embedded chips as secure elements.

Google now is available on six devices, noted Dua, all sold by Google’s main telco partner, Sprint, and some of them, more recently, by Sprint-owned Virgin Mobile USA, a mobile virtual network operator. Google also put an unlocked version of its Galaxy Nexus Android phone on sale for GSM networks, which would open up the Google Wallet to customers of AT&T and T-Mobile.

Dua said Google is in “discussions today with a number of other carriers,” but he declined to elaborate. Dua also said the company is “actively pushing” to get the Google Wallet into markets outside of the U.S., but he also refused to predict when the Web giant would launch overseas.

The Isis telcos will not have a problem with access to secure elements, since they issue SIM cards and also control most of the distribution of phones in the U.S.–giving them a strong claim to ownership of embedded secure elements in NFC-enabled smartphones hitting the market. 

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