Google's NFC Payments: Details Emerge

One of the most fascinating areas of mobile to observe right now is payments. No one really knows how it will all turn out or which companies will ultimately succeed -- but there's tremendous activity and change is coming. For example, the recent launch of Square's new payments tools -- Square Register and Card Case -- are intended to radically change how stores and consumers pay for things at the point of sale.

Square's system doesn't rely on a new infrastructure (i.e., NFC) and the apps are simple to understand and adopt. Yet while they're innovative, these tools may not get serious consideration by enough merchants to sustain them. By the same token near-field communications (NFC) has a lot of momentum and buzz but it's not clear how soon NFC-based systems will be disseminated in the US and Europe. 

In a consumer survey MasterCard recently found that younger mobile users were comfortable with the idea of paying for things with their phones:

  • 63 percent of 18-34 year olds would be at ease using mobile phones to make purchases versus those age 35 or older (37 percent).
  • Consumers ages 18-34 (65 percent) feel more naked without their phones than their wallets, compared to 34 percent of those in the 35 and older group.

Apparently they're about to get their chance, as Google is set to announce a formal test of NFC payments with a few high-profile retailers. The announcement is supposedly coming on Thursday. Bloomberg broke the news; however it was already understood that Google was working with retailers in New York and San Francisco to lay the groundwork (with new payment terminals). 

The Wall Street Journal reports more specifics on the trial: 

The program will launch first in New York, San Francisco, and potentially other locations, followed by a broader rollout, said a person familiar with the matter. Participating retailers include Macy's Inc., American Eagle Outfitters Inc. and the Subway fast-food chain, said a person familiar with the matter. Retailers that participate in the program will have upgraded terminals at the point of sale that can read the mobile devices and provide special offers.

Other vendors reportedly involved include Citigroup, Verifone, ViVOtech and MasterCard.

It's not clear whether Google will participate directly in the transaction and/or capture any direct revenue. My guess is probably not. Rather, Google will probably use the platform to boost mobile ads and offers, as well as capture data on user purchase behavior. 

Here's the scenario: a user sees an ad (search or display) on a mobile device including an offer to be redeemed at the point of sale. She goes into the store and uses the offer, paying with her Android phone. This is a closed-loop and both Google and the retailer gain valuable data about ads that drove in-store traffic and their ultimate outcome at the register. 

Indeed, meaningful deals/offers or other incentives will need to be offered initially to get people (Android users with Gingerbread) to utilize the system. Previous reports indicated that Google was footing the bill for the upgraded payments terminals.

When the annoument is formally made there will be considerable discussion and speculation about the outlook for NFC payments in the US and Google's role in the system. I would be cautious. 

Mobile payments will definitely come; however no single approach or system is a foregone conclusion. And it usually takes quite a bit longer for new behaviors to become established than pundits expect.

While consumers are generally ahead of marketers with mobile usage, it took almost a decade longer than Forrester expected for ecommerce to become mainstream. It won't take anywhere near that long for mobile wallets to take hold. But it could still take up to five years. 

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