In early 2011, the rumors were hard to ignore and it seemed inevitable that Google was going to get into the mobile payments business. It was one year ago that we got all the details. Google announced Google Wallet with much fanfare, but right from the start things looked bleak; problems included limited device and card support, a slow city-by-city rollout, and carrier tie-ins.
What followed was essentially a comedy of errors as Google seemed alternatively disinterested and desperate to get Wallet off the ground. Why has it gone so badly, and is there any chance of a turn around? Let’s take a long, hard look at Google’s foray into mobile payments to find out.
The May announcement was really the high point for Google Wallet. It seemed like a cool idea, and the free $10 credit was nothing to sneeze at. The first hints of problems arose when the app simply failed to appear. Other than a limited beta test, it took months for users to get access to Wallet.
When Wallet finally showed itself in September, it was restricted to a single phone: the Nexus S 4G on Sprint. This was a fine device, but it never sold particularly well — it was based on a six month old design when it came out. None of the unlocked GSM Nexus S versions were permitted to access the Wallet app.
It was just a few months later when the Verizon Galaxy Nexus brought Android 4.0 the the US, but something was amiss. Google had failed to insist that Verizon give the new Nexus access to Google Wallet. So the flagship Android device in the US was lacking Google’s contactless payment solution. It truly painted Google as uninterested in Wallet, or unable to deal with the hurdles that were presented.
It’s unclear why Google wouldn’t have jumped at the chance to get Wallet on the Galaxy Nexus — it’s not like there were many other phones compatible with the service. Google Wallet relies on near field communication (NFC) chips. In late 2011, almost no phones had NFC. There were the Nexus phones and a few variants of the Samsung Galaxy S2, but that was it. Google’s entire strategy for breaking into payments relied on NFC, and it was unable to convince its OEM partners to put out phones with the technology.
Perhaps, in some ways, it was a good thing that Wallet didn’t take off in late 2011. If it had, there would have been many more users to be outraged about the security holes. The modding community found two exploits in Google Wallet that could allow someone to steal your money. The first hack relied on a user being rooted. An attacker could copy important Wallet files from a phone, then brute-force crack the passcode, which was a simple 4-digit number.
The second hack was easier, and that made it more startling that Google missed it. All you needed to do was clear the data from the Wallet app, choose a new PIN, and you had access to whatever ballance was on the Google prepaid card beforehand. It took Google weeks to work out a solution, and in the interim it disabled all new prepaid cards. It was bad PR, bad engineering, and bad customer service.
For all these reasons, Google Wallet isn’t taking off, and Sprint is still the only carrier with official Wallet phones. Google Wallet is currently a failure almost on the level of Buzz or Wave, and Google needs to pivot fast.
Why is this happening?
If the Wallet debacle has taught us anything, it’s that Google has very little power over how Android works at the consumer end. Google codes Android, creates great backend services, and manages the Play Store. But they don’t make or sell the phones, and that’s why Wallet is failing.
Google needs OEMs to design devices, and carriers to market and sell them. Before Google Wallet was announced, AT&T, T-Mobile, and Verizon all signed on to work with an NFC payment system called Isis. The carriers didn’t need Google, so what little leverage the search giant had with them was gone.
Google’s business is search and the ads that go along with that. Android, in addition to being the dominant mobile operating system, is a platform for delivering ads. Google needs Android to exist for future advertising revenue security. Google doesn’t have the clout to force OEMs to make NFC phones, or to make carriers allow an app on their networks. To do so could endanger Android’s favored status among Google’s partners.
NFC payments seem like such a good idea in the abstract, and it has been a success in Japan. Why not here? Much of this goes back to the poor state of public transit in the US. Contactless payments using Japan’s FeliCa system gained popularity when it was used first used for train and subway tickets.
Millions of Japanese consumers make use of public transit, and thus were acclimated to using NFC in phones and other devices. In the US, we don’t really have this kind of driving force behind the new contactless systems, and you can’t really blame Google for that.
How to fix it
It might not be too late to save Wallet, but Google has to work fast. Google I/O is coming up in a few weeks, and there is no better time to announce how it will fix Wallet. Waiting any longer is foolhardy in the extreme. Apple will be refreshing the iPhone before long, and Google could be in a world of trouble if that device has NFC and Apple decides to back a different payment system.
Before it can hope to stand up to any challenger, Google needs to fix the phone situation so people can actually use Wallet. A few weeks ago, Google sent out an email notification that there were four new Google Wallet phones, bringing the total to just six if you count the older ones. It’s telling that three of the four are on Sprint, and the other is an unlocked device.
Google should stop asking for permission to load its apps on phones, because it’s never going to get it with these entrenched interests. If a phone has an NFC chip, the Wallet app should show up in the Play Store. Like they say, it’s easier to ask for forgiveness than permission. Would Verizon or T-Mobile wrestle Google Wallet away from its customers after the fact? Probably not.
While Google can’t make an OEM build phones with NFC, it can provide incentives. Maybe NFC phones could get additional ads in the Play Store to promote the service, or they could be featured prominently in emails like that sad 4-phone announcement above. NFC-equipped phones could also be added to the Google Play phone store with the lonely unlocked Galaxy Nexus.
Even if Google can manage to get Google Wallet on more phones, how can it make people use it? Like so much else in life, the answer is probably money. Some Sprint phones are now coming with a total of $50 in prepaid Google Wallet money. That’s a start, but the bonus should be expanded to anyone that uses Wallet. It’s not like Google is hurting for cash.
There should also be more credit card support, and maybe that will require more payouts. The MasterCard tie-in was useful to get access to the PayPass readers, but Citi cards only? That won’t do. If more types of cards were compatible, that could only improve matters.
It is up to Google to decide if it wants to be in the payments business. Google has had the playing field almost entirely to itself for a year. Isis has yet to launch, Apple is silent, and PayPal is actively discouraging the use of NFC. This is the time for Google to use its lead and reform Wallet into something people will be able to use. If not, Google will have somehow managed to lose to competitors that aren’t even in the market yet.