By Alistair Barr
Google Inc. is reaching for its Wallet to keep pace with Apple
Pay, but differences in the two companies' mobile businesses mean
it won't be easy.
The Internet-search giant is trying to marshal an unruly
coalition of device makers, wireless carriers, banks and payment
networks to shape a new version of its Google Wallet payment
service, in some cases by offering them more revenue. Google hopes
to unveil the new service at its developer conference in late May,
said people familiar with the matter.
Google, however, exerts less control over the smartphones that
use its Android mobile operating system than Apple Inc. does over
its iPhones. Smartphone makers and wireless operators offer many
flavors of Android devices, with different preloaded apps. Each
player has its own priorities, and changes made on behalf of one
player can inconvenience the rest.
Further complicating Google's task is that some of its
"partners" have plans for their own payment services. Samsung
Electronics Co., the biggest maker of Android phones by number of
units, plans to unveil its own payment service next month using
technology from LoopPay Inc., a payments startup Samsung acquired
this week. A person familiar with the Samsung-LoopPay deal said big
smartphone makers envision few benefits from cooperating with
Google Wallet.
By contrast, Apple controls the iPhone's hardware and software,
giving it a big advantage. Apple Chief Executive Tim Cook said last
week that Apple Pay was only possible because of this control.
"Imagine trying to do this with several different companies," Mr.
Cook told an investment conference. "You'd be pulling your hair
out."
Persuading Android partners and financial-service companies to
support its payment service requires Google to "herd the many cats
involved," wrote Tim Sloane, a payments analyst at Mercator
Advisory Group, in a January research report. "It's a mess," he
added in an interview.
Still, Google has to aim for success, because Apple Pay could
become a draw for people to buy iPhones, instead of Android phones.
Mr. Cook said last month that Apple Pay accounted for $2 of every
$3 spent using contact-less payments on the largest payment
networks.
Apple Pay "has changed the dynamics" of mobile payments, said
Marc Freed-Finnegan, a former Google Wallet executive who is chief
executive of retail-technology startup Index Inc. "If payments
become a standard feature of phones, Google has to have a service
on a par with Apple or better."
A Google spokeswoman declined to comment. Omid Kordestani,
Google's chief business officer, told investors last month that
Google is working on a "fully functional payment system" that goes
"beyond just tap and pay."
Google launched Wallet in 2011, allowing owners of some Android
phones to pay by tapping on retail checkout terminals equipped with
a wireless technology known as near-field communication. But most
large U.S. carriers refused to preload the Wallet app on their
Android phones. They also blocked the service from accessing a chip
that stored credit-card information, because they were working on
their own payment service.
In 2010, AT&T Inc., Verizon Communications Inc. and T-Mobile
US Inc. formed Isis, later renaming it Softcard. The service failed
to gain much traction, and Google is now in exclusive talks to
acquire it as a key component of the revived Google Wallet, people
familiar with the matter have said.
The three wireless carriers are more willing to work with Google
these days, because they get no revenue from Apple Pay, the people
familiar with the matter say. Mr. Freed-Finnegan said that's
created an incentive for Google and the carriers to cooperate.
"Certainly Apple isn't working with the carriers," he said.
The three carriers and Softcard declined to comment.
In talks with the carriers, Google is offering to pay them to
feature Wallet prominently on their Android phones and is dangling
the promise of more revenue from advertising tied to Google
searches made on the phones, according to the people familiar with
the matter.
For Google, one big benefit of having a popular Wallet app would
be the data it could collect on consumer purchases, which would
give the company something besides website clicks to demonstrate
the effectiveness of its ads. That could drive up ad prices, and
carriers would share in the gains.
Banks are playing their own waiting game, to see how many
carriers and device makers cooperate. Hundreds of banks are
participating in Apple Pay, but most are interested in reaching
Android users too. Android smartphones accounted for 47.6% of U.S.
smartphone sales in December, a fraction less than Apple devices,
according to Kantar Worldpanel ComTech.
Banks pay Apple a small fee for each transaction because Apple's
security measures reduce their fraud-prevention costs. Apple Pay
users' credit-card information is encrypted and stored on the
phone, so merchants never see it.
Google is talking to banks and payment networks, including Visa
Inc. and MasterCard Inc., hoping for a similar deal, according to
people familiar with the situation.
Google's situation is more complicated. In 2013, it eliminated a
requirement that payment information for Wallet be stored in
hardware, because the carriers had prevented Wallet from accessing
the data that way. Its alternative, a software-based approach known
as Host Card Emulation, may require banks to upgrade their
antifraud systems. Mr. Sloane, the Mercator analyst, said the
associated costs and disruption may make banks less willing to
share fees with Google.
Daisuke Wakabayashi contributed to this article.
Write to Alistair Barr at alistair.barr@wsj.com
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