Google is firming up plans for a feature that allows consumers to buy products directly from a retailer's ad on a mobile phone, part of a Silicon Valley-driven trend that would place card issuers at a disadvantage.
Google's size as an advertising platform gives it considerable power in this scenario, according to Tim Sloane, vice president of payments innovation and director of the emerging technologies advisory service at Mercator.
"Google controls the largest volume of advertising and this will consolidate Google's position around the entire range of Google controlled platforms at the expense of other participants," Sloane said, adding Apple Pay will have a similar effect.
Called Purchases on Google, it displays a "Buy on Google" option within certain ads displayed in search results. After clicking that ad, the shopper is taken to a retailer-branded product page that Google hosts for checkout. The payment is completed using credentials already on file with the user's Google account.
Visa and MasterCard will benefit from working with Google and Apple, but there may not be as much of an upside for card issuers, Sloane said. "Card volume is always good for the network, but card volume for issuers is only good until it becomes so consolidated by single entities that the transaction fees become negotiable, which greatly reduces profit," Sloane said.
Google, which did not provide comment for this story, is testing Purchases on Google with a small number of retailersthe company's blog post mentions only Staples and Under Armour. But Google plans to aggressively grow the feature by early 2016. Google has been working on a mobile buy function for at least a few months, according to earlier reports.
Other major consumer-facing technology companies are also adding payment capabilities to their platforms. Twitter launched a pilot of its buy button in late 2014, and Facebook added a payment capability to its Messenger throughout the U.S. last month.
"Any move that Google makes in terms of revenue generation is a threat to smaller companies in the space," said Andy Schmidt, principal executive advisor for CEB TowerGroup. "It's simply a matter of scale."
The social networks will be naturally insulated from Google's efforts because their platforms are largely walled off from one another, Schmidt said.
"That said, there is an inherent challenge in serving the right ad to the right person at the right time. Surely Google and the social networks have a sense of what their users are based on their behavior," Schmidt said. "However, there is a significant risk that these promoted ads will come across as noise that users will choose to avoid rather than interact with."
The potential market for mobile buy buttons is considerable. In an upcoming PaymentsSourceoped, Tami Cohorst, a vice president of Abtek, a card processing and merchant account solutions provider, said buy buttons are rapidly migrating to social networks, which hope to take advantage of a usage gap. About 60% of retail browsing occurs on tablets and smartphones, yet only 15% of purchases are made on these devices. Retailers that have e-commerce capabilities and social media presence are a particularly good bet for social media buy buttons, Cohorst says.
Google is also revamping its overall mobile payments strategy. Google plans to launch Android Pay this year as a streamlined version of its mobile wallet; the Google Wallet brand will be limited to person-to-person payments.
Android Pay will be similar to Apple Pay in many respects, though Android Pay's model will give banks some control over payment functions.
Google will have to compete on its own Android platform with Samsung Pay the merchant-led CurrentC wallet. CurrentC is envisioned as an ACH-based mobile wallet, which could eat into card revenues for banks.
Sloane said issuers need to review their options and develop a strategy now.
"Ultimately they may decide they have no options, but I would argue that the lack of options is driven more by their acquiescence, not by the lack of partners ready to step up and provide alternative solutions," Sloane said.