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Emerging Payments

Google ‘Plastic Card’ Rumor Raises Questions of Strategy, Security

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Google has reinvented its mobile wallet a few times, and its latest reinvention, a rumored plastic card, raises questions about the mobile-pay product’s direction.

The mobile-news site Android Police posted images of the card as depicted within the app. Google has not confirmed a plastic-card addition, but it was already rumored to be working with Discover Financial Services, the same card network that gave the PayPal and Isis wallets a boost in point-of-sale acceptance. A very faint Discover brand is visible in one of the Android Police photos.

Google Wallet launched last year supported by just one phone and one bank partner. In a year those numbers have crept up, but not to the point where the mobile wallet is as easy to obtain and use as a plastic card.

Image: Bloomberg News

(Image: Bloomberg News)

Use of a plastic Google card would allow consumers without Near Field Communication chip-enabled phones to access their Google Wallet accounts.

The rumored partnership is “a big deal” for Google and is likely imminent as the company seeks to establish a system similar to that which Discover established with PayPal this year, says Gil Luria, industry analyst with Los Angeles-based Wedbush Securities.

Discover’s PayPal pact will allow consumers to use the PayPal digital wallet at any Discover merchant next year. Previously, PayPal was making deals with merchants on a case-by-case basis, and deployed its system with 10 retailers as of last month.

“PayPal wants consumers to do a lot with their mobile phones, but to close the transaction at the point of sale, they needed to be backward-compatible with a plastic card as a way to use the mobile wallet everywhere,” Luria says.

Essentially, Google is changing course from its previous strategy in which the company hoped merchants would willingly obtain NFC-enabled terminals at which consumers could use the NFC-based Google Wallet, Luria says.

“After a year, Google realized that wasn’t going to happen, so they want to follow the same path as PayPal and get on the Discover network,” he adds.

Until there is a way to close a transaction with a mobile phone at virtually every point of sale, mobile-wallet providers are looking to offer plastic cards as a bridge, Luria says.

For Discover’s part, if this deal becomes reality, the card brand will gain exposure through its brand appearing on the Google plastic card.

However, there is no guarantee that a plastic card would boost a mobile wallet’s appeal. PayPal, a unit of eBay, has long offered a plastic card as an option for its digital point of sale payment system, but it says 70% in-store payments are made without the card.

Luria says more consumers will use the PayPal plastic card as its deal with Discover takes effect next year, vastly expanding PayPal’s acceptance at the point of sale.

Though consumers using Google Wallet perceive that they link their bank-branded cards to the wallet app, in many cases the app pays merchants through a virtual MasterCard. Adding a plastic Google Wallet card would maintain this disconnect, allowing Google a view of consumers’ spending data.

The virtual MasterCard system, introduced in August, also lets Google store payment data in the cloud. Its earlier approach, which attracted only one issuer — Citigroup — stored payment data in the phone’s secure element.

The ultimate goal in either the secure element or the cloud approach is to ensure security and wide implementation, especially for financial institutions, says Ian Hermon, product marketing manager for Plantation, Fla.-based Thales e-Security.

“There is no current evidence to suggest that the cloud-based approach is any more or any less secure than the secure-element approach,” Hermon says.

The choice a company may make between the two “would appear to be highly influenced by business objectives rather than security objectives,” Hermon adds.

In the case of Google’s recent move to a cloud-based approach, the company had a desire to get to market quickly and wanted to avoid establishing multiple legal contracts with individual issuers, Hermon says.

Google’s virtual or plastic card approach means the consumer cards stored in the cloud from multiple issuers can be registered and used in a card-not-present mode without Google ever needing to sign a legal agreement with the individual issuers of the cards, Hermon says.

“Their agreement would be with Discover as a single point of contact, thus facilitating access to a wide range of merchants already registered with Discover,” Hermon adds. “It just simplifies their task in ramping up a new set of acceptance points.”

Secure elements in a handset and security in the cloud are likely to co-exist for the foreseeable future, making it difficult to predict which would ultimately gain the most market share, Hermon says.

Discover chose not to comment on the potential deal at this time, and Google did not respond to inquiries.

Discover has established itself as the go-to card network willing to work with online or mobile pay providers, having relationships in place with PayPal, Isis and an earlier relationship with Google

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