When Google launched its mobile wallet last year, it asked issuers to give up some control in exchange for branding in its payment app. If issuers didn't like that arrangement, they didn't have to play along — and most didn't.
But now Google has changed the rules, and American Express is the first to vocally and vehemently oppose Google's new setup. The outcome of this dispute could decide who controls transaction data in a mobile wallet. Issuers may also be concerned about how companies like Google can use mobile-wallet technology to find loopholes in debit routing regulations.
American Express claims it never agreed to any terms before Mountain View, Calif.-based Google broadcast to all consumers the card brand would be part of the updated mobile wallet. Google now lets consumers decide which Amex, Visa, MasterCard or Discover card they use to fund mobile payments, and although issuers can facilitate this by providing artwork and other details to Google, they can't block it.
Even though the updated wallet also provides more security by storing card data in the cloud, rather than on consumer phones, reports quickly circulated that Amex was not pleased.
"No disrespect to Google, but they have stepped on [others'] toes once or twice in getting this mobile wallet system going," says merchant acquirer consultant and industry researcher Paul Martaus, of Mountain Home, Ark.-based Martaus & Associates.
Neither Amex nor Google returned multiple calls this week requesting comment about the situation. Both companies provided written statements indicating that they will continue to negotiate an agreement.
Those negotiations will mostly center on who gets control of the merchant data for each transaction through the wallet. It's a high stakes game, says Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.
The new Google Wallet setup is an additional option for consumers; Google did not eliminate its old model, which allows direct partnerships with issuers.
Under Google's new process, linked credit and debit cards fund payments made from a virtual MasterCard account at the point of sale. This puts Google in front of the valuable transaction data that issuers want to use to create new business opportunities, such as by creating targeted ads for mobile payment adopters, Crone says.
"This is a classic example of how Google operates now, bypassing the issuers, and putting its brand on a MasterCard prepaid card, before even getting the mobile wallet fully started," he says.
American Express may not like the thought of every Amex cardholder transaction that goes through the Google Wallet returning on the transaction statement as only "Google," or referring to Google as the merchant of record, Crone says.
Google's new system effectively blocks transaction-level promotions for companies like FreeMonee, Cardlytics and Cartera Commerce, which rely on the transaction details that are absent under the new Google Wallet system, Crone explains.
In doing so, Google makes it so that transaction-based offers must be linked to the mobile wallet provider, not the issuer, he says.
"The industry has a mantra in which 'the one who enrolls is the one who controls,'" Crone says.
Martaus agrees, noting, "Many of my clients are very frustrated by this."
While the customer data represents a legitimate concern, Martaus says many of his clients are also leery of security with companies like Google.
Their concerns are "not because Google is lax about security, because I know they are very smart about things like this," he adds. "But it is more because of the hackers keep getting stronger as well and they will be after that card data in the cloud."
In another initiative related to consumer data control, Target Corp. and Wal-Mart Stores Inc. announced last March they would begin exploring the creation of their own mobile wallet and open the concept to other retailers.
In addition, Amex continues to develop Serve, the card brand's digital payment application allowing friends to send, receive and request payments within Facebook.
Last May, Amex announced plans to allow users of Serve to link their accounts to the Isis mobile wallet, a joint venture of Verizon Wireless, AT &T and T-Mobile USA.
While Amex needs to address specific issues with Google, many banks and retailers have started viewing Google Wallet as a competitor instead of a potential partner, Crone says.
Issuers express concern because the Google Wallet in its current format does not support PIN debit, and they suspect Google sidesteps routing options that are federal requirements, Crone adds.
The Durbin rule in Dodd-Frank requires support of a minimum of two network clearing options for debit. Even if Google Wallet purchases are funded with a debit card, the transaction is completed with an open-loop general purpose reloadable prepaid account — and those accounts don't have to support dual-networking clearing options under Durbin until April 2013.
The ruling took effect for debit cards in April, 2012.
Martaus says he is not surprised by any company in the payments industry looking to bend Durbin rules. "Everyone is trying to figure out a way around Durbin, it's an economic fact of life," he says.
Many companies may not always "play fair" it seems, but essentially they are looking to "take the best advantage of the rules as they are currently written down," Martaus says.
Amex may soon have others on its side in its opposition to Google's methods, Crone says.
"I would not be surprised if Amex sues at some point, and I am surprised that Visa, MasterCard and Discover are not fussing about this as well," Crone says. "It is just mind-boggling that they would let this occur."
For its part, Google also has to be feeling the pressure of quickly advancing its mobile wallet in light of the Aug. 8 announcement that Starbucks Corp. and Square Inc. have partnered for mobile payments at the popular coffee shops.
No matter how the Amex situation shakes out in the coming weeks, consumers still have to buy into the Google Wallet concept. The pros and cons of the wallet's features continue to be common fare on industry blogs.