Report: Credit Giants Team Up With Google to Drive Mobile Payments

Google's flagship NFC phone, the Nexus S.

Google wants to do away with your wallet.

The Mountain View, California, company is working on a partnership with credit industry giants MasterCard and Citigroup that would allow you to make real-world purchases at stores using your smartphone, according to a report from The Wall Street Journal.

If the partnership materializes, buying groceries may require little more than a wave of your smartphone across an installed card reader at the checkout counter.

The partnership would allow for cardholders to pay for retail items after activating an app on Android NFC-enabled smartphones. The phones could then be swiped liked credit cards across card readers enabled with near field communication, or NFC, at participating retailers.

As Wired’s Epicenter blog reported earlier Monday morning, Google will begin testing the mobile payments service in key markets — New York and San Francisco — within the next four months. Other test markets include Los Angeles, Chicago and Washington D.C., according to a report from Bloomberg.

Google would pay for the installation of thousands of NFC terminals in the major cities. The terminals will be built by VeriFone Systems, a manufacturer of point-of-sale electronic payment technologies.

As with many other Google experiments, the push into mobile payments would serve as a loss-leader for the company’s advertising business, sources told the�Journal.

Google would be able to offer retailers more data about customers and purchasing habits, while tailoring its ad targeting and promotional offerings to smartphone users. The company isn’t expected to take a cut of the transactions.

The mobile payments initiative faces some challenges. Currently, only one NFC-enabled smartphone is on the market — Google’s Nexus S (above). Samsung’s successor to its popular Galaxy S smartphone, the Galaxy S II, boasts NFC capability, but isn’t slated for release until the summer of 2011.

Also,�it’s been difficult to imagine a major disruption of a massive industry like that of the credit industry that’s already established. One big reason: companies like Visa rely on trunks — shared lines that provide network access to a series of endpoints rather than providing them individually — and leased lines to provide retailers with reliable credit card terminal service.

One attractive option to companies like Google and other mobile-payment startups would be to cut out the credit card companies completely. Instead of using the card companies’ private networks, mobile payment could be made over a given smartphone carrier network.

But any attempt to circumvent the credit card companies’ private networks over 3G or 4G access runs into the problem of network reliability. A wealth of frustrated customers unable to pay for a meal because of spotty network service is less than ideal for any mobile-payment initiative.

That’s most likely the reason why Google is teaming up with the major credit card companies, instead of trying to bypass them. And Google isn’t alone in doing so. Joint mobile payment venture ISIS — which finds AT&T, Verizon and T-Mobile partnering up with Discover Financial Services — is Google’s main competition in the mobile payments arena. ISIS is reported to begin testing its payments network this year, according to Bloomberg.

Google did not respond to our requests for comment.

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