Google & MasterCard... combining strengths

Google has dominated news in the payments space over the past few days, as the rumors and industry hype pushes toward the confirmation that Google is set to introduce a mobile payments platform that will turn its Android smartphones into a digital wallet. Google invited reporters to attend a "partner event" on Thursday in New York to demonstrate what it called its "latest innovations." It plans to unveil a mobile payments system that will run on the Android operating system and be available on phones from Sprint Nextel Corp, Bloomberg reported on Tuesday. The Internet search and online advertising gorilla will work with MasterCard Inc, the card processing network, to launch the system they told Reuters on Tuesday. A separate repost in the Wall Street Journal suggest Citigroup is also in on the action. That's three household names partnering to capture your digital wallet, three names with equally powerful market size and presence to shift the market towards mainstream adoption.   Many would have also read VISA's announcement back on May 11, demonstrating their ambitions and plans to build a global digital wallet service due to hit the market later this year. Visa’s mobile wallet initiative really could revamp the way we spend money, and the way we interact with our smart phones. Similar attempts have been initiated in the past by handset manufacturers, mobile operators, public infrastructure, but never made their way to the mainstream market. Hopefully, we’ll get to see what the future may look like as soon as this year, assuming Visa sticks to the outlined plan.

  As Google prepares their announcement, lets look at the value each of the partners brings to the table. Firstly their is no questioning the role of MasterCard in the venture, they currently have the world's second largest card processing network, behind VISA's. But their scale is far from insignificant. MasterCard operates Banknet, a global telecommunications network linking all MasterCard card issuers, acquirers and data processing centers into a single financial network creating a global footprint that creates a network that would comfortable touch a large majority of the world's smart phone owners, creating an compelling case for moving your MasterCard connection from the cards in your wallet to your Android Smart Phone. Adding to the value of the network MasterCard has PayPass, an EMV "contactless" payment feature, which could foreseeably be delivered via a mobile device, currently available in many of MasterCard’s issuing bankcards. MasterCard has an estimated 190 million cards in circulation in the United States alone, 960 million worldwide. Google on the other hand provides on of the worlds most popular mobile operating systems. Google acquired Android Inc. in August 2005, making Android Inc. a wholly owned subsidiary of Google Inc. and selected at the OS of choice by Google when they launched themselves into the Mobile Operating System market. The first commercially available phone to run the Android operating system was the HTC Dream, released on 22 October 2008. In November 2007 a powerful consortium was formed that could play am important part in Google's announcement. The founding of the Open Handset Alliance, a consortium of 80 hardware, software, and telecom companies devoted to advancing open standards for mobile devices, including Broadcom Corporation, Google, HTC, Intel, LG, Marvell Technology Group, Motorola, Nvidia, Qualcomm, Samsung Electronics, Sprint Nextel, T-Mobile and Texas Instruments. Creating a diverse, powerful network of manufacturers that collaborate under the message of open software. A very different approach to Apple's single manufacturer and tightly guarded source code approach. It's estimated in Q2 2009 that Android had a 2.8% share of worldwide smartphone shipments, but by Q4 2010 this had grown to 33% of the market, becoming the top-selling smartphone platform. In May 2010, Android's first quarter U.S. sales surpassed that of the rival iPhone platform. At Google I/O, May 10, 2011, Google announced that 400,000 new Android devices are activated every day and more than 100 million have been activated.

  The initiative from Google & MasterCard has now signed up retail partners Macy's Inc., American Eagle Outfitters Inc. and Subway, though it is unclear the scope of the US deployment. Will this be another industry pilot?

  What does all this mean? I see this as a re-confirmation that 2011 is the year of the Mobile Wallet. Big brands making big moves, ones that are far beyond pilots and experimentation. This announcement, along with VISA's states to be the Mobile Payments industry tipping point driving mainstream adoption globally. My personal hope is this drives a global replacement of the cards issuing networks, creating a simplified financial & payments life for all consumers. By separating our society from the legacy infrastructure of cards & POS devices, the networks of MasterCard, VISA, American Express can penetrate deeper into the under and unbanked parts of the world. It should also be the catalyst for the reduction of overheads for payments, leading to cheaper payments services.

  One possibility that still remains unknown is how Google's open standards approach will impact the way we all do payments. It could lead to the possibility of open source POS Apps being built for Android devices, creating an opportunity for Android to replace the millions of POS devices and machines worldwide. One thing for sure, is the open standards will gain a heightened level of scrutiny over security, encryption and privacy.

  In summary, I think this is a very positive move by two large complementary industry players combining their strengths, network and consumer foot print. I guess we will have to wait to hear the details of VISA's announcement to know how far they have taken their vision & plans. In my opinion, if VISA is to raise the bar on MaserCard, they make a deal with Facebook, putting a VISAnet Connected Wallet behind the 600 million Facebook users, and giving Facebook's Merchant plans global network strength.