Google Wallet: A mobile operator’s friend or foe?

Google (NASDAQ:GOOG) doesn’t do anything small. As expected, it announced its mobile wallet solution that will allow consumers to turn their phones into digital credit cards (Unfiltered: Google makes its big NFC payments move). But not only did Google unveil a near-field communications (NFC) mobile payments engine, it took the wraps off a multifaceted m-commerce and mobile marketing platform that brings together secure point-of-sale, financial transactions, digital coupons and loyalty programs into a single mobile wallet.

Called Google Wallet, the software will be first available over the Nexus S 4G on Sprint’s (NYSE:S), but Google plans to expand the program to other Android phones and possibly even other smartphone platforms. At a press conference today broadcast over its YouTube channel, Google executives stressed Google Wallet would be part of an open ecosystem with application programming interfaces that would allow any partner to use its capabilities. Google won’t even charge its partners for access to the wallet, “as long as you play by rules,” said Osama Beider, Google vice president of mobile payments.
That statement could be interpreted as an open invitation to carriers, handset makers and financial firms to join Google’s m-commerce parade, which is already well staffed by Citi, MasterCard, First Data and Sprint. But it could also serve as warning to those same companies that if they continue to pursue closed proprietary NFC payment strategies they could be shut out of the larger opportunity Google is offering.

Sprint senior vice president of product development Fared Adib seemed to drive that last point home to mobile carriers at the press event, saying mobile operators need to open themselves up to as many financial transaction platforms as possible rather than limit their customers to their own payment services. “A carrier should really help enable [an open NFC ecosystem], rather than dictate it,” Adib said.

It’s no coincidence that Sprint was the only major U.S. operator to not join Isis, an NFC payments financial network backed by Verizon Wireless (NYSE:VZ, NYSE:VOD), AT&T (NYSE:T) and T-Mobile (NYSE:DT). Isis has been struggling of late and has apparently scaled back its plans to become the sole provider of NFC transactions on the mobile device, rather building a mobile wallet service similar to what Google announced today (Unfiltered: Despite operators’ mobile billing advantage, Isis scales back mobile payment ambitions). Sprint shunned Isis in favor of pursuing its own NFC strategy and today looks the stronger because of it.

Due to the popularity of Android smartphones, there is probably little they can do to prevent Google Wallet from competing with their own NFC plans, unless they tried to block the service from their phones entirely—a move that wouldn’t go over well with consumers or regulators, nor for that matter Google. But operators also might chose not to look at Wallet as a competing service, but as the enabling infrastructure for their own contactless payment services. Google claims it is building an open platform any partner can ride over, which presumably would include any operator and Isis itself.

Isis is working with Discover Financial Services for its financial transaction networks, effectively embedding a carrier-branded Discover card in every Isis device. Since Wallet is open to any payment system, Isis could store its digital credit cards in the Google Wallet just like MasterCard and Citi. Of course, that AT&T, VZW or T-Mobile Isis card would be one among many in the Google Wallet, but there the operators have a few key advantages in making their cards the NFC payment vehicles of choice. They can issue Isis accounts every time they sell a phone and allow customers to manage those accounts through their Web and mobile portals. Their most powerful weapon, however, is direct billing—mobile payments could show up on the monthly phone bill.

Operators can only delve so far into the credit and interest game before they risk being regulated like banks, but they’ve enabled plenty of small-bore transaction is the past. They support direct billing for app store downloads and premium SMS purchases and donations. Prepaid transactions could be another big opportunity, allowing customers to load up their mobile accounts with cash that they then apply to purchases. Operators already have a vast prepaid infrastructure in place to handle minutes and ringtones and wallpaper purchases. Extending it to purchases outside of the phone, may not be too difficult. The question is will the operators view Google Wallet as an attempt to move in on their turf or as a partnership possibility?

More: How Google Wallet Works