Google gives debit, credit cards a makeover

Woman looking at mobile phone

Good news for first adopters of smartphone payment apps: Google has launched Google Wallet, a pilot app that allows you to load your debit or credit card information into your smartphone and make purchases by tapping the handset against a compatible checkout terminal.

But the offer is only good in San Francisco and New York so far, and it only works on the Android Nexus S 4G phone.

Smartphone payment apps are way cool -- in theory.

The trouble is, they're also way ahead of traditional bank and merchant infrastructure in the United States. Most still can't handle chip-enabled credit cards, much less phones that want to pay electronically.

Use those payment apps to buy online to your heart's content -- just don't try them at a news kiosk near you.

Internet search monster Google performed a classic leap-frog maneuver over American banking by launching Google Wallet, which promises to store "thousands of payment cards and Google Offers but without the bulk."

Banks, which are used to owning our wallets, electronic or otherwise, were puzzled and a little bummed by this turn of events.

Imagine the audacity of Google, a nonfinancial company, to develop its own wallet and rub it in by offering banks advertising space on it!

It's both compelling and terribly frustrating if you're a bank trying desperately to hold onto your traditional revenue streams while wrestling with all this newfangled technology.

Google is piloting its Wallet app in San Francisco and New York City, where consumers can make direct payments with certain MasterCards issued by Citigroup.

Google's Wallet also test-drives the NFC (near-field communication) technology installed in the Android smartphones that enables wireless tap-and-go payment at NFC-enabled terminals.

Last November, America's big three mobile phone companies -- AT&T, T-Mobile and Verizon -- launched a joint venture called Isis to develop and widely deploy a single NFC platform to enable its combined 200 million U.S. customers to use their cell phones as a credit card.

For its part, Google says it doesn't plan to take a cut of Citi's transaction fees; instead, it plans to make its money the same way it does online -- by selling advertising space to merchants.

Google hopes eventually to add more banks, which would allow consumers to register any card from a participating bank.

Don't feel too sorry for the banks; they'll still reap their merchant transaction fees.

But in the not-too-distant future, they could be dealt out of the mix when it comes to revenue from merchant-funded reward programs that vendors often share with banks.

Those gratuities could flow instead to the phone companies.

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