Google unveils application for paying with phone

The technology giant has introduced Google Wallet, a mobile application that will allow consumers to wave their cellphones at a retailer’s terminal to make a payment instead of using a credit card. The app, for the Android operating system, will also enable users to redeem special coupons and earn loyalty points.

Starting this summer, the wallet will be available on the Nexus S 4G phone on Sprint and able to hold certain MasterCards issued by Citibank. It will also hold a virtual Google Prepaid MasterCard, which can be loaded with money charged from plastic credit cards.

The mobile wallet will work at any of the 124,000 merchants that accept MasterCard’s PayPass terminals, which take contactless payments, and more than 300,000 merchants outside the United States. The wallet is powered by a technology called near-field communications, which is incorporated into a chip in mobile phones and sends a message to the merchants’ terminals. “Eventually, you will be able to put everything in your wallet,” said Stephanie Tilenius, vice-president for commerce at Google, at a news conference on Thursday.

That grand vision will take a while to come to fruition. Various players have been working on mobile wallets for years, but they have not gained traction because the companies have not been able to agree on how they would be paid or who would control the wallets. Mobile phone carriers, banks, credit card issuers, payment networks and technology companies all have a stake in this battle.

With its wallet, Google plans to make money by offering consumers promotions as they shop. For instance, it plans to introduce “Google Offers” – advertising deals from local and online businesses that can be found online or sent through the phone. Like Groupon, Google will collect a fee from participating retailers every time a person redeems a coupon. Citibank will collect the same fees as it would in a traditional credit card transaction.

It may take a little while for the Google Wallet to be fully functional across the country. While Google has worked with more than 15 retailers, like American Eagle Outfitters, Bloomingdale’s, the Container Store and Jamba Juice, they all need to upgrade their payment terminals. When they do, consumers will also be able to store and redeem special deals with the wallet. Merchants in New York and San Francisco are expected to be ready this summer.

Once the retailers’ technology is in place, consumers will be able to wave their phone at the checkout counter and, in one swoop, discounts will be applied, loyalty points will be awarded and the payment made. Someday, Google said, when consumers enter the store, their phones may serve up a list of items they recently bought, and offer them related discounts. The wallet app itself will require a PIN, as will each transaction. The payment credentials will be encrypted and stored on a chip, called the secure element, inside the phone. The app itself will be free to users.

Google emphasised that the wallet would be open to all businesses and invited other banks, credit card issuers, payment networks, mobile carriers and merchants to work with it. “I expect that other payment networks and other banks will join this effort, though in some cases it will be a hedge strategy they employ along with their own mobile payment initiatives,” said Charles S Golvin, an analyst with Forrester Research.

Google is also working with First Data, which processes payments and will serve as the wallet’s “trusted service manager,” ensuring the security of the transaction. If the phone was stolen, the credit cards inside could be remotely disabled. Consumers would have the same “zero liability” for unauthorized transactions made with their phone as they would with their plastic cards.

Eventually, Google said, its wallet may be able to hold much more than credit cards and loyalty programs, including car keys, theater tickets and airline boarding passes.