- By sabj
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Google has been trying to make waves in payments for a long time now. Google Checkout was launched in 2006; Google Wallet in 2011. Businessweek did the numbers and found Google spent ~$300M acquiring different payments startups in recent years. But for all the product launches and engineers, there isn’t much traction to show for it – in terms of market share, or profits. Why?
In my estimation, Google’s strategy is failing because its tactics (promote new payment system) are misaligned with its real strategic goals (get access to super-valuable payments data). Its missteps are confusing by any measure, but make more sense when looked at this way.
Let’s look at four questions:
- What is Google trying to do?
- Why does Google care about payments?
- Why is it failing?
- How could it do better?
What is Google trying to do?
Google is trying to promote the adoption of Near-Field Communications (NFC), a technology that lets you use your mobile phone to pay for things by linking it to your credit card, bank, or a digital wallet. This is supported in Android and included on many millions of Android devices. Today, the technology has a 2% share of mobile payments, expected to reach 5% by 2016. 
However, instead of NFC, most people are using credit cards, cash, barter, etc., with no signs of quick change. People who do use mobile payments, are more likely to be shopping online, conducting bank transfers, etc., than they are to use NFC. Hence, this explanation…
Why does Google care about payments?
There are several reasons to be interested in payments; at the end of the day, Google cares about them because of DATA. Delicious, delicious data. Let’s talk about that and two other important (and interesting) reasons:
- Revenue from commissions / fees derived from processing
- Revenue from commissions / fees derived from processing
- Est. $492 B in transaction revenue by 2020 
- This is how PayPal makes its money – fees to sellers and buyers – and is a major source of bank revenue.
- Infrastructure systems & services
- Sale and service of supporting infrastructure, e.g. cash registers
- Data and Analytics Potential
- Use of data either for resale or complementary business purposes
- Data can come from both the POS or processing network (e.g., register vs. credit card / bank)
- Example: Companies like MasterCard, AmericanExpress sell bulk data about card purchase behavior
All of these are really large markets, ripe for disruption and innovation. And all of them would be plausible targets for someone to disrupt. We can see Square attacking (1) and (2) through its processing services and new tools; it’s also looking to capture some of (3) if its Square Wallet service gains traction. PayPal is quite eager to capture a share of (1) for offline sales on top of its existing business online. 
That’s the ‘traditional’ payments space. The mobile aspect is important because it is more ‘open’ for new entrants because of new disruptive technologies. This enables smaller players to edge in on traditional names. But what does Google want? Of the segments above, the third category – the data – is by far the most valuable to Google. Data is what makes Google tick, and the indirect value of transaction data is enormous.
Google doesn’t want to package up card swipes and resell them – Google wants to know what you and everyone else buys so it can know exactly how effective its ads are, and precisely how to help advertisers encourage you to buy more of something.
Google’s working in adjacent areas too, like Shopping and Trusted Stores. Did you think Trusted Stores was all about trust and consumer protections? Not so. It’s important because it gives Google access to the basket data of a transaction – that is, it tells Google what groceries you bought, not just that you spent $30 on something at the store.
Google also gets all the data about that site’s product mix, conversion characters, etc. Marketing gold. And even if someplace wasn’t a Trusted Store, but integrated Google Wallet? Well, you’d get quite a lot of data then, too… and the combination is really valuable when you combine it with the search terms you used to look for the product, and the ad you clicked to get there.
Note that Google Wallet is now intended to integrate with other aspects of Google’s advertising / marketing machinery – like Google Offers, or other loyalty programs that merchants might be using.
Why is Google failing?
Google’s strategy for Checkout didn’t work very well – this is part of the reason why the product has been killed. Google first made as if it wanted to attack opportunity (1), but didn’t clearly offer a proposition to merchants to switch from PayPal, etc., aside from the prospect of potentially better service. The fee structures are the same between Google and PayPal.
Wallet’s introduction made clear Google’s commitment and interest to the space, but the key question remains: As a business – why use it? As a customer – why sign up? There is no clear, differentiated value proposition communicated.
- Google hasn’t created a major ‘pull’ or ‘push’ for its network. The use of Google Wallet for Android’s Play Store helps – just as it did Apple with iTunes IDs – because you need to sign up to buy apps, etc. But overcoming that friction is just the start; why should I use Google Wallet at the drugstore, or restaurant, or bar, instead of anything else?
- Customers aren’t taking to the service naturally, aren’t being incented sufficiently to do so, and aren’t being forced to do so.
The strategy breaks down because the tactics are all around trying to get people to go through Google’s network and tools. It’s great to change the face of payments with NFC, but if no one is using it, something is needed to kick-start matters. I’d love to know the internal discussions that led Google to scuttle its Google Wallet (plastic) charge card at the last minute.
Things also broke down because Google’s products weren’t (aren’t?) matched with why people actually are using mobile payments…
Mobile payments are highly focused on transfers – transfers between people and institutions, and ‘bill pay’ which is not dissimilar. Payments are only expected to grow from 21% in 2013 to 23% in 2017. Now, that’s 23% of $700B+ in transactions (by 2017)… but we can see where the focus of user action is today. So if you were trying to capture market share OR access to data, those would be good places to act! Coincidentally, this is something Google is fixing, with the upcoming ability to send money by Gmail. So stay tuned.
Still – and note, these are global figures – NFC doesn’t have the brightest trajectory or uptake so far. (Not just Google’s attempt, mind you).
How can Google succeed?
To succeed in payments, Google has to decide what it really wants to achieve. Does it want to control every transaction, or does it want to know about every transaction?
Without building a giant master plan for this, here are some categories of actions that Google could take to improve its fortunes.
- Increase customer use drivers
- Add / modify features
- More paths to the data
- New partnerships
Increase customer use drivers(both “push” and “pull” factors for demand generation)
- Rewards program (%, cashback, points, etc.)
- Exclusive coupons / offers for Wallet
- Further incent merchants to promote use (rebates, co-marketing, etc.)
- More exclusivity instances (where you can only use Wallet, like on the Play Store)
Add / modifiy features
- Increased focus on transfers (like we see in Gmail)
- Tap-to-send $ features
- Marketing – giant scavenger hunt, find the location (using Google products and NFC?) then tap to get an NFC cash or in-kind prize delivered to you
- Better explain / educate Android install base on features. My mom has an S3, and likely has little idea she could theoretically pay for things with it at the drugstore.
- Turn Google Wallet into an actual e-wallet for Kids – parents could add funds to it and then manage things for their kids. Now, their kids don’t really have anywhere to spend it with NFC, but that’s part of the value proposition! (I guess they could waste it all on in-app coin purchases or extra virtual farm equipment, but c’est la vie.
Forge more paths to the data
- Launch a physical card
- Google almost did this for Google I/O this year, but backed out at the last minute. The reasoning? AllThindsD’s source said CEO Page did not believe their solution offered innovative features to rival other payment startups. As a result, Google has a result that rivals… none. 
- Buy or become a bank
- This would be quite interesting indeed, and would open up a lot of possibilities (as well as a lot of headaches). However, Google has shown itself willing to deal with headaches before, for the right opportunity…
- Tighten links with ad infrastructure
- Google gets a lot of data through AdSense / AdWords, and the more advertisers use Google tech to track their effectiveness, the more data Google gets. A full conversion tracking regime might let Google know exactly what gets bought.
- There is more that could be done on this front, though, especially as pertains the market control aspect of payments platforms. Google could give incentives or rebates of some kind to advertisers for using or deploying Google Wallet – perhaps some sort of Cost-Per-Click discount or volume rebate.
- This might violate some anti-trust laws, though, so I’m not sure if it’s allowable. Still, the high level concept – that more can be done to link together the payments platform with the multi $B ads platform – is sound.
- Make another infrastructure player an offer they can’t refuse
- MasterCard, Visa, Amex and Discover range from 23B to 118B at time of writing, but Google doesn’t have to buy someone… they could just make a really compelling offer to get more of the data than anyone else.
- Another variant on this would be to get data from someone in the existing interchange system…
- …Or to introduce some interesting Google Wallet tie-ins with alternate systems, like Dwolla, which relies on ACH system…
- …Or to partner with a rival like Square who is building an alternative network. Valued at $3.25B last year… sounds like a bargain!
- More (important) retail partnerships
- Square has a really big tie-up with Starbucks, but did you know that Starbucks itself has a really big payments platform in the form of its gift cards? Something like >$500M gets processed in mobile payments through gift cards for SBUX; Square picked just the right friend to develop new ideas with, as well as great penetration for its devices and registers to experiment.
- Google has some partnerships and cross-promotions, but more wouldn’t hurt, especially at places where NFC could theoretically speed things up.
- You can’t even actually find anywhere near you from the Wallet locator website (at least not easily) so I don’t actually know how dense the offer is today.
- Isis, on the other hand, which works in compatible places, will let you know where you can use it.
Of these, I’d love to see things in the last two categories happen, since they’re more interesting and more disruptive. But really, Google has the financial clout and market wherewithal to do just about everything and anything, if they’d try. I hope they do.
Let’s watch and see what happens next – Google is data driven and smart, and many of their metrics are doubtless pointing them in some new and exciting directions already. It’s a crowded marketplace and there’s a lot of room left for movement from them or other companies, be they existing players or new startups.
What are your thoughts? Thanks for reading!
Sources, Citations, and Disclaimers
Gartner – Full report @ http://www.gartner.com/resId=2484915 (subscription)
 [BCG Perspectives - Global Payments 2011. Alenka Grealish, Stefan Mohr, Carl Rutstein, Jürgen Schwarz, Niclas Storz, and Michael Urban.
- Note that in the cited context, "transaction revenue" includes fees, overdraft charges, etc.
 Square website:
“Everyone should be able to accept credit cards. We’re building a better point-of-sale and redesigning the payments experience for buyers and sellers alike. We’re building a network of commerce for the benefit of all.”
 Note that Google Wallet doesn’t necessarily drive any fee revenue for Google. It works (in some places) by creating a wrapper around a customer’s stored financial data, and creating a one-time credit card number that is only good for a single transaction. This is then passed through to the billing merchant, who sends it onwards to their normal credit card processor. (Dev specs: https://developers.google.com/commerce/wallet/online/overview)
Image – Closeup of U.S. currency – Pen Waggener, via WikiMedia via Flickr