Mobile Pay is The Next Battle Between Apple and Google

Mar 04, 2015

 

Consumers may not be ready to pay for everything with their phone, but Googleand Apple aren't waiting. The two tech giants appear to be gearing up for another battle over the mobile payment market, which is likely to explode in the coming years.

Apple is already the dominant player with Apple Pay, which is accepted at thousands of retail locations and has millions of potential customers. Now Google, through a recent acquisition of a smaller mobile payment provider called Softcard, is signaling that it is may launch another challenge to Apple despite its struggles with Google Wallet in the past.

The market is still in its infancy, but in-store mobile payments are expected to exceed half a trillion dollars in three years, according 451 Research, which studies technology.

This means that a lot is at stake for both tech giants.

"Apple believes it has built a better mousetrap," says Paula Rosenblum, managing partner at Retail Systems Research. "And I believe the hope is to ultimately integrate it completely into the Passbook loyalty apps. Google likely wants it because the more it learns about consumer buying patterns, the smarter it can make its algorithms. With Google it's always about the data. With Apple, it's always about pulling you deeper into the ecosystem."

Mobile payment lets consumers use their phones to pay for goods at the checkout counter, by tapping the phone on a special terminal, and using their digital wallet--which is a mobile application on a phone that is connected to a payment card or bank account--to make mobile payments. Though Apple Pay is dominating right now, Google is not giving up just yet.

At the Mobile World Congress event Monday, Google's SVP of Product Sundar Pichai announced that the company is also working on a separate payment service called Android Pay. Like Apple Pay, Android Pay will facilitate payments in stores as well as in mobile applications.

It seems as though Google will take a two-pronged approach to digital payments. As Google develops Android Pay, Google Wallet will be the consumer-facing mobile app, while Android Pay will be the technology powering the transactions for retailers and third-party apps.

Google hopes that the recent acquisition of Softcard (formerly known as Isis) will help it ramp up its technology, which 451 Research's Jordan McKee believes is "a significant turning point for Google's payment ambitions." Softcard was a payment services project backed by AT&T Mobility, T-Mobile USA, and Verizon Wireless. It uses a similar technology to Apple Pay and Google Wallet, but Google claims that it will be gaining "some exciting technology and intellectual property" from Softcard.

This is "bringing them closer to Apple," McKee says. The Softcard acquisition also brings a valuable supplementary partnership with its former backers AT&T, T-Mobile, and Verizon, which means that Android phones sold by these carriers in the U.S. will come with Google Wallet pre-installed. This will get Google Wallet in front of the eyes of more consumers, whether or not they actually use it.

Google has also been benefiting from Apple's own efforts as well. Because both use the same technology, any merchant that accepts one automatically can accept the other.

Additionally, Google is reportedly testing new methods of payments, according to the tech news site The Information. Multiple sources told the publication that Google employees are testing a new service called "Plaso," which lets users pay by verbally telling the cashier their initials. The cashier is able to detect that a user's phone is near the register, using the wireless communications system Bluetooth beacon technology. So, instead of users tapping their phone on a terminal, their phone automatically sends a signal to a cashier's beacon device.

This test is still in its early phases, and it's unclear whether it will ever be released to the public, notes The Information, but it still signals that in-store payments are a priority for the company.

Nonetheless, Google still has a ways to go before catching up to Apple.

Apple is pushing Apple Pay by aggressively partnering with merchants and convincing them to accept the mobile wallet. More than 220,000 retail locations and a number of mobile apps accept Apple Pay. Additionally, 200,000 vending machines and self-service terminals support Apple Pay, and plans are in the works to bring the payment service to Chevron gas stations.

This is crucial because consumers need to know that a mobile wallet is widely accepted in order for them to even try out the wallet.

Apple is also addressing one of the main concerns with mobile wallets: security. According to the 451 Research report, 84% of consumers surveyed are concerned about secure storage of financial account information when looking for a mobile payment app.

That's why Apple Pay uses biometrics with Touch ID, which lets users unlock a phone or app by using their fingerprint. It also secures payment information through the use of tokens. 

Promotions from some of the major banks and credit card companies are also helping to spur the use of digital wallets. For a limited time, Wells Fargo offered $10 to its debit card customers and $20 to its credit card customers, who made a purchase with Apple Pay. Visa, MasterCard, and Chase also offered sweepstakes and prizes for Apple Pay users.

It seems like these efforts are paying off, with Apple Pay seeing more than 1 million credit and debit card activations during the first 72 hours after it was released. Some other success stats include that Apple Pay has doubled transactions at Walgreens, and it accounted for more than 50% of tap-to-pay purchases at McDonald's. Additionally, in just 17 days after the wallet's release, Whole Foods processed 150,000 Apple Pay transactions, or about 1% of all Whole Foods transactions.

At least 1 million Chase customers have added their credit or debit cards to Apple Pay, and according to Apple CEO Tim Cook, Apple Pay has accounted for two out of every three dollars spent through contactless payments on Visa, MasterCard, and American Express. "Apple appears to be the best positioned mobile wallet candidate at the moment thanks to its strong vision around convenience and security against the backdrop of the unique halo effect that only it can command," McKee said. "Given Apple's vertical integration advantage, it's difficult for any competitor to match the seamless experience Apple Pay delivers."

Piper Jaffray analyst Gene Munster also sees Apple as a winner.

"Apple Pay looks like they're going to be the winner," he said. "You're talking about something that'll be around for decades. Part of it is just how seamless Apple Pay is, embedded in the in-app experience. It's magical how easy it is."

Apple declined to comment for this story, and Google didn't respond immediately to a request for comment.

Source: The Street