Mobile Payments “coming soon” to Android

Google is expected to announce the launch of an electronic wallet for Android phones, to allow for mobile payments, at an event on Thursday in New York City.

Unnamed sources cited by Bloomberg and The Wall Street Journal say that Google will introduce a mobile payment service that utilizes near-field communication (NFC) on Sprint Nextel phones. NFC provides a way to store payment card information and to transmit it to a device capable of processing the payment.

Bloomberg reports that the service will be tested in five major U.S. cities–Chicago, Los Angeles, New York, San Francisco, and Washington, D.C. The Wall Street Journal has identified three participating retailers–American Eagle Outfitters, Macy's, Inc. and Subway.

At the TechCrunch Disrupt conference in New York on Wednesday, Google VP of commerce and payments Stephanie Tilenius said Google was making a big bet on NFC as a company, but declined to elaborate on what will be announced on Thursday.

Google has already demonstrated that it's serious about local commerce and can be expected to leverage Gmail, Google Maps, Google Offers, and its advertising services to promote its mobile payment system. Even if Google is leaving the payment processing and associated fees for its partners, it stands to gain from access to the valuable commerce data generated by purchases.

In March, The Wall Street Journal reported that Google was working with Citigroup, Mastercard, and Verifone to develop an embedded NFC system for mobile devices. Google's second generation Nexus phone, the Samsung-manufactured Nexus S, includes an NFC chip.

In January, NFC Times said that Google's mobile wallet system is known as "Cream" internally, though this could be the result of confusion with "Ice Cream Sandwich," the codename for Android 2.4, due in the fourth quarter of this year. The trade publication said that Google's aim is to provide Android infrastructure for existing payment providers rather than to compete with MasterCard and Visa.

Google, however, already competes with credit card companies through Google Checkout, which was initially referred to as Google Wallet. Google Checkout is the payment method used by Android Market, Google's online store for mobile apps.

Google's electronic payment system may face competition from a forthcoming service called ISIS, backed by AT&T, Verizon, and T-Mobile, from Apple's expected NFC payment system (if it's not ISIS), and from emerging mobile payment ventures like Square.

However, it all depends on the specifics of Google's service.

IDC analyst Aaron McPherson observes that a Google payment application for NFC wouldn't necessarily conflict with what others are doing if it simply utilizes the same standards as PayPass and other contactless payment cards. "The same readers that accept PayPass would work with all the various NFC solutions," McPherson explained in an email. "The issue would be how to get card data onto the phone, because my understanding is that, absent a physical card, the interchange rates would be card-not-present, which would be a deal-breaker for merchants."

Charges made when the buyer's credit card is not present typically require the merchant to pay a higher fee to the credit card processor, due to the higher risk of fraud.

"There needs to be involvement from the card networks to establish interchange rates for secure NFC transactions that are comparable to (or preferably lower than) existing rates for face-to-face card payments," said McPherson. "Solutions that involve new payment networks or stored value accounts or ACH transfers tend not to work very well because of the risk mitigation required." Google's NFC solution will be more credible, McPherson suggests, if the company announces partnerships with banks or card networks.

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