Will Google Turn Android Phones into Credit Cards?

Will Google Turn Android Phones into Credit Cards?Living a hurried and hectic life? That's what cell phone makers, credit card companies, telecom carriers and financial institutions are banking on that as they ramp up their efforts to allow you to use your smartphone as a credit or debit card. And according to recent reports, Google (GOOG) is preparing to join in the trend with its Android phones.

The notion of mobile phones equipped to handle monetary transactions is rooted in the idea that most people usually have their device within quick reach. And when pressed for time, or moving through a long line, it would would come in handy to be able to compress the payment process down to the tap of a phone against a point-of-sale reader.

Japan has been using its phones this way since 2004, and hundreds of trial tests are under way worldwide, including some in the U.S., says Howard Wilcox, a senior analyst with Juniper Research. In 2005, wireless carrier Cingular laid out plans for an Atlanta test using NFC with partners Chase (JPM), Visa (V), Nokia (NOK) and Philips (PHG). And in 2008, greater San Francisco's high-speed commuter train system, Bay Area Rapid Transit, launched a four-month test where a select group of riders paid for their tickets using Sprint phones equipped with near field communications technology.

Now, Google is reportedly planning to link up with MasterCard (MA) and Citigroup (C) to offer Android-based smartphones that can operate as credit or debit cards, as well as offering up discounts and targeted ads, according to a Wall Street Journal report. According to a Bloomberg report, Google plans to test this service within the next four months in New York and San Francisco, with additional tests in Los Angeles, Chicago and Washington, D.C.

Google declined to comment.

Japan Still the Main NFC Player

A host of other companies are using NFC technology for smartphones to make contactless payments. These NFC payment systems allow users to tap their phone or hold it within two inches of an NFC point-of-sale reader, drawing from either their bank account, similar to a debit card system, or a charge account, such as MasterCard or Visa.

Telephone carriers are also getting in on the act, with AT&T Mobility (T), and its soon-to-be-acquired T-Mobile and Verizon Wireless (VZ) announcing late last year that they're planning to form a national mobile commerce network called ISIS. This point-of-sale network will also use NFC and smartphone technologies to allow people to use cell phones as electronic wallets.

Despite all these trials and tests, Japan remains the one country where NFC-touting smartphones are ubiquitous. Wilcox points to several reasons for the slowness of their widespread adoption elsewhere.

"You have all these [point-of-sale] machines that have to be modified for NFC. In the U.S., POS uses magnetic strips and people have to swipe their cards. In Europe, they use chips," Wilcox says, noting VeriFone Systems (PAY) and Ingenico have a number of NFC readers on the market. Earlier this month, Ingenico announced 21% of the POS terminals it sold in 2010 were based on NFC technology -- a 50% increase from the previous year.

Who Owns the Customer?

Until recently, smartphones enabled with NFC were few and far between, other than those designed for trial tests. But Wilcox notes that is changing, with an increasing number of smartphone makers from Samsung to Nokia and others folding the mobile payment technology into the phones.

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Indeed. The Yankee Group is forecasting the number of NFC-enabled phones worldwide will soar to 151 million in 2014, up from 834,000 last year. And with it, the number of NFC-based transactions is expected to balloon to $40 billion in 2014 from $27 million in 2010.

Activity on NFC-enabled phones is expected to cover billions of dollars in purchases, and also to include such services as doling out coupons and loyalty rewards.

Although analysts expect the number of NFC-enabled smartphones to increase dramatically and the availability of point-of-sale terminals to handle such transactions to rise as well, one conundrum the industry faces is who owns the customer, says Nick Holland, a senior analyst with the Yankee Group.

The telecom carriers are looking to claim the NFC-enabled phone users as their own when the transactions are rung up, while the credit card companies and banks want to weigh in for their slice of the pie.

"The real fight will be over who owns the customer," Holland says, adding, "I don't think this will put the credit card companies out of business."

Google Wants Data, Not Dough

Consumers, meanwhile, don't want to pay to engage in mobile transactions, according to a Yankee Group report released earlier this year. It found fewer than 10% were willing to pony up for such a service.

Google apparently finds that statistic irrelevant, given that its core business focuses on advertising revenue rather than collecting money from consumers. Holland noted Google has no interest in mobile payments. Rather, its interest is on expanding its treasure trove of information about its users, which in turn it can leverage with its advertisers.

It's that hunger for its users' information that may bring Google down, says Trip Chowdhry, an analyst with Global Equities Research.

"Think about where the world is going. There is a push for privacy. Look at the "Do Not Track Me" bill in Congress. This is an early indication that capturing information to use it to throw out ads will accelerate Google's demise," Chowdhry says. "The Do Not Track Me bill can change the structure of Google's business overnight."

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