Google Wallet will usher change? Think Again

Google rolled out a mobile payments system for its Android phone this week, with observers widely expecting Apple to do the same, but recent privacy snafus and infrastructure challenges question the technology's viability.

The Internet-giant announced on Thursday Google Wallet, a system that lets users forego their physical wallets and instead pay with their credit cards and smart phones. Simply tap your phone against an enabled terminal, enter your pin into the phone, and the payment is completed.

A number of analysts also expect such functionality to make it into the Apple iPhone as well, if not the next iPhone 5.

The technology offer substantial potential for not only near-field communications (NFC) chip makers but also the rise of a mobile digital wallet in general, according to Tavis McCourt of Morgan Keegan.

But the obstacle is that the status quo is likely to prevail, basically because of the risk of fraud.

Malicious entrepreneurs could intercept data, mimic phones ID's, produce false phones, or think up a number of other creative ways to take advantage of the digitized economy.

Unless the banks can underwrite/insure the funds to protect against fraud, in a cost-effective manner for merchants, then it is unlikely that retailers will switch to the technology any time soon.

The mobile payment opportunity is more of a cost burden than a real benefit to Google, Apple and others, the analysts said. Putting an NFC chip in a handset can cost $2 to 4$ per handset, they note.

Google would unlikely get any share of the actual transaction dollar amount.

There is also the privacy issue that may dissuade adoption.

In April researchers found that Google and Apple were logging user data, and in the case of Google, sending location data back to Google over 1000 times a day. Time will tell how secure this system is.

Retailers will also be slow to adopt it as the system will be slow to pay them.

The most likely method of funding a mobile wallet would tap into into a bank account via ACH, which doesn't actually clear the funds till an overnight, unlike traditional debit cards, where money is cleared right away.

Merchants can get burnt if there are insufficient funds.

Sanford Bernstein speculated that putting those NFC terminals in retail locations could take five years or more to happen.