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Google Wallet Enables Mobile Payments

Citi, MasterCard, First Data, and Sprint are working with Google to launch a mobile commerce platform.

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Underscoring its interest in the booming mobile market, Google on Thursday announced an open mobile commerce platform in partnership with Citi, MasterCard, First Data, and Sprint.

Google is providing secure access to near-field communication (NFC) hardware to allow phone users to make purchases through MasterCard's PayPass contactless payment network, supported by over 120,000 merchants nationally. The capability initially will be available on the Samsung Nexus S 4G phone on Sprint's network and "potentially over time, [on] other mobile devices and platforms as well," Google said.

Google itself is offering two new products for its nascent mobile payment ecosystem: Google Wallet and Google Offers. Google Wallet is an Android application that will store multiple credit cards securely, including a Google GCard, a prepaid card that the user can fund through other credit cards. Google Offers is a service that provides subscribers with emailed discounts and related offers that can be redeemed using the recipient's phone or by presenting a code at a participating merchant.

"We are extending an open invitation to merchants and ecosystem partners ... to join us in creating tomorrow's best shopping experience," said Google VP of commerce and payments Stephanie Tilenius at an event webcast from New York City.

Tilenius heralded the arrival of a new open platform that will make it simple for partners to create a great consumer experience through push-button payments and instant offers.

"Your phone will be your wallet," said Tilenius. "Just tap, pay, and save."

Paul Galant, CEO of Citi's Global Enterprise Payments business unit, characterized Google's announcement as "an important milestone in digital and mobile banking."

Google initially will be testing Google Wallet in New York and San Francisco, and in other metropolitan areas in a few months. Nexus S 4G owners who activate their Google Wallets can expect to conduct mobile transactions at Coca-Cola vending machines and in PayPass-enabled taxis, as well as at retailers like CVS, Sports Authority, and Sunoco. At launch, 20 merchants are participating.

Simultaneously, Google will be testing Google Offers in New York, Portland, and San Francisco this summer. A handful of merchants will be supporting Google SingleTap, a Google Offers feature that allows offers to be redeemed from mobile phones with the touch of a button. These include: American Eagle Outfitters, Bloomingdale's, Champs Sports, The Container Store, Duane Reade, Einstein Bros. Bagels, Foot Locker, Guess, Jamba Juice, Macy's, Noah's Bagels, Peet's Coffee & Tea, RadioShack, Subway, Toys"R"Us, and Walgreens.

At other merchants, offer codes will need to be scanned or entered manually.

Tilenius said Google sees its platform as an opportunity to redefine the retail experience with mobile technology. "As a merchant, you can acquire new customers and offer discounts and rewards in ways that have never been possible before," she said.

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One of the concerns raised by IDC analyst Aaron McPherson in an email on Wednesday was that Google's system might require merchants to pay "card-not-present" rates, a higher rate imposed on merchants in the absence of a physical credit card to offset the higher risk of fraud.

It turns out this is not the case: Google says that merchants pay the more favorable card-present rate.

Much was made about the security of Google's approach. Google engineer Rob von Behren asserted that security was a priority. "From the beginning of the project, security was something that we wanted to make sure was airtight," he said.

Markiyan Malko, program manager at Merchant Warehouse, a provider of account services, credit card processing, and credit card terminals to retailers, said that while he still has some questions over who among Google and its partners has access to the Secure Element--the hardware where credit card data is stored--he believes Google's decision not to demand a per-transaction toll bodes well for the system.

"Google brought all the sides together, which is a good thing," he said.

Malko said he believes NFC will provide an even more secure way to do mobile transactions than existing contactless payment systems because the payment hardware is disabled when the user's phone is not active.

"With NFC, since you have the ability to turn off the radio, it's much more secure off the bat," he said.

While Google's NFC implementation sounds secure--the Secure Element chip is separated from the operating system and phone hardware, and its data is encrypted--events on stage in New York offered a reminder that security issues arise from human failings at least as often as technological flaws.

When Osama Bedier, VP of payments for Google, demonstrated how to provision Google Wallet with his credit card, he made a point of not allowing his mobile phone's screen to be shown as he input his credit card number. It was because, he said, he was obsessive about security. Yet moments later, when he placed his phone in the projector to display what was going on to the audience, his credit card number was fully visible to everyone there and the thousands viewing the webcast.

Tilenius and other Google personnel speaking during the event stressed that Google's mobile payment platform is an open one and invited other banks, mobile carriers, payment processors, and other interested parties to join its effort.

As it happens, a similar venture is preparing to launch: ISIS, backed by AT&T, Verizon, and T-Mobile--all the major U.S. mobile carriers except Sprint--is scheduled to debut next year. Apple also is expected to announce a mobile payment system, perhaps as soon at next month at the company's annual developer conference. And startups like Square are offering their own take on mobile commerce.

But in the race to become the dominant mobile payments platform, Google is already sprinting ahead. "This is not just an announcement," said Bedier, "this is a real product. It's up and running and merchants are integrating as we speak."

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