Google partners with Citigroup and Mastercard on NFC

Remember what I said about Google leaving everyone else in the dust? The dust is really beginning to fly now.

A couple weeks ago, I predicted that early field trials of Google's near-field communications (NFC) payment technologies on Android would put it well ahead of the competition. On Monday, several outlets reported that Google would be conducting these tests with credit card giants Citigroup and Mastercard, cementing their lead against the sole competition in NFC payments (the payment consortium called ISIS).

As reports,

One attractive option to companies like Google and other mobile-payment startups would be to cut out the credit card companies completely....But any attempt to circumvent the credit card companies’ private networks over 3G or 4G access runs into the problem of network reliability. A wealth of frustrated customers unable to pay for a meal because of spotty network service is less than ideal for any mobile-payment initiative.

That’s most likely the reason why Google is teaming up with the major credit card companies, instead of trying to bypass them.

The Wall Street Journal confirms what most of us are thinking about Google and its NFC efforts:

Google's move is part of its quest to sell ads and other services to local retailers, a growth frontier for Internet companies. Google executives, including outgoing Chief Executive Eric Schmidt, haven't been shy about saying that Android devices could serve as payment facilitators, thanks to NFC technology, though they haven't specified what Google's role will be.

"A phone is a lot smarter than a card," said Doug Bergeron, VeriFone's chief executive, in an interview. "It opens the door to a rich experience at the point of sale that retailers really covet."

Google has a lot to gain and nearly everything to lose in terms of local search and advertising after their failed Groupon bid. Local search and advertising are clearly important strategically, but NFC is also a compelling reason for people to buy new Android phones. Only the latest and greatest mobile phones running Android 2.3 will be able to support NFC transactions. It's a good thing I don't live near the pilots or my wife and I would be having words about why I really need to pay full retail for a new smartphone and get rid of my Droid Incredible.

Here's one final thought from the WSJ on why this is so important to Google, Android, and the exploding smartphone market:

The market for mobile payments is expected to grow significantly in the next several years, reaching $618 billion by 2016, according to a report by consulting firm Edgar, Dunn & Co. and sponsored by MasterCard.

A report issued this month by the Federal Reserve cited industry estimates that there were 70 million contact-less devices, including credit and debit cards, and 150,000 contact-less readers installed by merchants in the U.S.

$618 billion is a big number, even for deep-pocketed companies like Google and Apple.

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