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Google went live with its hotly anticipated Wallet application on Tuesday, though it will hardly hit the mass market yet – it runs only in the US, on the Sprint network, and on its own handset, the Nexus S. And eBay‘s PayPal – the firm which sued Google when it first unveiled Wallet in June – may be the more important player to watch as web majors fight to drive the mobile payments boom.

Google can now put its NFC-enabled service through its paces and gauge consumer enthusiasm, and is already promising that future releases will be broader, and far more significant.

Stephanie Tilenius, VP of commerce and payments at Google, said at a June press conference: "2011 and beyond will be the age of 'molo' – mobile local commerce. Wallet is one of the first steps, but this vision will take a while to come to fruition."

Future uses for the Wallet could include storing a driving licence, healthcare card, mass transit ticketing, hotel keycard or boarding pass. Support for other Android devices will follow before year end though timelines for international versions remain vague – even though NFC uptake is higher in some European and emerging markets than in the US.

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We think that mobile wallets could be disruptive in content too, when used in conjunction with persistent content stores, but that's not currently on anyone‘s radar as yet. In its first iteration, Google Wallet allows users to pay for goods by swiping their handset against a reader, with funds taken either from a Citi MasterCard or a Google Prepaid Card (which can be loaded from any other credit card).

Google will give customers a $10 bonus if they sign up for the prepaid card by the end of this year, as it looks to spur uptake of the Wallet and insert its brand and services into every link in the value chain. It also has deals lined up with Visa and American Express. Google announced 15 large stores which are supporting Wallet NFC readers, including RadioShack, American Eagle Outfitters, Subway, Macy's, Foot Locker and Walgreens. Other partners in creating a full-blown payments platform will include Verifone, Hypercom, Ingenico and Vivotech – whose security and processing technologies will contribute to a new point of sale system called SingleTap.

There are three aspects to the all-important security system: a PIN, which must be entered before making any purchase; a secure element within the device – a chip which stores encrypted credit-card data separately from the handset memory; and MasterCard's PayPass technology, which encrypts credit card details as they pass between the phone and NFC tag. Google's revenues will come from advertising and from revenue share from promotions such as coupons. It has also introduced Google Offers, a digital coupon service.

As for Sprint, the initial carrier partner appears just to be offering a conventional network access deal, but it will also include Google Wallet support in its own multi-vendor wallet. In the real world, it may also seek additional revenues from promotions. Fared Adib, VP of product development at Sprint, said that the cellco's role was to provide a "bridge" to handset vendors, in order to expand NFC availability.

Paypal's next move

PayPal, meanwhile, has shown how aggressively it would protect its markets from Google, whose rival Checkout has never gained the same presence in web payments as the eBay unit. When Google announced Wallet, its rival promptly filed a lawsuit alleging misappropriation of its trade secrets.

It claims that a former PayPal executive, Osama Bedier, stole confidential information about his employer‘s own mobile payment plans when he left to work at Google. While PayPal may be taking the well-trodden path of competing with Google by suing it, it also needs to ensure it broadens its own online payments system to become a full platform spanning mobile commerce.

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