Last week, at Google I/O Google announced a set of sweeping changes to their Wallet product. CNet has a decent run down of what they announced but basically it boils down to the ability to “send money with GMail”, Wallet integration into Chrome to decrease payment friction, and “instant buy” with Google+. All in all, the announcements are interesting but I think what’s more exciting is the potential for Google to truly innovate in the payments space.
In the last few years, companies like Square, Dwolla, and Stripe have been innovating in the payments space but they’ve all been reliant on existing credit card infastructure. With the exception of using Dwolla as a replacement for a check, each of the companies still relies on charging a user’s credit card to complete the transaction. I think this infrastructure piece is the key pinchin for Google Wallet. If Google can sidestep the existing payments infrastructure for Wallet, like they did with the telcos for Fiber, they’ll end up redefining how digital payments work.
Ok, so they own the infrastructure now what can they do?
As far as processing payments go, cost is ultimately one of the most important factors used in picking a processor. The pricing is so opaque that FeeFighters basically built and sold a business simply by explaining in straightforward terms which processor was the best for your business. If Google had the freedom of controlling the pipes, they’d be able to lower their pricing below everyone else by introducing better risk analysis tools into their payment solutions.
Looking at how the APIs from companies like Authorize.net work, they basically only accept the minimum information required to charge a credit card and nothing more. Google would be able to modernize this by incorporating additional “verifying details” about a user to reduce the risk on a transaction. For example, a charge originating from a 2-factor authenticated Google Wallet user that is at their “home” computer is obviously much less of a risk than an anonymous user using a credit card for the first time. By segmenting risk by user, device, as well as transaction type Google would be able to offer the best rates for “normal” transactions and also accept “high risk” transactions.
Google has tried to push out the NFC powered version of Google Wallet in 2011/12 but it was immediately blocked by major American carriers because it competed directly with their ISIS solution. It shouldn’t come as a surprise that the telcos didn’t want to get relegated to “dumb pipes” for payments as well but it’s also not like ISIS has garnered any real traction either.
If Google controlled the entire stack and could successfully convert Android users to Wallet users, they’d be able to essentially pay the carriers “blood money” to lift the Wallet ban to drive adoption and then hopefully reach a more permanent deal.
Ultimately, true mobile payments need to be freed from the existing credit card restrictions and Google could be poised to deliver just that.
People have been talking about “easy” micropayments on the Internet for several years but they haven’t really shaken out. Even today, charging someone $1 for something is a huge PITA and it really isn’t even practical. Between fees and long payment forms, the micropayments still aren’t economically feasible.
With Wallet integrated into Chrome and the infrastructure under their control, Google would be able to tackle this head on by reducing the friction to completing a payment and offering different pricing models for micropayments. Think 2 click checkouts for transactions under $5 and a monthly fee of $5 for merchant accounts in good standing instead of transaction fees.
Despite some reservations, I’m excited to see what Google ends up doing with Wallet and how it ultimately influence the payments space. Another big question is what’s Facebook going to do? Revamp Facebook Credits? Start offering co-branded Facebook credit cards?
Anyway, thoughts or comments welcome.
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