Google Wallet Doesn't Need Operators' OK—And That Could Mean A Fight

When it comes to mobile payments, mobile operators may already be losing control of their money-handling dreams—to Google. Tinkerers have now figured out how to run Google Wallet on Samsung's Galaxy Nexus—an Android phone from Verizon that isn't supposed to be running Google's mobile wallet service. Some Verizon users were able to install their own Citi payment-card information in Google Wallet, and even collect the $10 credit for the Google prepaid "card" that comes with the service.

Those tinkerers didn't actually hack Google Wallet—they just changed settings on the phone to let it run Google's payment application. And for now, this isn't something ordinary customers would likely do. But the tinkering did demonstrate that Google doesn't need a mobile operator's cooperation to run Wallet on an Android phone. If telcos push back and try to block Google Wallet, that could create a new fight at the POS—with retailers caught in the middle.

The demonstration that Google Wallet can run whether carriers like it or not comes as analysts are beginning to parse how mobile operators, Google and Apple will carve up mobile payments. According to a report last Wednesday (Nov. 23) from ABI Research, mobile operators will control 75 percent of mobile wallets in 2012—that's a global number, based on what mobile operators have already launched in France, the U.K., Turkey, Korea and elsewhere. But by 2016, ABI figures that Google and Apple will have carved that back to 68 percent worldwide.

In the U.S., the situation is essentially flipped: Google currently owns mobile payments, since it's already testing Google Wallet in New York, San Francisco and other major cities, while the mobile operators' joint venture ISIS won't begin trials in Salt Lake City and Austin until mid-2012. But ABI analyst Mark Beccue warns not to write off ISIS in 2012: "Even if it's just Austin and Salt Lake City, they will be able to introduce multiple handsets there," he said. "In contrast, our estimate of current consumers capable of Google Wallet is around 450,000—that's our estimated number of Google Nexus S users on Sprint."

Apple, which will likely jump into mobile payments next year, will move tens of millions of payments-capable phones as soon as Apple starts making them for AT&T, Verizon and Sprint.

That makes it sound like a simple numbers game: Whoever collects the most consumers' phones to be the default mobile wallet will win. But neither Google nor Apple has to wait for mobile operators to cooperate. Apple can (and will) put whatever it likes on iPhones, and telcos will go along with it.

Google is a different story—or at least the ISIS telcos may think it is.Google is a different story—or at least the ISIS telcos may think it is. In a simple marketing battle—"whose mobile wallet do you want to use?"—Google will likely roll over the mobile operators, and they know it. That's part of the reason none of them have come to terms with Google, which says it's in discussions with all of them. If the ISIS operators already have Google Wallet on their phones, the ISIS mobile wallet would have to be dramatically better to make headway. That seems unlikely.

But what if Google decides to go ahead and offer Google Wallet on the operators' Android phones anyway—and what if the operators push back? It wouldn't be hard for mobile operators to offer Android phones without Google Wallet installed, but they would have to take unusual measures to block customers from downloading the app if Google made it available. And if the operators did that, the whole mess would probably end up in court.

In the meantime, retailers who are already facing the possibility of supporting three different mobile payment schemes—and in the stupidest of scenarios, three different mobile payment POS devices on their counters—could be caught in the middle of that fight.

What happens when a customer walks in with a phone whose mobile-wallet app worked fine at another store 20 minutes ago, but doesn't work now? It's not ISIS or Google or Apple that customers will blame. It's the chain that will take the heat.

And explaining to that customer that 20 minutes ago the phone was just mimicking a contactless payment card, but now it's actually performing as a full Google Wallet, which is being blocked by the carrier—well, do you really want your associates trying to say that to an already irritated customer anyway?

All of that is at least six months away, and all chains can do is wait to see if a real fight breaks out. In the meantime, Apple could enter the mobile wallet field in early 2012 with something that at least uses the same POS devices as Google, which would make it impractical for ISIS to force retailers to accept another on-counter POS device. Or Apple might so completely swamp the market that Google would change its protocols to match Apple's version, with mostly the same result for retailers.

In the best of all worlds for retailers, all three major U.S. mobile-payments players might decide to use the same POS and protocols. That would make life simplest of all for retailers—but you'll probably be waiting for that one for a long, long time.