Expect big news about Google Wallet out of this week's Google I/O, the company's annual conference for developers that takes place June 27–29 at San Francisco's Moscone Center. The word from several people familiar with the plan is that Google will announce changes to the product amounting to a "Google Wallet 2.0."
According to one source, Google will announce modifications to the Google Wallet to address a problem the company has had with credit card issuers: lack of support. One of the reasons issuers have been reluctant to join Google's efforts due to the work required to get their cards in Google Wallet. To date, only Citi has partnered with Google to issue cards for the wallet.
"There is an overwhelming amount of technical orchestration required between an issuer and its TSM to enable NFC payments for its cards," the source said. "A lot of issuers are wary of committing to that without evidence of ample upside for enabling NFC payments."
Lack of issuer support has hindered consumer adoption because users either have to be issued a new, "virtual" credit card from Citi, or pre-load funds onto a Citi-issued prepaid MasterCard account. Neither method is a great solution for consumers who don't want another credit card or don't want to tie up funds in a prepaid account.
A digital proxy card
To help Google deal with the lack of issuer support, the company is integrating the prepaid platform it purchased when it acquired TxVia in March. TxVia is a payment processor focused on the prepaid and gift card space, with direct connections to a number of payment networks.
With the TxVia integration, Google Wallet — or, specifically, the prepaid account that comes with it — will become a real-time, NFC-enabled cloud wallet, or as one source put it: "a digital proxy card."
This means users will have a "prepaid" account (presumably still a Citi-issued, MasterCard-branded account) that will connect to another account of some kind, say a bank or credit card. Whenever a purchase is made at a retail point of sale using Google Wallet, money from that linked account is accessed in real time. No new account is required and funds are loaded into the prepaid account only as they are needed.
In other words, it would be very similar to a PayPal account except using NFC to handle the actual sending and receiving of data at the point of sale.
"This allows Google to circumvent issuers who had been steering clear of Google Wallet as well as equip others who have been stymied by the work involved in enabling NFC payments," the source said, adding that for consumers, the move also means it will be easier to use any credit card to fund NFC transactions at the point of sale.
Addressing carrier issues
Making the Google Wallet into an issuer-agnostic payment tool is one step in opening the product to more users, but it doesn't fix the other problem Google is facing: its battle with carriers over the Secure Element.
The SE is the chip that encrypts and stores payment credentials inside NFC-enabled phones and is integral to the Google Wallet making payments at the point of sale.
And, according to mobile payment expert Cherian Abraham, it's the bigger problem that Google Wallet must solve.
"Google still has to cut deals with Isis to land a spot on the Secure Element in phones controlled by the Isis carriers," Abraham said. "As carriers continue being the primary distribution channel for cellphones in the U.S., their control of the Secure Element is a threat Google must address. One cannot simply wish that away."
Last year, Verizon effectively blocked Google Wallet's access to the SE on NFC-enabled Android phones it sold to subscribers. The move was seen as Verizon asserting control of the Secure Element in favor of the Isis Mobile Wallet. Isis is the competitive NFC mobile payment product being brought to market by Verizon along with rival carriers T-Mobile and AT&T. Pilot programs for Isis are set to launch later this summer in Austin, Texas and Salt Lake City, Utah.
One source suggested that Google Wallet will circumvent the carriers by starting to move data into the cloud instead of storing it locally on the phone's SE, fully copying the PayPal model. As evidence that such speculation is correct, in a Thursday session at Google I/O, Peter Hazlehurst, Google's global head of product management for payments, will head a session called "Introducing Google Wallet Cloud APIs."
Much needed changes
It's obviously still yet to be seen if changes to Google Wallet will excite users and spur adoption, but Google Wallet is a product in need of some energizing.
Since its launch a little more than a year ago, Google Wallet has not seen mass adoption. Google has not released numbers on how many Google Wallet accounts are used regularly, or even how many have been activated. That's usually a sign that a product isn't performing. (PayPal, for instance, regularly cites its "110 million accounts.")
Additionally, Google Wallet is still only available on a few handsets from LG and Samsung, and "officially" only enabled on those handsets sold through Sprint. (It is possible for subscribers on AT&T and Verizon to load Google Wallet on NFC-enabled Samsung handsets, but it is not officially enabled by either carrier.)
What's more, many of the team responsible for bringing Google Wallet to market have left the project or left Google altogether. Rob von Behren, one of the founding engineers of Google Wallet, left Google to join Square. Product lead Marc Freed-Finnegan and co-founding engineer Jonathan Wall left to join a mobile payment start-up called Tappmo.
Stephanie Tilenius, who along with Osama Bedier was instrumental in leading Google Wallet to market, was reassigned to other duties at Google. According to AllThingsD, Tilenius has announced she is leaving Google and will be joining venture capital firm Kleiner Perkins.
For more stories on this topic, visit the Contactless/NFC research center.
James Wester is a technology writer and blogger with over 15 years of experience in marketing and communications in the technology and payments sectors. Prior to joining MobilePaymentsToday.com as editor he worked as Director of Corporate Communications for Chase Paymentech and ran payment operations for AOL. James has a BA in English from Drury University in Springfield, MO and an MS in IT Management from the University of Virginia.