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Google Wallet phone-pay is coming - but how will it work?

Chocolate Factory cloudbank, or e-wallet

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Analysis In six hours Google Wallet will be announced, but we don't know if Google wants to get into payments itself, or just plans to make money from someone else's service.

We do know that Google Wallet will be announced this afternoon (Thursday mid-day, New York time) and that the service will go live in September - whatever that service is. We also know that US luggage shop The Container Store is signed up to the service, and that Vivotech is providing NFC terminals for Google, but we still don't know if all that means the chocolate factory is turning bank or just providing a wallet into which other companies can place their cards.

Wallets are certainly in vogue at the moment – US operator-consortium ISIS had planned to create an NFC payment system in competition with the banks, but last month changed tack to provide a standard wallet into which banks could drop their payment apps.

Visa is also going down the Wallet route, though Visa plans to provide a multiplatform wallet covering on-line as well as physical payments. In Visa's world a payment company (say... Barclaycard) creates a payment app and drops it into Visa's electronic wallet, that app can then be used on-line (linked to an e-mail address to compete with PayPal), or in the real world (using NFC handsets), with Visa providing the underlying security across all platforms.

Google could well adopt a similar approach, though the consensus is that the chocolate factory is planning something more radical. The assumption seems to be that Google will create its own pre-payment system and start acting like a bank, storing users' money until it's spent at retailers' outlets: just like O2 Money and Orange Cash are doing in the UK.

That assertion is backed up by recent comments from Google's VP of commerce and payments, who told that audience at TechCrunch Disrupt that "We're making a big bet on it as a company ... There is a lot of potential there". NFC World argues that a basic wallet won't enable Google to make back its investment in terminals, and that such a big bet means setting up a payment system.

Google does already manage pre-paid accounts for Google Voice users, so much of the infrastructure is already in place, but despite that it seems more likely that Google is planning something even bigger than pay-by-wave.

Loyalty schemes and coupons will obviously play a big part in Google Wallet; expect your electronic wallet to be stuffed with tokens and offers as well as payment applications, and it seems likely that Google will take this opportunity to launch a payment platform for use both offline and online. That's much closer to what Visa is planning, and it will be interesting to see if Google can provide a similarly-impressive list of supporting companies.

To do that Google will need to have control over the NFC secure element, which it does on the Nexus S. Whether it can convince network operators that hosting an incarnation of Google Wallet on their SIM cards (as required by some NFC handsets, such as the Nokia N7) would be worthwhile is another matter, particularly when Google will be competing with Visa and ISIS for that privilege – it's hard to imagine a network operator finding space for all three on the SIM.

Google Wallet will certainly include NFC tokens and coupons, but whether the chocolate factory is ready to jump into banking is another matter. From here it looks more likely that Google will want to play wallet to other payment brands, but we won't know for certain until this afternoon. ®

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