"Total Moontalk." Google's Fictional Challenge to Visa and MasterCard

Nick Holland has spent the last decade covering the intersection of the mobile and payments industries. He currently covers all things mobile-transaction related at Yankee Group.

If you believe the current media fervor, 2011 is the year of mobile payments. So were the years 2006 through 2010. This year, however, there appears to be more signal than noise in the form of announcements from PayPal, Visa, MasterCard, The Isis Consortium (Verizon Wireless, AT&T and T-Mobile) and, trumping all of these in the headlines, Google. However, Google's likelihood of competing with existing payment networks is, in reality, about as likely as the Apple iShakeWeight.

Although last week's news was mainly about Eric Schmidt's shifting role at Google, that focus may have overshadowed some strategic insight he shared with the Harvard Business Review:

"We are at the point where, between the geolocation capability of the phone and the power of the phone's browser platform, it is possible to deliver personalized information about where you are, what you could do there right now and so forth—and to deliver such a service at scale. But to realize that vision, Google needs to do some serious spade-work on three fronts: First, we must focus on developing the underlying fast networks (generally called LTE). Second, we must attend to the development of mobile money. Phones, as we know, are used as banks in many poorer parts of the world—and modern technology means that their use as financial tools can go much further than that. Third, we want to increase the availability of inexpensive smartphones in the poorest parts of the world."

Ignoring points one and three—because these are going to happen anyway, irrespective of Google's involvement—we will consider the second leg of the Google mobile stool—mobile money. Schmidt's comment places phones as enablers of mobile financial services in developing markets. The media, however, has run with this concept as evidence that Google is looking to set itself up as a retail mobile payments network. Combine this comment with other announcements saying that Google has launched an NFC-enabled phone and is piloting an NFC retail initiative in Oregon and, clearly, Google is going to be the next MasterCard or PayPal.

As a professor of mine used to say to me: "Total. Moontalk." Let me explain why.Google's financials for 2009 starkly point out that 97 percent of revenues come from advertising. Everything else makes up 3 percent. Now, if you were Google, would you consider how to further develop the services that make you the most money, or would you decide to dabble in a highly competitive legacy industry where the constituents fight for scraps of interchange and transaction fees?

And to clarify the NFC (near field communications) announcements:

  • Google has brought out a handset, the Nexus S, that has NFC technology set to read-only mode. It can read reciprocal NFC RFID tags in the same way that a phone with the appropriate software and camera can read barcodes. For mobile payments to happen, and for the phone to emulate a wallet, the NFC chip and associated software needs to be enabled for card-emulation mode. This is a software upgrade requirement, and Google could do it. But it is somewhat telling that Google's initial rollout of the devices is not about the phone becoming a wallet; rather, it's about the phone being enabled to "grab" information from tags at specific locations.

  • In parallel to bringing out the NFC-enabled Nexus S, Google has been working on a project in Portland, Ore., called "Hotpot." As a component of this project, local businesses can place NFC decals in storefronts so folks with NFC-enabled devices can "grab" information about the location, such as peer reviews and promotions. Think of Yelp or Foursquare at a precise location level.

    Nothing here indicates that Google is planning to become a retail payment brand, but a lot indicates that the company plans to extend what it does best to the physical world. With an NFC-enabled phone and a store displaying NFC tags, the act of tapping the phone on the tag provides physical evidence that the consumer was at that physical location at that specific time. For Google, this approach is a direct transcription of its existing Internet-based business of click-throughs on Web advertisements. In the physical world, the phone becomes the mouse.

    The unfortunate fact is that the payments and retail industries see mobile money through the lens of the markets in which they operate. When Google mentions mobile money and NFC, though, it obviously means payment card replacement. Indeed, it is likely that Google will facilitate mobile payments for third parties with NFC support on its devices. But this support is just gravy for the company. Both the definition of mobile money and the capabilities of NFC are much broader than the industry recognizes. Please reach out to me and share your thoughts.