Will Isis, Google Wallet Become "More Disruptive?"

Should Isis and Google Wallet be focusing more on “disrupting” the point of sale experience rather than “enhancing” it with near field communications. “Yes,” says Cherian Abraham, advisor at Experian Global Consulting Practice, North America. The opportunity is to vastly simplify the “complicated” mobile payments system, taking a stronger tack in the area of reducing the payment transaction fees merchants really dislike.

Some might see a recent pivot by Google Wallet to more of a “cloud based” approach as a modestly helpful strategy strategy pivot. Initially, Google Wallet had been highly dependent on the support of its carrier partners.

Now, cloud-based Google Wallet app that supports all credit and debit cards from Visa, MasterCard, American Express, and Discover. The “storage of credentials” strategy might be important.

Up to this point, Google Wallet had to store account details on the device itself, which meant it was essentially captive to the mobile service providers. The new cloud approach frees Google from those constraints, to a large extent.

One important remaining issue, some might say, is the reliance on near field communications as the communications channel. Sure, Google Wallet can get around that by using external “stickers.” But some might argue that is not an “elegant” approach.

Might Google Wallet pivot again and embrace other methods? To be sure, Google Wallet has been contemplating other ways of changing its business model.

Google has changed iits digital wallet strategy in a significant way, one might argue. In the past, Google Wallet has stayed out of the “interchange fees” part of the revenue stream, in favor of an exclusive reliance on loyalty, advertising, offers and other marketing and advertising functions.

But with the decision to support virtually all the major branded cards inside Google Wallet, a shift of revenue strategy could occur. A new cloud storage strategy does a couple of things. First, all major card brands can be accomodated, even if the resident application on a Google Wallet device is the prepaid MasterCard account.

The new approach is closer to that of PayPal than was the case for Google Wallet’s initial positioning, says Zilvinas Bareisis, Celent consultant. And the change makes Google Wallet a venture that makes money from transactions, something the older Google Wallet did not attempt to do.

The cloud-based credentials still require use of the MasterCard PayPass terminals and software loaded on each Google Wallet device. But since the MasterCard prepaid account is linked (in the cloud) to MasterCard, Visa, Amex and Discover accounts, Google Wallet users can use the wallet in much the same way as PayPal.

That would be a fundamental shift of strategy. Before, Google Wallet was not a transaction processor in the same way as PayPal functions. Now, Google Wallet will, in effect, become a transaction processor, in an indirect way.

More accurately, it has become a merchant of record. Google sits in the middle of its Wallet transactions, rather than just passing through plastic credentials to an NFC enabled smartphone.

The new approach also bypasses the need to cooperate with mobile service providers, and allows Google Wallet to be provided “over the top,” without using the mobile service provider secure elements. Card issuers might like that angle, since it means they are relieved of the obligation of paying fees to any mobile service providers who want to get a slice of transaction processing revenues.

Google Wallet becomes as a “merchant of record” for transactions. True, they won’t have to incur the extra costs of provisioning their card credentials on to secure element, but that would also rule them out from participating in other NFC ventures, such as Isis.

Now, from the merchant point of view, they are accepting a prepaid MasterCard, while it might an Amex card that actually funds the transaction. PayPal deals with it by having direct acquiring relationships with its merchants and offering them a discount rate which represents an expected blend of funding transactions, says Bareisis.

Does it also mean that Google Wallet will have to establish relationships with the acquirers to re-coup from merchants any potential differences in transaction costs? Or will it have to charge the end user for “loading” their wallet, something that other prepaid card providers do for card-based re-load transactions?

In any emerging business, it is not unusual for start-ups, even those as big as Google Wallet, to change business models in dramatic ways. Isis, the mobile service provider service, initially envisioned being a “merchant of record.” Then Isis decided to take the former Google approach, and eschew any role in transaction fees.

Google now has taken the reverse path, essentially adopting the former Isis approach. In other words, both Isis and Google Wallet now have reversed their initial positions on revenue models in the wallet space.