Google Wallet: Handicapping why it will (and won't) work

Google has launched its big move into mobile payments with Google Wallet. The big questions revolve around Google Wallet adoption and whether the search giant and partners can finally make mobile payments a reality.

First, Google's announcement of its mobile payment plans in New York featured a lot of heavy hitters in the retail and payment industry. With that start, Google is hoping more retailers, merchants and banks will join its effort. Google's vice president of commerce Stephanie Tilenius said an open ecosystem will set Google Wallet, which includes an Offers feature, apart.

Gallery: Google wants to revolutionize shopping (photos)

As noted previously, mobile commerce has the tech industry behind it. And Near Field Communication chips, which allow data to travel between two devices, like a smartphone and point-of-sale terminal, are ready to infiltrate smartphones. That move enables Google's grand plans for its Wallet, which will launch this summer.

Whether Google Wallet is a success or not will depend on multiple factors. Here's a look at some of the pros and cons involved with Google Wallet:

Pros:

• Google has aligned itself with all of the key players in financial transactions. The most notable player in the picture to me is First Data, which serves as the backbone for many transactions behind the scenes. Mastercard, Citi and Sprint as well as retailers like Subway and Macy's are about the best line-up you could pull together at a launch.

• Low risk transactions seed the market. If you notice Google Wallet's retail partners you'll find a bevy of specialists in smaller transactions. Think Subway, Peet's Coffee, Einstein Bagels and Jamba Juice. The consumer is more likely to try Google Wallet buying bagels and coffee than a PC at Best Buy.
• Google is leveraging existing infrastructure. Google Wallet will work with the MasterCard PayPass network, which allows consumers to tap to pay at participating retailers. I've seen PayPass systems everywhere---MasterCard has more than 124,000 merchants in U.S. and 311,000 globally using the system. The problem: I've never seen a real live consumer use PayPass. The move to align Google Wallet with an existing tap payment system gives the search giant instant access and credibility. Partnerships with Verifone, Hypercom and others will put Google Wallet in next-gen point of sale terminals.

• Convenience is another key feature. Google Wallet will have real appeal to Android customers that are lugging around a bunch of cards. It also doesn't hurt that Google's Android installed base is huge. These Android users are more likely to trust Google and adopt its various services.
• An open ecosystem was played up. Google portrayed itself as an enabler---that's not collecting transaction fees yet. Google promised open APIs and connective tissue to enable mobile payments. That line will appeal to a bevy of financial players. After all, Google's monetization will come from Google Offers, its Groupon killer, as well as the advertising possibilities with users.

Add it up and Google Wallet could have some real momentum. The effort is as credible---if not more so---than anything else likely to come down the pike.

Now for those worry spots:

Cons:

• Google Wallet needs more phones in the field. Google execs were showing off the Nexus S, but the reality is that NFC chips need to be in all phones to acquire a critical mass. These phones are coming, but they will take months to reach a wide swath of consumers.
• The inclination to wait for other NFC moves. A lot of Apple users are likely to wait to see what Steve Jobs & Co. cooks up for the iPhone. However, I have a tough time envisioning Apple pulling together the ecosystem that Google just did out of the gate.
• Security. Google executives also talked up security. The talked about tamper proof chips found in passports as well as PINs and shutoff mechanisms so you can't skim Google Wallet's data. Overall, Google Wallet is safer than handing a waiter your credit card, but selling consumers on this payment system could be tricky. Google said that consumers could store cards, drivers licenses, IDs and other items in Google Wallet. That's a lot of undiversified trust in Google.

• Google needs more carrier support. Sprint is a nice launch customer, but the company really needs Verizon and AT&T in the fold too. To date, Google's first release of Google Wallet will come on the Nexus S 4G. The Nexus S is Sprint's bestselling phone, but the numbers are relatively small.
• Habits. Tilenius acknowledged that "this vision will take a while to come to fruition." A field test starts today, and Google Wallet will officially launch this summer in San Francisco and New York City first, followed by a roll-out nationwide. That rollout is the least of Google's worries. Google will get early adopters on board, but the masses may be reticent. New payment methods are adopted slowly in the U.S. Folks transfer money via text messages in Turkey. No such luck here.

Bottom line: On the adoption front, Google's success or failure with Google Wallet looks like a jump ball. One thing is certain: If mobile payments finally take hold and go mainstream Google will be a player in the industry.