Google Mobile Payments vs Apple Mobile Payments

Last week, I made this comment in response to my previous post about mobile NFC payments on the Nexus S:

Ultimately, Google will want to handle the mobile payments themselves. How do they do that? Do they use Google Checkout? Stores would need to accept that as a payment method through an NFC station… and even then it’s just routing back through the same big credit card companies. That doesn’t help them. Do they partner and lose the full value? Do the partners even want Google in the mix? What is Apple doing? What are the banks doing? This is a much more complex issue than it might seem at face value.

I suggested that Google would not use Google Checkout or their own payment system since they don’t have the infrastructure of the existing big credit card companies and that their only option is to evaluate a partnership and lose full value. Today, the Wall Street Journal announced Google is doing exactly that.

“Google is teaming up with MasterCard and Citigroup to… allow consumers to make purchases by waving their smartphones.” “Google isn’t expected to get a cut of the transaction fees.” -WSJ

By Google not getting a cut of the transaction fees, that’s the loss of “full value” that I mentioned. Google is forgoing a lucrative cut of transactions in exchange for utilizing the existing credit card and banking infrastructure. This is consistent with Google being true to their advertising roots. Just like Android, they waived fees on the platform so that they could reap the mobile advertising benefits. The claim in the article is that Google will have your purchase information and can sell advertising and supply promotional discounts based on that data. I will get into the privacy issues associated with that another day. The key point is that they opted for the path of least resistance and one that is very much in tune with the company.

I believe Apple will take the opposite approach. With iTunes, they already have a tremendous financial network and industry clout. I believe that Apple will in fact take a cut of the transaction fees as they essentially have the largest hub of credit cards (200 million) online and run transactions into the billions of dollars. Google doesn’t have this kind of leverage with the banks and issuers.

When Apple announces their NFC payment system, I see one of two things happening. Either they go strictly for the cut and forgo the advertising component (which is not their forte anyway), or they double dip. I strongly think it’s the former and they just take a cut.

Why just the cut and not build the advertising component? Just like Google’s modus operandi is advertising, this approach is in line with Apple. It’s the App Store model and their new subscriptions model where they take a 30% cut. So far the jury is still out on iAds, so why jump head first into a nascent advertising space that is likely to have privacy concerns and require a sales force or sales infrastructure that they would need to build?

Let’s examine the double dip scenario. I’m not sure Apple would build the advertising component on their own. Similar to their iAd acquisition with Quattro, I believe they’d acquire a company that has already built an ad system around NFC payments. I’m not sure one exists, but if it did it would be in Japan built around the FeliCa RFID payment system. Still, this double dip is highly unlikely more so because of the privacy issues. Apple does not want to be embroiled in what will likely be a controversial form of advertising. There’s little chance of a perfect ad partner in the NFC space as of today. If the double dip scenario happens, it will be in the future after Apple has watched the successes and failures of Google in the space and then tries to build a better mousetrap.

Ultimately Apple and Google will go their own way with mobile payments and while at it stay true to themselves.