With Google's announcement of its agreement to acquire Motorola Mobility Holdings, the search giant has potentially turbocharged its mobile payment plans.

Where before, the Google Wallet was only set up to work with the Sprint Nexus S phone (most other telecom providers have joined the ISIS mobile payment consortium), now Google will be able to design, manufacture and distribute its own phones, presumably with Google Wallet software and mobile payment technology preloaded [we were unable to reach Google representatives this morning for comment]. Google has already gotten Citi, MasterCard, Sprint, First Data and sixteen merchants to partner on its Google Wallet mobile payment scheme, which is still in test mode but will support contactless payments from near-field communication-equipped phones.

“This absolutely strengthens Google’ position in mobile payments,” says Nick Holland, senior analyst with Yankee Group. “The big issue for mobile payments has been the secure element [the computer chip on a phone that would store encrypted payment card credentials], the physical hardware that allows someone to own the mobile wallet. By having ownership of Motorola, which makes 10% of smart phones in U.S., Google has the potential to put its own secure element in all those devices.”

Mobile operators typically choose the handsets they offer consumers. Owning Motorola Mobile will put Google in a position to negotiate directly with mobile operators, rather then through a handset manufacturer such as Samsung, Holland points out. (Samsung is currently the only manufacturer of Google's Nexus S phone.) The mobile operators, most of whom have joined the ISIS mobile payment consortium, are likely to balk at allowing Google devices on their networks. However, due to Motorola’s 10% market share, they may be forced to accept them or risk turning away subscribers. Google could even make a radical move such as give away handsets to ratchet up market share for its phones. Google has said all along that it doesn’t plan to make revenue off of mobile payments; its revenue model is based on advertising.

This is a key difference between the Google Wallet and other mobile payment solutions, and one that Holland believes gives it the upper hand versus ISIS: Google is offering space on its mobile wallet to card issuers for free. ISIS intends to charge a rental fee to card issuers for space on its wallet.

ISIS has strength in its number of partners. In addition to the three major telecom operators who are members -- AT&T, Verizon and T-Mobile – the consortium has signed on four credit card companies: American Express, Discover, MasterCard and Visa.

For banks, it makes sense to consider both of these schemes and others. “There’s no reason for exclusivity,” Holland says. “Citi is backing Google at the moment, there’s no reason they couldn’t do ISIS as well.”

Google’s choice of Motorola Mobility is logical – all Motorola phones use the Google-designed Android operating system. Google says that post acquisition, the Android operating system will remain open and Google will run Motorola as a separate business. There are about 150 million Android devices in the world today.

The Google Wallet app currently works with a Samsung Nexus S near-field-communication-enabled phone (meaning a phone equipped with technology that can send and receive data wirelessly within a range of a few centimeters) and MasterCard PayPass terminals, which are used by 140,000 merchants. When the Google Wallet publicly launches on the Sprint network later this summer, customers who have a Citi-issued MasterCard or a Google prepaid card that they link to the downloaded Google Wallet app will be able to tap their mobile phone to pay for something at a participating merchant's terminal.


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