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Will Google Wallet Replace Credit Cards?

By Eva Norlyk Smith, Ph.D.
May 31, 2011

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Last Thursday, Google made a major play for the digital payments market with the introduction of Google Wallet.

Set to launch this summer, this potentially game-changing app will enable millions of smartphone users to make payments at retail stores with an Android phone.

Google Wallet works via a near-field communication chip, similar to the RFID chips used in toll collection systems like EZ Pass. Users simply hold their smartphone over a sensor and the purchase is automatically charged to a credit card or prepaid card linked to the phone.

While it might sound risky, experts say that ‘wave and pay’ technology is actually quite secure. The technology requires a PIN number to complete the purchase and all sensitive information is stored in a difficult-to-crack hardware vault embedded in the phone.

With the introduction of Google Wallet, Google aims to become one of the leaders in the mobile payment industry by helping to bring the technology to the masses. According to Google, they expect mobile payment purchases to quadruple to around $630 billion by 2014.

“We’re about to embark on a new era of commerce where we bring online and offline together,” said Google executive Stephanie Telinius at a Google press event announcing the new app. “We believe the shopping experience has not yet been transformed by technology or by magical experiences. Now, your phone can be your wallet—you just tap, pay and save.”

Some proponents of the ‘wave and pay’ system predict that smartphone apps will eventually become the main method of payment, eliminating the need for carrying credit cards and even cash.

“At some point, we’re going to say, ‘Remember the days when we carried paper in our pocket?’” said Craig Ochikubo, a vice president at Broadcom Corp, the company that makes Google’s NFC chips, to the Los Angeles Times.

Google is also setting its sights on integrating loyalty cards and coupons. Google Wallet is already synced with Google Offers, a daily coupon service similar to Groupon. Add-on services like this are expected to expand, as the technology offers unprecedented access to targeted consumer bases.

The first phone to support Google Wallet will be the Nexus S 4G from Sprint, but other phone companies are expected to follow suit. Limited trials of the technology are expected to begin soon in New York City and San Francisco, with other cities adopting the technology later this summer. Merchants who have agreed to begin accepting Google Wallet as a form of payment include Walgreens, Macy’s and Subway. Initially, Citi and MasterCard will provide the credit card and prepaid card services for the app.

But the news isn’t all good for Google. Although the search engine giant has beaten Apple to the punch, Google is still facing stiff competition from the ever-evolving tech company responsible for the iPhone. Tech experts fully expect the upcoming model of the iPhone to be equipped with NFC and for it to be a centerpiece of Apple’s marketing campaign.

Additionally, the online payment agent PayPal has slapped Google with a lawsuit for intellectual theft and betrayal, claiming that the vice president of Google’s mobile payment sector, who worked at PayPal for nine years, disclosed PayPal trade secrets pertaining to NFC technology to Google.

Finally, there’s always the chance that the tech companies have gotten ahead of themselves. NFC payment systems have yet to take hold in Europe because of a lack of consumer interest, and it remains to be seen if American consumers are ready for the new technology. But with competition between the big companies heating up, some say that there’s a chance that, in ten year’s time, we’ll have said goodbye to plastic for good.




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