In May, Google announced to its merchant partners that it would be retiring Checkout. Google Checkout was designed as a platform for online payments, but as a competitor to PayPal it wasn’t getting enough traction. The company’s plan is to merge Checkout into Google Wallet. The idea always has been for Wallet to be - via Android - a replacement, well, for your physical wallet.
The problem is that Google is having issues getting people to actually use Wallet. BusinessWeek recently ran a story about the fact that Wallet is losing money for the company. According to the article, the fees levied by credit card companies on Wallet transactions are costing Google a lot of money. And Google isn’t passing those transaction costs on to Wallet users. That means they ultimately end up eating those fees.
Gartner has noted that the amount of mobile payments will approach 450 million users with a transaction value of more than $721 billion by 2017. No doubt, that’s a huge growing market. Jupiter Research breaks down the payment market by area, with North America and the Asian region around China taking the top spots. Given this data, Google Wallet seems like something that the company would think is worth saving.
Yet Wallet’s use of near-field communications (NFC) may be one of the reasons why it isn’t gaining traction. While on paper NFC seems like an intuitive contactless payment method, only a small amount of transactions are conducted using it. In fact, Gartner projects that only 5 percent of mobile payments will be done with NFC by 2017, up from 2 percent in 2013.
According to the Google Wallet official FAQ, “you can buy in stores by tapping your NFC-enabled Android phone at any merchant location accepting contactless payments.” That web page also goes on to say that there are 200,000 locations where contactless payments are accepted.
So why don’t people actually use NFC for mobile payments? Yes, the iPhone currently does not have NFC at all. But Android has a large share of the mobile phone market. It’s possible that people are concerned about security around near field communications. Or, perhaps the process of setting up Google Wallet is too cumbersome, at least in people’s minds.
This is concerning, given that in order for digital currencies to thrive as a payments system that things like mobile bitcoin wallets will have to become ubiquitous. If bitcoin isn’t easy to use, people will not adopt it.
Think about the first time you used PayPal. Remember that? Send some money to an email address. Not complicated. Bitcoin? Exchanges. Wallets. Addresses that to most people look pretty byzantine. That, all put together, is just too much for most to handle. Payments are supposed to be easy.
PayPal may be an avenue to bitcoin spilling into the mainstream if it can be made just as easy to use. President David Marcus recently told Fortune he thought Bitcoin was "very well designed.” Yet at the same time, Marcus felt that bitcoin exhibits values that might be closer resembling a precious metal. “People think it's a potential alternative to dollars, but it's more an alternative to gold.”
Google Ventures recently made an investment in OpenCoin’s Ripple, a payment protocol that allows users to send and receive money in whatever denomination they choose – which includes bitcoin. Surely Google has ideas about using Ripple with Wallet. If people aren’t going to use NFC to make payments, maybe using Ripple addresses will work. They operate just like bitcoin addresses in that you can use QR codes to make payments.
But Ripple is far off in terms of any sort of user adoption. It also had experienced heavy criticism early on, which is a major concern for such a new venture. Google’s involvement with OpenCoin is a sign that the company is in need of some new ideas to make Wallet work for payments.
Wireless carriers have an interest in mobile payment methods. One of the reasons why Wallet isn’t more popular comes from the fact that in the United States a few of the major carriers are actually blocking it. For example, while you can use the Google Wallet app on a Verizon phone, a particular hardware element is blocking NFC use by the carrier, restricting the use of contactless payments.
Why? Well, a consortium of carriers in the US have developed their own contactless payment system. Known as Isis, this platform is supported by Verizon, T-Mobile and AT&T. And according to Blue Field Strategies, those companies represent a 76% share of the mobile market. This gives them tremendous influence over what payment system consumers will be using with their cell phones because of this control.
When it comes Google Wallet or PayPal, these digital payment processors have one thing in common: they don’t currently utilize bitcoin. For bitcoin to become a mainstream form of payment, they will likely need to be adopted by one or more of these services.
But the struggles of Google Wallet put into question how easy that is going to be. If wireless carriers are going to block Wallet from behaving as an actual wireless wallet, how will they feel about bitcoin? The reason why carriers like Verizon in the United States are blocking NFC on Google Wallet is because they want a piece of the action. They want to make money from the fees that are going to result from the expected growth in mobile payments.
So one has to question whether Google Wallet’s problems are good or bad for Bitcoin. It seems like they might be detrimental. As it stands today, large companies have little incentive to include bitcoin as a payment method. There’s no transaction fees to be had, there is not enough software built around it to secure payments and unlike credit cards there is no fraud protection.
Ultimately, more people need to be using bitcoin and more businesses need to be accepting it. But even if that happens, that does not ensure success. Looking at Google Wallet, you can see what bitcoin is up against. Wallet is available on over half the smartphones in the United States. Over 200,000 merchants accept in-store payment for Wallet. You can also use it to pay for things online. And despite all this, Google is having problems in making it a payment option for people.
What do you think? Does bitcoin face insurmountable odds in becoming a conventional payment method? What should Google do with its Wallet payment service?
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