One of the iconic images to come out of Google's Android Pay presentation last week is its app loaded with one American Express card — and three retailer loyalty cards.

It marked a far different approach than Google's 2011 vision of mobile payments, which involved a separate app called Google Offers which was only partially linked to consumers' use of the Google Wallet app.

The new Android Pay system brings Google up to speed with Apple's Passbook — which gathers payment cards, loyalty cards and tickets on one screen — and gives both companies an equal starting point as they turn their attention to consumer loyalty programs. 

If Apple has a new offering to unveil, it may happen at the Cupertino company's developer conference next week. Speculation suggests that Apple is focusing on a rewards program that would give Apple Pay users a clear incentive to use their smartphone for payment, rather than their plastic cards.

Google has stated that its goal with Android Pay is to open it up to developers at retail stores and banks, but Apple's notoriously controlling nature may limit the opportunities for partnership on iOS devices.

"Apple will definitely announce a loyalty program capability, but it is yet to be determined if Apple will share that with anybody," said Steve Mott, principal of BetterBuyDesign, a Stamford, Conn.-based consulting firm.

Google emphasized its use of Host Card Emulation (HCE) technology, which allows phones to make contactless payments without accessing the device's secure element, which is typically controlled by carriers.

The use of HCE will eventually provide "more flexibility for those with rewards programs and loyalty incentive" because of its open architecture, Mott said. "That's one of the reasons Visa and MasterCard decided to support HCE early on."

Even if a loyalty program isn't part of the initial version of Android Pay, Google is in a good position to build out such a system, particularly given its relationships with the major U.S. card networks.

"Visa's deal with Google for digital enablement services would suggest Visa is going to get wired into Android Pay not only with tokenization but maybe as a loyalty partner through this whole HCE environment," Mott said. "As usual, Visa is being very savvy about this."

Early on, Google irked retailers with the Google Wallet concept because it would control the transaction data. By creating Android Pay with far more merchant and bank support, Google can now play the data card to its advantage.

"Android starts to change the game relative to its role in the marketplace," said Kim Smith, vice president of innovation and digital services for Capgemini North America. "They are no longer a device provider, they are now a digital concierge creating services relevant to users."

While Apple Pay got plenty of media and partner attention, Apple's smartphone market share is still not as strong as Android. In addition, Android has a wider demographic appeal and is more likely to see its consumers use Android Pay, Smith said.

As such, Google will have plenty of Android Pay data to feed back to its merchant partners to customize and establish offers and loyalty programs for customers, Smith added.

"Ultimately, it could result in a specialized data program that retailers would pay a subscription to receive," Smith said.

Apple Pay also operates from a position of strength, mainly because its Passbook feature has already developed creative ways for users to track loyalty programs, said Gregory Burch, vice president of mobility, business development and independent software vendor relationships at terminal maker Ingenico Group.

"We anticipate seeing most major wallet players adding the couponing and loyalty component to their actual payment interface so that with a single action you can handle both payment and loyalty," Burch said.

Ingenico worked behind the scenes with Google for several months to assure its terminals were coded to accept Android Pay and that merchants and acquirers had the toolkit needed to allow the NFC payments.

"All of our devices will have the capability to do loyalty programs, but early on Android Pay likely will function just like Apple Pay as a way to tap your phone for payment," Burch said.

The actual exchange of loyalty information and rewards redemption will come later as technology develops and "the back end of the payments network has the know-how to receive the data and get it back out to the phones," Burch added.

Google and Apple's activities in loyalty cast another shadow on the Merchant Customer Exchange retailer venture, which has hinted that its long-awaited CurrentC mobile wallet will launch this summer. MCX was created, in part, to change the consumer shopping experience through mobile commerce.

As Google and Apple have surged forward the past few months, MCX has seen its CEO Dekkers Davidson leave the venture and one of its key members, Best Buy, announce it would accept Apple Pay in its stores.

"There is no spin you could put on this to make it good news for MCX because they don't have a counter-announcement," Mott said. "If the MCX product isn't absolutely ready to go this summer, then there is no product to change the nature of the value proposition for the consumer and it is going to be hard for MCX to get any oxygen out of this."

MCX, which is backed by mega-retailers like Walmart and Target, has to make a significant move before the other wallet makers are able to meaningfully change consumer behavior, Mott added.

American Express supports both Android Pay and Apple Pay, but also has its own loyalty scheme which could appeal to users of either mobile wallet. The card brand manages a new rewards/loyalty program called Plenti, which uses a single plastic card to track rewards earned across multiple retailers.

As mobile and loyalty technologies converge, they must improve the relevance of the offers they pitch to consumers, Ingenico's Burch said, recalling the many unused manicure discounts he gets from Groupon.

"I certainly didn't need the manicure coupons, but the program only knew I was a target because I bought one before for my wife," Burch added. "A loyalty program needs to know why you bought something and when."

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry