It’s easy to see why Google and its rivals would have their eyes set on mobile payments, but less easy to see how they can break into this market. With its Google Wallet announcement on Thursday, the search company has just come up with an answer.
When it comes to the mobile computing world, commerce is more powerful than advertising: bringing actual customers into stores is the game-changer.
In this paradigm, a built-in payment system closes the loop, connecting lead generation with an actual transaction, all on one device.
But how to do it? As PayPal (which has sounded very much on the defensive during the recent spate of mobile payment announcements by rival companies) points out, it isn’t enough merely to offer an alternative. To change consumer behaviour, any new payment method has to be demonstrably better.
Googles’ answer: tie payments to discounts and retailer loyalty programmes.
The idea of receiving a coupon from a favourite merchant on a phone, then going into a store and waving the phone over a terminal to complete a transaction, has clear appeal, says Alistair Newton, an analyst at Gartner in the UK.
He still cautions against the hype that usually goes along with announcements like this. After all, most people don’t carry smartphones, and even those that do are likely to use other forms of payment most of the time.
But when loyalty programmes and payments converge, Mr Newton says it creates a “sweet spot”: retailers effectively provide a cross-subsidy that incentivises consumers and oils the wheels of the transaction, allowing the banks and card companies to keep their margin. He points to the Starbucks prepayment/loyalty card – now available on mobile phones – as an early example of effective card-less payment.
Square, which came up with its own ambitious mobile payment idea this week, is working on exactly the same thought. Also pointing to coffee cards as the model, founder Jack Dorsey called existing credit card-based rewards arrangements “a mess”. They take loyalty programmes away from merchants and build them instead into cards, robbing merchants of the extra gratification that their customers would get from an instant reward tied to making a purchase.
There are, of course, many reasons why an idea like Google Wallet might not catch on. Not the least of them is the difficulty of reaching sufficient scale to change the behaviour of both merchants and consumers.
Also, as Mr Newton, points out, people might resist the idea of giving Google valuable information about their purchasing habits to add to its growing trove of data. But introducing the right incentives should certainly help.