Google Wallet's 2012 Struggles Could Mean Trouble Ahead

Google is reportedly working with Discover to launch a plastic card, which some analysts suggest spells trouble for the viability of Google's mobile wallet.

January 02, 2013

NEW YORK - Last year was a challenging year for Google??s mobile wallet, American Banker reports, beginning with a reported security breach and ending with speculation that the company would add a traditional plastic credit card to its digital wallet.

"Neither occurrence represents a terrific endorsement for the power of mobile payments," AB says, with the plastic card news "a poor indicator of the viability of a mobile payment system that relies on Near Field Communication ??" as few handsets include NFC chips and many retailers still lack the technology to read signals from NFC-equipped phones.

"From Google's perspective, they were not really making any money on payments, so high-tech payment methods are not adding any value," said Richard Oglesby, senior analyst and mobile pay expert with Boston-based Aite Group. "They want to enable advertising, and you don't need high-tech payment to do that because it's actually a barrier."

Google is reportedly working with Discovery Financial Services to develop the card, which would use Discover??s network rails for POS transactions. Some industry observers maintain the card is imminent and would fundamentally change Google??s original mobile payments model.

A plastic card for the Google Wallet "is more of a step back than anything else," said Brian Riley, senior research director and analyst with Needham, Mass.-based CEB TowerGroup.

"It's a new model, but it's like 'back to the future' again," Riley said. "We don't know if they will really get it (a plastic card) out in the field, but it could just be like another PayPal prepaid card out there to function at the point of sale."

PayPal offers a plastic card for use with its digital wallet, but 70% of transactions are completed without the card, PayPal??s parent company eBay said during an earnings call.

"Google has had its ups and downs this year, and you are always wondering what is next from them, but not much of substance has come out," Riley said.

Accordingly, 2013 should be a newsworthy one for Google along the payments front.

"The year 2013 shapes up to be fairly interesting because Google and PayPal have goals to establish POS brand[s with plastic cards] and incorporate their value-added services," Oglesby said. "I believe that banks will struggle to compete with those offers."

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