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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Google Wallet: behind the scenes

30 August 2012  |  8889 views  |  5

Google Wallet's business model "bleeds" less than I originally estimated.

Google's card issuing partner is not Citi, but Bancorp (thank you for the correction, Frank). The latter is exempt from the interchange fee cap, hence Google would receive around $0.80-1.20 for every $100 spent on its card, depending on whether it was an online or in-store payment. That brings Google's net loss on each $100 transaction down to around 50-80 cents (or, perhaps, even less - Google should be capable of negotiating a (very) special deal with their acquirer).

I would not expect a typical GW user to spend more than $1,000 during the first year via GW, and later Google may either revise its cost/pricing structure or introduce additional monetization channels. At any rate, Google's customer acquisition cost of less than $10 is way below the banking industry's benchmark of $50-250.

As to the mechanics, Google's own description of GW is somewhat misleading: they say that "the Google Wallet Virtual Card is a Google Wallet prepaid debit card". Prepaid cannot be debit as such by virtue of its definition.

Moreover, Google says that "neither the Issuer nor Google Payment Corp. is extending credit to you in connection with your use of the Google Wallet Virtual Card". Yet later they state that "Bancorp will settle the Google Wallet Virtual Card payment to the merchant. Then, Google Payment Corp. will bill your selected Payment Method for the purchase price." That "then" step is nothing else but a (short-term) credit, in my "pedantic" opinion.

To confuse things further, Google Wallet also offers a... prepaid virtual card. Yes, another one (mentioned only in GW FAQ). That one is a virtual MasterCard too, but is issued by Money Networks (interestingly, Money Network service is operated by First Data, but cards are issued by MetaBank). The difference between those two virtual prepaid Mastercards is as follows: Bancorp's card remains invisible to the consumer and is linked to the cards "stored" in GW, whilst the one issued by Money Networks can used by the consumer as a standalone payment method, in-store (via NFC) and, I guess, online. I wonder why Google chose two separate issuers.

Google is already using an aggressive business model. To further cement their leadership in mobile payments, they need to extend Google Wallet to non-NFC smartphones, including iPhone. There is an elegant game-changing solution that allows to do just that. Watch this space...

TagsMobile & onlinePayments

Comments: (8)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 31 August, 2012, 17:39

@AlexanderP:

Google Wallet already works fine on non-NFC smartphones for online payments (http://www.google.com/wallet/how-it-works/online.html). So, when you say, "they need to extend Google Wallet to non-NFC smartphones...", you're implicitly referring to in-store payments only, right?

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A Finextra member
A Finextra member | 31 August, 2012, 17:49

@Ketharaman

Stores, loyalty/rewards, transit, cardless ATM, "chip"-secured e-commerce to name a few application areas.

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David Abbott
David Abbott - Nourpay - Riyadh | 03 September, 2012, 15:22

Have you considered the quarterly card account charges levied by the payment schemes? the fact that all the various players will expect to make money out of the wallet - and the fact that dormancy will impact this project in the same way that it has impacted so many prepaid programmes... The rewards may be there - the risks of failure are significant.

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A Finextra member
A Finextra member | 03 September, 2012, 15:35

@David

In case of Google, GW is not about payments... That's where they differ dramatically from most - if not all - players in the mobile payments field (as well as prepaid). Who wants to be "dumb rails" these days? Mobile wallet alone solves the problem that doesn't exist - that's what MNOs and banks don't get... Classic example: if you Sellotape a contactless card to the back of your mobile phone, that's a mobile contactless payment too. Simply putting that same card "inside" the phone does not change much.

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John Dring
John Dring - Intel Network Services - Swindon | 06 September, 2012, 12:45

Well said.

Its all about the consumer details, not the payments.

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Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 07 September, 2012, 08:54

Dumb or not, banking rails for processing card transactions have been the source of a lot of revenues and profits for retail and corporate banks for many decades. With Google making a majority of its revenues and virtually all of its profits from just one product (AdWords), it's hard to believe that it hadn't originally conceived of Google Wallet as a source of additional revenues and profits by simply doing payments. When it became clear that it couldn't bypass banking rails, it appears that Google has chosen to pivot GW as a rich source of consumer data instead of shutting it down for failing to accomplish its primary goal. Only time will tell whether this approach has any legs. Having said that, in the conventional card value chain, no single party among merchants, acquirers and issuers has access to the entire consumer data set. It can't be denied that only mobile wallets own the consumer's identity, SKU-wise purchase qty. and value, and total ticket size. But, this is true for ISIS, PayPal, SQUARE and all mobile wallets, not just GW.

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David Abbott
David Abbott - Nourpay - Riyadh | 10 September, 2012, 10:15

@ Alexander - Of course you can put the NFC for a card into your phone... Your debit card can go in, your credit card(s) your Amex Card, Your Discover Card  your loyalty card for Starbucks and Costa and so on..... Now the only problem, is how to select which one to use at the POS, how to use them... Normally this process is all done when you pull out the chosen card ....  Its not the Intent of Mobile payments that i find implausable..... its the practice, the Human factors, the fact that you are adding more parties to a transaction chain that can only increase both costs and security risks....   Google have a history of investing in many products then throwing them away after expensive investigations before failure.... They can do this, Adwords pays for it....  the question is - Is there a problem out there that anyone other than mobile advocates see as worthy of addressing (more to the point, is there a problem thats really bothering either merchants or consumers?)  

Then think on... Have you ever left a card in a store?  No problem - you have other cards in your wallet... Generally cards are worthless, they are handed to the retailer so you go back and reclaim them or report them lost or stolen.... what if the same happens to your phone? Mixing valuable phones and complex shopping scenario's is a potential nightmare for both merchants (who have to look after the phones) and consumers... Its about the users - not just the technology.

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A Finextra member
A Finextra member | 10 September, 2012, 10:54

@David

Spot on. Have a look at this post.

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