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...