• Milos Dunjic

Is Google Pay Going To Be Threat To The Payment Networks?

Recently I have got in my LinkedIn feed an interesting Forbes article, which was making an argument that recently relaunched #GooglePay version is part of a plan to threaten established position payment networks like Visa and MasterCard and likely replace them in near future.

Potential Challenges With The Hypothesis And Counterarguments

I am not necessarily saying that Google Pay may not become legitimate threat to Visa, Mastercard and other card payment networks one day. There may be certainly some good observations in the original Forbes's article, which I enjoyed reading.

That being said, based on what I observe and know about payments currently, I personally do not see Google being able to easily replicate success of 'super apps' in Western markets ... even if they may be willing to try - which I personally doubt they are really trying to do in this case.

I would now like to make some counterpoints below, to backup my view.

Replicating AliPay, WeChatPay and PayTM Success Is Easy?

#AliPay, #WeChatPay and #PayTM have blossomed in China and India respectively, where there was significant unbanked population and where payment card acceptance infrastructure was basically non existent, i.e. at least not widely available, except in large urban areas. So these digital wallets, wrapped into super-apps, had more or less clear path (not saying it was easy) on their evolution journeys, toward what they are today.

This type of technology leapfrogging, however, could prove significantly more challenging and difficult to replicate in developed markets, with much smaller unbanked segment (in Canada about 3%) and already fully ubiquitous and entrenched card acceptance infrastructure. Let's recognize that Google itself hasn't ditched its #NFC #GooglePay version in any of the developed markets, nor there is obvious signal that they plan to do that, in near future.

Google As Clearinghouse?

Visa, Mastercard and other established card networks, play lot more complex role in card payment ecosystem, than just connecting merchants to customers (as the Forbes article may be implying). Beside pure message switching during payments authorization processing, the payment networks also perform an even more important role - they are acting as fully fledged #clearinghouse, which performs #clearing & #settlement functions for all of their payment card transactions - that means, in between other things, fully guaranteeing to the merchants that they will get paid, after payment card transaction has been approved, regardless whether the underlying card issuer may potentially default on their settlement obligations at the end of the day.

Clearing and settlement is not a technology challenge, it is business problem that requires significant financial potential, complex set of governance rules, regulations and policies and the ways to efficiently police and enforce them. Is Google ready to take on that important role of being a clearinghouse themselves (only then they can displace incumbent payment networks) or are they going to play along, with different types of technology solutions, tailored to the specifics of each market, which are all branded under GooglePay umbrella? I feel that Google is pragmatic and that it will choose the later, rather than former.

Google Taking On Liability For Payments?

Existing payment card networks also enforce ZERO LIABILITY rule, where customers are fully protected from fraudulent transactions. Should fraudster steal someone's Visa or MasterCard card (or even just a number), customer would pay nothing for transactions made under that fraudulent activity. In other words, they are guaranteed to be reimbursed under Zero Liability rule, usually defined inside cardholder agreements, which also clearly define what is considered to qualify as unauthorized transactions. This policy applies to anywhere customers use their Visa or MasterCard card numbers, including the Internet. Is Google ready to take on these types of disputes and liabilities themselves or are they trying just to play at the periphery of already established incumbent card rail infrastructures? Here as well, I believe Google will likely choose to play pragmatically, at least in foreseeable future.

Google Funding Customer Loyalty Rewards?

Customers also enjoy variety loyalty rewards when they use their payment cards, in-store or online. Those rewards are one of the strong incentives (beside other benefits) for the customers to keep using their cards. They are paid for by merchants, via interchange fees. Customers pay no transactions fees. In order to steer customer behaviour away from card rails, Google will have to ensure customers are given equally attractive incentives. Someone has to pay for them. Is Google ready to be the one footing the bill for financing those? Or are they going to, similarly to what Visa and MasterCard do, pass those costs onto the merchants? What's in it then for merchants to abandon their current infrastructures and invest significant sums of money into switching to new payment method? This is clear case of chicken and the egg challenge. Is Google going to bear the costs of re-engineering merchants' infrastructures and help them adopt the alternative they are offering? Many large players tried and failed to displace payment card networks in the past. Again this is not something that's just solved by cloud and technology. It is, before anything, a business challenge and a fairly significant one.

Request To Pay Competition And Opportunity At The Same Time?

With the raise of real-time payment infrastructures around the world, the associated overlay Request To Pay type services are starting to blossom too. They are, in their nature, considered irrevocable payments, which can be used in variety of use cases, for which cards may not be most convenient or cost effective as payment method:

  • P2P real time transfers

  • P2P bill splitting

  • real time B2C bill payments

  • real time charity donations

  • real time SME B2B invoice payments

  • etc

Request To Pay transactions can be initiated in variety of ways - via QR code (either shown on paper bill, or embedded inside electronic bill, or displayed on requestor's device / phone) or as 'Pay Now' button shown in-app of the biller, or embedded inside electronic bill received via email or SMS text.

Request To Pay competition is already heating up, and to me it already looks a lot like whatever 'direct and cheap QR code closed loop payment method alternative to payment cards' Google may allegedly trying to achieve, according to the Forbes article. In my opinion, in Western markets, Google may be lot smarter and successful to focus on becoming go-to Request To Pay overlay app (under same Google Pay branding) than to try to displace already well established (and popular with consumers) payment cards.

Request To Pay, as irrevocable payment method, may be a lot simpler to regulate and control than general purpose payment card payments. This way, the Western version of Google Pay could offer best of both worlds to consumers - a super payment app that could be used as NFC wallet for contactless card payments PLUS Request To Pay payment app for paying bills, P2P payments, P2p bill splitting, charity payments, funding prepaid / gift cards, etc


These may be just some of the obvious counterarguments against theory that Google is trying to displace Visa and MasterCard with their updated Google Pay app strategy. Clearly, eliminating Visa and MasterCard, from the payment authorization flow, by offering QR code retail payment equivalent, although theoretically possible, may not be even nearly enough to displace them due to reasons outlined above.

Therefore, for Google it may be smarter to continue playing along with established card rails incumbents (and not compete with them at least for the time being), and focus their energy on offering Google Pay app version, with two distinct and complementary sets of capabilities:

  • NFC contactless payments (on top of Visa, MasterCard, Amex and Discover networks)

  • Request To Pay overlay (on top of the local real time rail available in any local jurisdiction)

That would, in my view, perfectly complement their play with Google Plex bank app offering as well, and acquire ton of useful data along the way, which Google certainly knows how to use to provide even better services to their customers.

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