Verizon/Google Ongoing Dispute Shows Carriers' Power in Payments

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Since Google Wallet launched on Sprint, the only major U.S. carrier not involved in the Isis mobile wallet venture, rival carriers have resisted putting Google's payment system on their phones. Verizon Wireless in particular has been the focus of media criticism and, most recently, has been holding its ground against an FCC inquiry as well.

Verizon's argument has always boiled down to security, and Google has certainly faced security concerns over its mobile wallet. Early last year, a research firm highlighted two ways to get at the funds in the Google Wallet stored-value account.

Google has been working to address these issues. It quickly closed the holes the research firm publicized, and in October Google phased out its stored-value account altogether. For most issuers, Google now uses a cloud-based approach to security.

This has not deterred Verizon, and experts say the battle will continue for some time.

"We have two major players in Isis and Google wanting to grow themselves and limit the growth of their competition, so this is going to be a big conflict for a while," says David Kaminsky, analyst for emerging payments with Mercator Advisory Group.

The conflict between Verizon and Google has progressed to the point where even phones built by Google's own Motorola Mobility unit can't perform Google Wallet payments on Verizon's network.

Verizon, in its recent letter to the Federal Communications Commission, argues that it limits Google Wallet based on Google's desire to use the phone's secure element, which Verizon describes as "a secure and proprietary piece of hardware," according to a widely reported letter posted online last month in an online forum for mobile app developers.

Verizon spokeswoman Debra Lewis says she could not elaborate on the situation with Google, nor provide any information about what policies AT&T and T-Mobile have in place regarding Google Wallet.

However, she did provide a statement outlining Verizon's stance about why it cannot accept Google Wallet at this time.

Google Wallet may not work on Verizon handsets to the extent that the wallet application requires integration with the secure element of the device, Verizon says.  

The secure element is separate from the device’s basic communications functions and its operating system, Verizon adds.

Google did not respond to inquiries by deadline.

The carriers behind the Isis venture "are the biggest operators in the country and they have a vested interest in Isis, so they aren't going to want to give up too much [mobile pay] space," Kaminsky adds.

In its letter to the FCC, Verizon insists it is not blocking Google outright. Though Google now offers a cloud-based approach to securing payment data, it retains the option to use the phone's secure element for a more involved integration with an issuer's card. Citigroup Inc. uses the secure-element approach.

"Google is free to offer its Google Wallet application in a manner that doesn't require integration with the secure element," Verizon says in its letter. It allows software-based payment apps from Square, PayPal and Starbucks.

Some technology vendors are attempting to solve the conflict between Verizon and Google, or any others like it, by developing secure elements capable of dual ownership.

As much as anything, the conflict between Verizon and Google does illustrate that the mobile phone carriers will have some power to throw around as mobile commerce evolves. 

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