Mobile payment systems face an uphill battle among consumers. Google is the first to market, but that doesn't make it a sure bet for small businesses.
The long-anticipated Google Wallet service officially launched Monday. The development is a significant milestone for small businesses, especially those with retail establishments.
But let's be real. With just one handset (the Sprint Nexus S) currently supporting it Google Wallet won't replace cash or credit as your customers' primary payment method anytime soon.
Here's how Google Wallet works. First, a customer loads information for selected credit cards or a prepaid Google card into Google Wallet. The app then uses near-field communication technology (you tap the phone on the payment terminal or wave it nearby) to make the transaction occur.
Right now, the Google Wallet service works only in conjunction with MasterCard. However, Google has forged deals with American Express, Visa, and Discover to share the technical specifications needed to make the service work.
On its blog, Google notes: "Our goal is to make it possible for you to add all of your payment cards to Google Wallet, so you can say goodbye to even the biggest traditional wallets."
Of course, that assumes a business where the customer wants to pay has installed the technology to accept Google Wallet. This is where small businesses come in. Right now, Google Wallet will work with terminals that are equipped with MasterCard's contactless PayPass technology. It's important to keep in mind that Google Wallet is actually a joint venture between Google, MasterCard, Sprint, Citi, and First Data. So that is where the emphasis will lie.
So hurdle number one from Google's standpoint will be whether small businesses will invest in the installation of new point of sale technology to support these payments.
Right now, it is not clear that it would be worth the trouble. The idea of paying via mobile phone is pretty big outside the United States, but U.S. consumers have been at lot more lukewarm on the concept. Market research firm Gartner predicted that the number of people using mobile phones for payments would reach 141.1 million worldwide in 2011. Many of those users, however, are in developing nations such as Kenya or the Philippines.
In established economies, mobile payment schemes like Google Wallet will fight an uphill battle against consumer behavior. Some may feel we already use mobile phones too much. Plus, what happens if your phone gets lost of stolen? Until mobile phone security solutions become more richer and much more mainstream (do you have security on your mobile phone?), very few people will want to load information that could directly affect their credit if their phone is lost.
Eventually, Google Wallet will compete against Isis, a payment system backed by AT&T, Verizon, and T-Mobile that is expected to debut in early 2012. PayPal also is planning a foray into offline payments. The advantage PayPal has, of course, is not only its familiarity among consumers but its existing integration with millions of small businesses.
I should also mention Square here. The well-known startup is developing mobile card readers and an iPad cash register system that would make it easier for small businesses to install, as well as its own a digital wallet application.
For now, Google Wallet has the advantages of being first to market and of using a POS technology established in places like gas stations. With the strength of Google behind it, we should see fairly quickly whether mobile payments are ready for prime time. Or not.
Heather Clancy is an award-winning business journalist with a passion for small businesses, green technology and corporate sustainability issues. Her articles have appeared in Entrepreneur, Fortune Small Business, The International Herald Tribune and The New York Times. Follow her on Twitter.