Google (GOOG) is determined to counter Apple's (AAPL) growing success in the mobile payment business. And the partnership with three major U.S. wireless carriers it announced on Monday is an important step in its strategy to boost usage of its existing Google Wallet service.
The big reason is the same one driving Apple: It's great to be on top of an industry, but having alternative businesses that can grow in the future if your main offering lags is even better.
Google's acquisition on Monday of Softcard, a mobile payments company that has deals with AT&T (T), Verizon Wireless (VZ) and T-Mobile (TMUS), is a big part of the Google Wallet strategy. Although Wallet has been around since 2011 and is available on Android, the carriers limited its use because they had backed Softcard.
The three carriers had originally announced plans to build their own mobile payment system in 2010. Softcard became the name of their joint venture. The focus was on enabling payments through near-field communications, or NFC, which would allow a consumer to wave a mobile device in front of a properly equipped register to pay for a purchase. Last year, an estimated 16 million U.S. consumers spent $3.5 billion through so-called tap-and-pay services.
Google has looked carefully at Apple Pay for some good reasons. Apple's service diversifies the company's offerings, creates the foundation for greater interactivity between Apple and the rest of the world and opens a door to making a lot of money by taking small cuts of every transaction it enables.
As the credit card companies Apple has partnered with have shown, getting a small percentage of transactions can become an enormous business when volume increases.
The deal between Google and the wireless carriers more sharply draws a line between the carriers and the credit card and traditional banking industries. The carriers, also looking to diversity their business prospects, have control over mobile data, and they have wanted to find new ways of making money from their networks.
Working with Google would give them an opportunity to grab at least part of the potential mobile payment industry and possibly turn them into a new type of bank. Carriers could even bill customers directly for purchases, creating an alternative to traditional credit cards.