Members Opinions
How does Google Wallet 2.0 work? In a nutshell:1) All payments will be made using a Pre-Paid Virtual MasterCard (VMC) issued by BanCorp Bank that, in turn, is linked to the user's preferred credit/debit card. All credentials for this VMC will be stored in the phone's Secure Element (SE), all other card credentials will be stored in the cloud. No need for Google to negotiate with issuers / networks to include them in the SE, as was the case with the first Google Wallet (GW) iteration.
Note: At the moment, there is one notable exception to this rule: Citi MasterCard, Google's first - and still only - banking partner. Citi MasterCard credentials are stored in the SE.2) Google is acting as 'merchant of record'. The merchant will authorize/settle transactions with Google - paying fees based on the use of a present pre-paid debit card. The VMC credentials will be sent via the MasterCard network to the issuing bank (BanCorp Bank). In turn, and in real-time, BanCorp will map the VMC to the user's preferred method of payment and will seek authorization with the card issuer - paying standard fees related to the chosen card, probably as Card Not Present (CNP). Basically, the VMC is used by Google/BanCorp as a directory entry to link to the user's 'actual' card. These are two back-to-back processes. The graph below illustrates this process - in a very simplified manner - using the example of AmEx as being the preferred method of payment.
3) The payment process may be a bit slower due to the need to perform these back-to-back processes. Google is probably making a loss with each payment given the difference between the fees they are charging to the merchant and the fees issuers are charging them.
4) Google/BanCorp have now full access to all payment information, making it extremely easy for them to work with merchants to develop loyalty programs and with consumers to organize their spending. I believe issuers still receive all (or most) of the transactional information and can apply rewards and protection programs to the transactions, although Google makes it very clear that it is up to the issuer to decide how to treat these transactions and whether or not rewards and protections apply.
5) GW can be implemented using an NFC-enabled phone but also just a plastic card (with mag stripe, contact or contactless technology) or even an NFC sticker. These alternative options would provide a much poorer experience and less security but they may be a way to get consumers comfortable with using Google as a payment method (this is precisely what PayPal is trying to do through their partnership with Discover). In any case, each transaction could always be instantly recorded in the cloud and immediately sent to the user's phone.
6) You can store a number of payment methods in your GW account but only have one linked to the VMC at any given time, meaning that you cannot change the card you are using to pay at the till. This seems to be a bit limiting... But it could easily be changed to, either have a set of rules to determine which card to use based on merchant and payment amount or to be able to choose the specific card you want to use at the till.
7) Google's approach for the 2.0 version of its wallet differs greatly from the approach it took when it developed the first version. At the same time, this approach seems to resemble that of PayPal - although with a different implementation - or, another way of seeing it, Google CheckOut with NFC capability.
How does Google Wallet 2.0 'stack up' against the criteria listed at the beginning of this series (click here to review the list)?
Reliability, Transaction Speed and Security:
It is an NFC-based solution, connecting the merchant (or Google, as the merchant of record) to the banks through the traditional processors and card networks. This means the highest standards in reliability, speed and security. Because in this case we have two back-to-back transactions (between the merchant and BanCorp and then between BanCorp and the actual issuer), speed may suffer but I am assuming not enough to make it noticeable.
Ease of Use:
Again, as an NFC solution, use at point of sale is extremely simple - just tap-and-go. The interface is also simple and intuitive enough.
Wallet Functionality:
From a functionality perspective, it seems to be a bit limited. This could be easily changed but, at the moment, only one card can be linked to the VMC. This means that, although you may have all your cards stored with Google, you can only use one at the store. You need to log into your account online to change your preferred method of payment.
Also, given the limited involvement banks currently have with this solution, it is difficult for them to use the wallet to create a more direct link with their customers.
Acceptance:
There is a limited number of NFC-enabled POS in the U.S. A much lower number than in Europe or other geographies. This will change in April 2013, once acquirer processors and sub-processor service providers will be required to support merchant acceptance of EMV chip transactions by Visa and all other card networks. This mandate will greatly accelerate migration of POS to provide support to, at a minimum, EMV contact cards and, in most cases, EMV contactless and NFC-enabled devices.
Device Availability:
At the moment, GW only works on a few devices on Sprint's network. This is an extremely limiting factor. Given that GW requires an NFC-enabled phone with access to its SE, there may be a long road to travel to good device availability.
Value-add Apps:
In theory, GW can support all types of value-add apps to enrich the user's experience and make the wallet truly valuable. Unfortunately, at the moment, there are no (or very few) apps available.
Food for Thought
Considering that PayPal, Visa and MasterCard (among others) are already also providing, or plan to provide, other payment services such as P2P or remittances (we will discuss these capabilities in detail when reviewing each solution), shouldn't Google also take a stance in those areas?
Edit (08/30/2012) - It hasn't even been a week since I posted this blog and I already need to make an update! Google has spoken about the possibility of including P2P payments in its GW.
How does PayPal Wallet work?My focus is to review the two implementations of the digital wallet PayPal is currently developing/implementing for off-line shopping and how the company's acquisitions will help enrich the experience. This means not discussing other PayPal efforts in the mobile space such as PayPal Here.
PayPal Wallet on PayPal Rails - This is the implementation of PayPal Wallet that is currently available to be used at Abercrombie & Fitch, Abercrombie Kids, Hollister California, The Home Depot and Jos. A. Bank. 1) It is a cloud-based digital wallet that you can access at the merchant's point-of-sale by entering your phone number + password or swiping your PayPal card + password.
The phone number and the card are just different ways of entering the token that identifies a wallet in the cloud (there is a unique link between an ID and a wallet). The password is the way to authenticate the user. In fact, the cloud-based digital wallet I am talking about is the same PayPal account that many of us are accustomed to using for certain online transactions. Allowing users to access it at the point-of-sale is a 'natural' extension of its traditional functionality, although it requires new technology and new partnerships to implement.2) Off-line transactions, just like on-line transactions, travel on 'PayPal's rails' and are also processed by PayPal. Changes in the software running in the point-of-sale devices and in the middleware that connects the merchant with its processor, along with back-end integration with the merchant systems, is what allows acceptance of phone number + password and the direct connection between the merchant and PayPal. PayPal's agreements with hardware manufacturers - such as Verifone and Ingenico - and middleware providers - such as AJB - have made this system possible.3) PayPal is the merchant of record for all transactions. In fact, in the 'Account Activity Summary' (step number six in the app sequence provided at the end of this post) the user can see all the steps the payment process goes through. First, it is instantly authorized by the issuer of the card linked to the account. Hours later (as part of a batch process), there is first a cash transfer from the card issuer to a PayPal account and then a cash payment from the PayPal account to the merchant account. The graph below illustrates this process - in a very simplified manner - using the example of MasterCard as being the preferred method of payment.
One could easily argue that swiping a PayPal card breaks this paradigm but, most likely, allowing for this method of payment is just part of the educational process. The company's first priority is to teach consumers to think about PayPal when paying at the store, swiping is what most people are comfortable with doing.
Another reason that may be behind the issuance of the cards is that only the most advanced POSs can support the upgrades required to accept phone number + password as method of entry. The changes required to accept the card are simpler.
Below are pictures of the PayPal card.
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6) The wallet can house loyalty / reward cards and coupons. These benefits will be used automatically at POS.
Although the on-line account has been revamped for users of PayPal's off-line services, no options are yet available to set preferred method of payment based on merchant or amount.
PayPal Wallet on Discover Rails - This implementation of the wallet is enabled by the PayPal / Discover agreement made public on August 22nd of this year. Let's focus on the differences:
1) This deal enables PayPal to ride Discover rails once the system goes live (spring 2013), thus no new hardware or software is required for merchants to accept PayPal's card. Loyalty, gift, coupons and offers will be easily displayed and redeemed through the wallet.
PayPal will continue to process the transactions.
2) PayPal will issue payment cards to its more than 50 million active users in the U.S as soon as the deal goes live. The new card will have a Discover Issuer Identification Number, or IIN, a code that identifies the card holder, and will allow users to buy from the merchants that are part of Discover's network. All that the user needs to do is swipe the card at the existing check-out machine and enter a four digit PIN.
3) PayPal will charge merchants when users pay with the new cards, and, in turn, will pay Discover for access to its network, on a per-transaction basis. PayPal will define charges based on merchant type and will probably also negotiate special deals with certain merchants.
4) This deal places PayPal in the same league as the issuing banks in terms of its ability to issue a card that is accepted over an open-loop network.
5) This solution, which only works with a PayPal card, completely violates the digital wallet paradigm we discussed above by not giving the choice of using a phone number instead of the wallet. Again, PayPal's vision is a digital wallet but its first priority is to win share-of-mind in off-line payments. The solution is clunky but it is a first step. Additional iterations may provide much more utility.
Once again, the graph below illustrates this process - in a very simplified manner - using the example of MasterCard as being the preferred method of payment.
How does Google Wallet 2.0 'stack up' against the criteria listed at the beginning of this series (click here to review the list)?
The intention is to 'rate' the solutions as they exist today. In most cases, the wallets I am reviewing are flexible platforms that, with the right partnerships and infrastructure in place, can provide a very enriching shopping and payment experience. But that is all in the future. As promising as they may sound, I am comparing them against each other as they stand today.
For this reason, this table only includes PayPal Wallet on PayPal Rails, considering the locations where it is currently available (Abercrombie & Fitch, Abercrombie Kids, Hollister California, The Home Depot and Jos. A. Bank). Hopefully, I will update my review in 2Q2013 after PayPal Wallet on Discover Rails launches or earlier as the number of features and relailers increase.
It is as reliable as the well proven and tested on-line solution. It is also a lot faster than the on-line solution, to the point that, as far as I can see, there is no noticeable difference in transaction processing speed compared to a traditional card.
Security
From a transactional perspective: The security level when swiping the card is actually higher to the security achieved with a traditional mag-stripe card because it uses swipe + pin rather than swipe + signature. Unfortunately, there is quite a bit of concern around entering phone number + pin given that a) a person's number is often a relatively 'public' piece of information and b) the more information you have to enter on the key pad, the more difficult is to protect yourself from eavesdropping. In any case, there is no dynamic authentication mechanism embedded in the process.
From a storage perspective (i.e. keeping payment credentials safe): The fact that all credentials are in the cloud and that you need to use an ID + password to log into your account (whether on-line or on your mobile) makes the solution very safe.
In addition, it is the first non-banking payments mobile service that I have signed up for where you can feel they take 'know your customer' requirements extremely seriously. Before allowing me to open an account, I needed to upload photos of my driver license, my social security card and a utility bill. Inconvenient but important.
Ease of Use
The fact that the wallet must be managed on-line is a disadvantage. The mobile app allows you to send/request money to/from another consumer, to find local businesses that accept PayPal and check in with them and to view your transactions. Any changes you may wish to make to your payment methods (include a card, change preferences...) needs to be done from their website.
Wallet Functionality
It is good from the perspective that you can include all types of credit/debit cards, bank accounts, loyalty/gift cards, coupons... The experience could be improved in three ways: 1) Although it is in the roadmap, at the moment, you cannot set payment rules based on merchant or size of purchase; 2) The user cannot override the preferred method of payment at the POS (via the POS or the mobile app) and not everyone is granted the 'grace period'; 3) Issuer presence is kept at a minimum (totally absent from the mobile app and only in the form of digits, no branding, on-line), making PayPal a relatively unfriendly channel for banks that are struggling to keep customer's share of mind.
Acceptance
It is only available at a handful of stores (Abercrombie & Fitch, Abercrombie Kids, Hollister California, The Home Depot and Jos. A. Bank), none of them day-to-day retailers.
Device Availability
The app is available for iOS-, Android-, BlackBerry- and Microsoft-enabled devices.
Valud-add Apps
Although PayPal (or eBay) has acquired a large number of companies that can bring a lot of value to the wallet (Where, RedLaser, Zong, Milo, Card.io...), none of them are yet integrated in the wallet. Although X.commerce, a development plaform, launched over 9 months ago, it is difficult to find value-add apps built on the wallet.
Food for Thought
I believe that we all agree that the consumer needs to be educated about mobile and digital payment options. For this reason, I was surprised not to see any posters explaining about PayPal as a payment option at the till or even brochure on the topic. Talking to one of the cashiers (Thank you Mary! You know who you are) I found out that PayPal employees had visited the shop the day PayPal launched at Home Depot but that they had not visited the store since (at least, as far as she knew). Cashiers had been given fliers and brochures that first day but they had not been replenished after they ran out. Is PayPal not providing and requesting Best Buy to share this material or is Best Buy refusing to do so?
PayPal's current strength is on P2P transactions because it allows consumers (as well as small- and medium-size retailers) to accept cards with minimal hassle. How is Visa's plan to bring P2P payments to U.S. account holders going to affect PayPal?
Will startups like WePay, with increased ease of integration and reduced merchant fees, gain enough momentum to affect PayPal's (or Google Checkout, for that matter) business model?
The PayPal Wallet in Action
This are the steps I followed to pay at the self checkout at a Santa Clara Home Depot.
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1) A soft button gives me the option to pay with PayPal
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2) Once I choose PayPal, I am asked to confirm amount
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3) Next I am given the option to swipe or enter phone number  |
4) I enter my passcode and the transaction is processed  |
This is what I 'saw' happening in my PayPal App.
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1) Summary of transactions before my visit to Home Depot  4) Transaction status right after payment at checkout counter  |
2) I received two txts - One from PayPal and one from the cc linked to my account  5) Status changed to 'Completed' hours later
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3) Summary of transactions after my visit to Home Depot
 6) Full list of 'Activity', including 'Authorization', 'Transfer' and 'Payment'  |
TED Talk at University of Essex by David Birch (May 2012): Birch is a director of Consult Hyperion, an IT management consultancy that specialises in electronic transactions. Described by the Oxford Internet Institute as "one of Britain's most acute observers of the internet and social networks", in The Telegraph as "one of the world's leading experts on digital money" and by the Centre for the Study of Financial Innovation as "one of the most user-friendly of the UK's uber-techies". He is a media commentator on electronic business issues and has appeared on BBC television and radio, Sky and other channels around the world.
Trish's Comment:
My focus in the last couple of weeks has been to compare some of best known digital payment systems currently available or under development in the US - Google Wallet, PayPal, Square and V.me among others. It is exciting to see that we are clearly moving away from mobile payments to digital payments - a much broader and 'liberating' concept - and that they all explicitly identify digital banking and digital commerce as key capabilities to be included in the wallet, albeit at a later stage. But the wallets, given their (mostly) open architecture and their ability to communicate with the outside world (for example, via NFC), can be much more. In fact, they can be almost anything. And it was while pondering about the endless possibilities of the wallet that I came across David Birch's video on Dr. Who's Psychic Paper. For those of you not familiar with Dr. Who, it is a British science fiction television program produced by the BBC in the 1960s. The main character, The Doctor (or Dr. Who) is a time traveling, humanoid alien with two hearts that explores the universe in his TARDIS (Time And Relative Dimension In Space) ship, which has the shape of a blue British police box (a long gone sight in British streets). Or, as Birch describes him, he is the 'greatest living scientist in England and a beacon of true and enlightenment to all of us'.Whatever description you chose, his Psychic Paper is exactly what a digital wallet should aspire to be: A means to show the exact elements of your identity that are required at any given time. Nothing more and nothing else. So, what does a bartender need to know about you? That you are over 18 and that you are not bared from the bar. What does a retailer need to know? Your PIN (in an encrypted form). And the bouncer at a party? Your invite. Or even further, what do you need to know before letting a stranger with a Comcast uniform into your home? That she is indeed the Comcast employee scheduled to come at 3 pm. Well, there is only one difference between the Psychic Paper and the wallet. The Psychic Paper will show whatever you want it to show. That is, it will show the bartender that you are over 18 regardless of your actual age or the bouncer an invite even if you have not been invited. The wallet will only show that you are over 18 or your invite if in fact you are over 18 and you have an invitation.
Of course, as Birch points out, everybody would need to have their own Psychic Paper and everybody would need to be able to read the relevant bits during each interaction. It would need to be a convenient utility supported by a ubiquitous infrastructure. It does sound like a job for NFC-enabled (or other type of proximity communication technology) phones and devices. Something that we always carry with us, that we would quickly miss if it was lost, that could be easily protected from unauthorized access (via a pin or with some other recognition technology).Thank you David Birch for painting a clear picture of what a digital wallet should aspire to be!