Google's first attempt to work with banks in mobile payments was disastrous it required banks to jump through hoops to link their brand to its wallet app, and only one issuer ever did before Google lowered the hurdle. But with Android Pay, that logic is reversed, and Google is the one going out of its way to be a part of bankers' apps.
"What's interesting about Android Pay is that it gives application developers the ability to activate the payment capability from within the U.S. Bank app," said Dominic Venturo, executive vice president and chief innovation officer for U.S. Bank.
U.S. Bank this week announced it would support Android Pay, which is expected to roll out in the next couple of months. The Minneapolis-based bank is frequently an early adopter of mobile technology, and also supports Apple Pay.
U.S. Bank will likely leverage Android Pay as part of a bank-led effort to extend mobile payment credentials for use in multiple environments, though Venturo said the primary benefit of Android Pay is it extends mobile access to more consumers. It also gives the bank another option to build future mobile payment and banking functions, he said.
Android Pay taps into two major emerging innovations in payments technology. It offers an application programming interface (API) to allow developers to embed payments into their own apps, and it also relies on host card emulation (HCE) to enable contactless payments without requiring access to a device's secure element. Google has supported HCE since the 2013 launch of Android 4.4, nicknamed KitKat.
Card issuers can use this mix of technology to authorize their cards for mobile payments from within their own banking apps. This gives the institution more control over payments-related functions, said Pascal Caillon, general manager of North America for Proxama.
"Once the card is activated, it posts in the Android Pay wallet, although card activation, last transactions, balances, etc. will remain with the mobile banking app," Caillon said.
Since HCE technology eliminates the need to enter specific agreements with handset manufactures or mobile network operators, financial institutions have a clearer path to enable mobile payments through Google's current model.
"[With HCE] there's less collaboration among fewer parties, so in that regard it may help adoption on the mobile device to happen more quickly," said Barry McCarthy, executive vice president and head of consumer and network solutions for First Data, which supports both Apple Pay and Android. First Data plans to help its issuer clients load cards into Android Pay through First Data's Integrated Token Services Offering, and will also work with merchants to accept Android Pay in stores and online.
First Data's network includes 650 million payment cards, four million merchants in the U.S. 6 million total merchants globally.
"Both Apple Pay and Android Pay have the same challenge to get merchant adoption for physical payments," McCarthy said. "HCE won't help with that but it could help with the distribution of cards."
Apple Pay has quickly caught on with banksmore than 700 financial institutions support Apple Pay, far more than supported Google Wallet, Android Pay's predecessor. But a number of payment experts are pushing banks to develop their own mobile payment apps to retain control over enrollment and other processes. How consumers use mobile devices to engage financial services and payments will ultimately decide whether a bank-controlled mobile wallet is the best move, or if a mix of models works better, Venturo said.
For USAA, a financial institution that serves mostly military families, Android Pay will quickly boost availability of mobile payments across devices and geographies, said Vikram Perekh, assistant vice president of credit card development at USAA.
"Our membership is mobile-savvy and is evenly split between iOS and Android," he said, adding USAA plans to take advantage of Android Pay's HCE technology to integrate Android Pay into USAA's mobile banking app.
Android Pay's global reach will also be helpful, though Apple Pay is also expected to expand globally, Perekh said. "Our members get deployed and stationed abroad, so global acceptance is a big factor for us to make sure our services travel with members."
Google's latest payments play will also face challenges within the Android ecosystem. The upcoming Samsung Pay will likely come pre-installed on Samsung's Android handsets, and any future HCE-enabled mobile banking apps will give consumers a range of alternatives to choose from for smartphone payments, Caillon said.
However, even with all of Google's attention to issuers' needs, bankers know their most profitable customers are likely using Apple's devices.
"Android is an important platform for banks, and yet all of our profitability metrics show Apple gaining at the expense of Android in areas that matter most to banks, mainly how ideal the typical mobile customer is in areas related to profitability," said Jim Van Dyke, founder and CEO of Javelin Strategy & Research. "Android is not as tight of a platform when it comes to security either, so there's a double whammy that will certainly keep Apple as number one in front of Android to banks."