The all new Android Pay

Why Android Pay Will Succeed Where Google Wallet Failed

Last week, when Google unveiled its new payments service , Android Pay, it was hard to understand what was so new.

Google already offered a payments service. It was called Google Wallet, and like Android Pay, it was a way of using your smartphone to pay for stuff both in stores and online. The name—Android Pay—was new. But as the company unveiled the service at its annual developer conference, even that had a familiar ring. It was an echo of Apple Pay, the payments service that arrived on the iPhone to much fanfare this past fall

To be sure, Android Pay will streamline Google Wallet in some ways, whether you’re tapping your phone to an NFC reader at a McDonald’s or ordering food from the GrubHub app. Google will offer tools that lets online banking apps plug into its payments service, perhaps easing the process of, say, getting your credit card onto your phone. And brands like Coca Cola are offering rewards programs. But these are relatively small changes.

The big difference—barely discussed at the Google I/O developer conference—is that AT&T, Verizon, and T-Mobile will preinstall Android Pay on phones when the service is ready later this year. According to Osama Bedier, the former PayPal exec who oversaw the creation of Google Wallet and now runs the payments startup Poynt, this is the big thing Google Wallet was missing—and the big thing that could make an Android-based payments service (and mobile payments in general) take off.

“That’s the headline here,” Bedir says, referring to how the big carriers have embraced Android Pay. “You have to have the wallet on board the phone. Otherwise, people have to download an app—and getting them to do that is much, much harder.”

Google said Android Pay will be accepted by more than 700,000 physical stores and over 1,000 mobile apps. Those are nice numbers. Digital wallets like Android Pay won’t be more than a niche unless merchants get on board. Many of those merchants—using terminals featuring near-field communication technology, or NFC—were behind Google Wallet. The carriers were not.

At least not until February, when Google announced its deal with all three. Google’s mobile payments service was still called Google Wallet back then. But the arrangement won’t take effect until the official arrival of Android Pay, sometime later in the year.

Riding the Existing Rails

Though digital wallets have been around for years—Google Wallet arrived in 2011—they’ve had minimal impact on the market. According to research outfit Forrester, mobile payments account for about $50 billion in sales, compared to total credit card payments estimated at $2.7 trillion. But Apple Pay has suddenly kickstarted the idea.

Many argue Apple didn’t do anything Google hadn’t already done. But it worked with MasterCard, Visa, and American Express so its system would dovetail securely with existing credit card networks. It worked with companieslike Stripe that help merchants build online services that can accept digital wallets and other payment methods. And it put Apple Pay on the iPhone, the world’s preeminent mobile device.

The way in which Apple Pay spread across merchants, carriers and phones was unprecedented, says Rich Stuppy. He’s the chief operating officer of Kount, which helps companies detect credit card fraud, including via mobile payments. “Companies have struggled in vain to get Apple’s level of adoption for years and sometimes decades,” he says.

Carriers had previously resisted selling phones with this type of payments system with an eye towards offering their own. But Isis, or Softcardas it was later known, never took off, and Apple and the iPhone had the leverage needed to pry the carriers open. Bedier believes its no coincidence that Google’s deal with the carriers followed shortly thereafter. “It’s similar to how the iPhone was a catalyst for Android as a whole,” he says.

As part of its deals with AT&T, Verizon, and T-Mobile, Google also acquired technology from the now defunct Softcard with an eye towards rolling it into Google Wallet—the thing that’s now called Android Pay.

Filling the Gaps

We’re still a long way from a world in which most people use phones to pay for things According to a study from Kount, just 23.7 percent of merchants accept payments from mobile wallets, a figure that includes merchants both online and off. But we’re reaching a point where widespread adoption is at least possible. Forrester says that mobile payments could expand to $142 billion by 2019.

It’s not just that Apple has greased the wheels. New rules require stores to offer hardware that can accept the new chip-and-PIN credit and debit cards. In upgrading to these card readers, merchants may be more likely to install NFC hardware that communicates with smartphones. And now Android Pay is on the way.

No, it’s not all that different from Google Wallet—or Apple Pay. But the carriers are on board. And Google’s Android operating system accounts for about 80 percent of smartphone market. In other words, a lot more people will find themselves with a mobile payments app on their phones, whether they wanted one or not. And at least some of them will use it. As Stuppy says: “Android Pay can help fill the gaps Apple Pay can’t fill.