Is Google Pay a bank-killer app?

Google has relaunched the Google Pay app. The new app, allows consumers and businesses to send and receive money. In the case of individuals, they can send money to anyone on their phone contact list, and businesses can accept payments with just their name or a QR code. Most importantly, the new version of Google Pay allows us to do all this without having to purchase any additional hardware and doesn’t depend on payments being made through via a card terminal. As Daniel Döderlein writes at Forbes: “The difference from the old Google Pay is massive, not only in features and focus, but in the effects it will have on the market.”

He illustrates the difference the new Google Pay will make when compared with, say, a system like Apple Pay. He says, “If Company A serves consumers with a payment tool, such as an app on a device that can hold a card they serve the consumer side.” This is because the merchants need to have hardware to accept a payment. This model limits Company A to using existing networks such as Visa and Mastercard. The old Google Pay used this NFC wallet model, which is called ‘one-sided’.

Google has now shifted its focus away from NFC wallets and made a decision to go ‘two-sided’. This flies in the face of the received wisdom coming from the major card issuers. “The card industry, with Visa and MasterCard at the helm, has spent billions on telling the world that NFC is the best thing since sliced bread and that contactless payments will rule the world,” Döderlein writes, adding that while tapping your card on a card terminal might seem amazing, it’s hardly “mind blowing.” Consumer expectations are rising, and the physical store-bound hardware-based payment scenario is becoming outdated. Döderlein argues, “you can’t ignore the fact that people browse, explore, interact with and shop on their phone, often miles away from the merchant.”

People want payment methods to be even easier and more streamlined. They may want to buy and pay for something on their phone, and then collect it at the store. Removing the card payment hardware from the equation makes that possible.

This is what Google is aware of, although it is by no means the first. “AliPay, Venmo, Zelle, Swish, Mobilepay and a handful of others around the world have already reached more than 1.5 billion users based on this model,” Döderlein reminds us. He added, “The new Google Pay is a bank killer and it also brings a huge stab to the card networks on its path.”

The new Google Pay is a two-sided, proprietary mobile payment network that will address its clients directly, both consumers and merchants, rather than through a partnership with a bank, for example. This could make a big dent in the existing card payment network businesses, because payments will be pulled from a person’s account without the card networks being involved.

It will certainly affect the banks, traditional and challenger. Having a bank account was the main way to obtain a debit or credit card, now Google Pay makes it unnecessary to carry that card around with you.

The model has already been proved to work in China with AliPay and in the Nordic countries it has made payment networks bigger than that of cards.

Google clearly knows it will have a fight on its hands with the card networks, but its willingness to go forward with it, indicates that it is looking to the long term. And as Döderlein says, “it means business.”

There will be a number of losers in the banking world, but the winners are merchants and consumers. Real mobile payments are on their way and that’s a winner for all of us.

The QR Code Revival

The Covid-19 pandemic has brought the QR code back to life. Once it was a growing trend, but then usage seemed to fall away almost overnight. Now, it has reappeared on restaurant tables to avoid customers touching a menu and potentially spreading the virus.

But it is not the only way in which the QR code has returned. It has resurfaced as the payment mechanism of choice for Paypal, Venmo, Square and others in the USA.

The QR code started out as a sophisticated barcode for tracking parts, but it had other uses, and in 2011 Alipay introduced it for payments. Alipay has 1.3 billion users across China and Asia, giving you an idea of its market share.

Over the last decade, China and India have seen huge increases in population size as well as aggressive growth in Internet availability and smartphone usage. These factors have created an opportunity for mobile payments where the merchant didn’t have to invest in hardware: the customer simply used their phone. The QR code played a major role in this, and emerged as the defacto payment mechanism due to its ease of implementation by the merchant. For example, in China, Alipay and WeChat QR codes can be found on every food stall, checkout lane, restaurant table, and public transportation service in the country.

In the USA, a joint venture of merchants including 7-Eleven, Best Buy, CVS, Target, and Walmart called the Merchant Customer Exchange (MCX) with its digital wallet called CurrentC seemingly brought the QR back to prominence. However, it never really took off, and Chase bought MCX, relaunching it as ChasePay

One of the key issues with QR codes for payments is that QR codes are typically less secure, but the 2017 introduction of an EMVCo specification for QR code payments was a significant step towards standardizing the code and making it more secure.

In the last six months we have seen a new focus on QR codes across the ecosystem, including that by PayPal. It was followed by Square. Then Venmo, a PayPal subsidiary released a new Credit Card that made the code a key part of the product – they printed a QR code on the physical card.

As the QR code makes its appearance in other situations, such as the aforementioned restaurants etc, it seems like perfect timing for it to also have a role in mobile payments.