Wednesday, December 7, 2011

Will Google Wallet Take of in the United States?

This week Verizon made an announcement to block GoogleWallet from being pre-loaded on the new Samsung Nexus phone that will be released soon. [i] Verizon’s explanation is that they are not sure about the security of the mobile payment feature, but many believe this is a strategy by Verizon to prevent Google from competing with ther rival mobile payment system. Verizon is also invested in the mobily payment system ISIS which is a project supported by the multiple cell phone providers.

GoogleWallet works by allowing customers to pay for items in a store and is said to be as easy as “tap” and “pay”. It allows users to load all of their card information onto their phone so they don’t have to carry around multiple cards. However, GoogleWallet has many big name competitors including MasterCard, PayPal, VISA, and the ISIS consortium group. There has not been one winner-takes-all situation yet with a mobile payment system/ NFC system and so it will be interesting to see which of the mobile providers, banks, or Internet companies take the market share in this industry.

Currently in the United States, GoogleWallet only works s where retailers use Mastercard PayPass [ii] There is also only one phone that supports the GoogleWallet program. One of the hold-ups with Google Wallet seems to be the regulations both regarding using people’s financial information and the importance of ensuring proper security measures for consumers. As discussed in the Creating Shared Value article by Porter and Kramer, regulation can be a positive to protect consumers and to pursue shared value. Regulation can ensure that there is a level playing field and that the best interest of consumers is considered instead of allowing companies to just maximize profit. However as the article states, “regulation can discourage shared value… and forces compliance….locking innovation and inflicting cost to companies.” [iii] Yet in the case of GoogleWallet, Google must partner with mobile providers and financial institutions to really launch the product. In this case, it may not be regulation by the government but instead imposed barriers to entrance by other companies. An additional barrier is that GoogleWallet (or any NFC technology) must also cooperate with retailers to get them to adapt the payment system. [iv]

As I did more research about GoogleWallet, I learned that similar NFC technology has become common in other countries particularly in France, China, and Japan. GoogleWallet has tested the technology in other countries instead of focusing on entering the US market first. As discussed in the Strategies That Fit Emerging Markets article by Mcfarland, a country’s institutional context is critical in determining the strategy to do business in that country. The differences in a countries capital, labor, and product markets could create differences in strategy of the same product. This may be one reason why Google has waited to really rollout GoogleWallet in the United States. NFC and mobile payments have even caught on in developing countries as a type of micropayment because of low transactions. In countries like Indonesia, where there is not a lot of credit card penetration, the first mover who gains the majority of consumers will definitely have a winner take all system particularly because of the high switching costs to consumers. Japan has also being using these types of mobile systems for a while and so have European countries like Scandinavia. In our class discussion we addressed this when we talked about the example of the start-up that created a mobile banking system in Kenya is currently thriving because of entering a market with virtually no banking system. This product would not work in the United States because of the regulations and the social system and expectations in place. So the question is why is the US so behind on what seems like a pretty cool idea? As discussed in the Strategies That Fit Emerging Markets article by Mcfarland,

Is the only issues the security or are competitors creating barriers to prevent Google from gaining consumers who will then probably not switch mobile payment methods, creating a winner- takes-all situation?

[i] “Verizon Wireless Nixes Google Wallet in new phone” December 7, 2011. Wall Street Journal.

[ii] “Google Wallet FAQ.”

[iii] Porter and Kramer. Creating Shared Value. Harvard Business Review. January-February, 2011.

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