What is Android Pay and a Comprehensive Analysis of all its Facets

On Level 2, session room 1 at Google I/O, at 3:00 PM yesterday, Google unveiled details of its new payments platform Android Pay. It meant that the U.S. mobile payments market (and global) started looking more competitive, and perhaps better for the end consumer . With more than US$ 3.5 bn spent through this channel in 2014, the global search giant Google is hoping to make a come back after its first troubled attempt at payments, a.k.a. Google Wallet.

Those of you who have been tracking this sector closely would know that, Android devices had NFC and card emulation capabilities ahead of Apple. In-fact, Google had ventured into payments four years earlier. In early 2011, Google launched the Google Wallet which was described as "novel, not so perfect, and certainly not a seamless payment solution" back then by reviewers. Google could not make the best use of Google Wallet in the last few years and hence lost the opportunity. They have designed Android Pay from the standpoint of smartphone manufacturers and developers which is a commendable move. Industry experts believe that Android Pay is more of a development tool than a standalone application such as that of Samsung Pay and Apple Pay. Let's explore more in this article and understand everything we know about it.

Android Pay is essentially a mobile and digital payments system that people can use for completing commerce transactions, online or in-stores at the retailers. It has a striking similarity to Apple Pay in many ways that we will touch upon later in this article.

Mobile payments are here today, and are now an essential part of the core value proposition for new devices, said Ed McLaughlin, Chief Emerging Payments Officer, MasterCard. With the MasterCard Digital Enablement Service (MDES) and Android Pay, we can now use secure tokens to easily enable payments from a consumer’s connected device. Today’s news extends consumer choice and drives further ubiquity of payments on devices.

Mobile payments is big a priority for Google, so we’ve been working with major networks like MasterCard to help provide a seamless experience across a wide range of phones and stores. Android Pay will offer people further simplicity, security and choice when paying for things with their Android phones, said Pali Bhat, Director, Product Management, Google.

Power of Collaboration

Google through Google Wallet could not do a good job at collaboration which is very important in the complex world of payments. Especially with so many parties involved such as the banks, fintech companies, card networks, processors, retailers, and so on. However this time, Google is hopeful of the success of Android Pay having worked on that aspect. Like Apple Pay, it has worked with Banks, fintech companies, card networks, processors, carriers (via softcard) and retailers which clearly is a good approach. For example, Google will enable MasterCard credit, debit, prepaid and small business cardholders to use their Android phones for everyday purchases. For consumers and merchants alike, every purchase made with a tokenized MasterCard card will offer the same security, benefits and guarantees as any MasterCard transaction. Same goes with Visa or Amex cards.

The excitement seems to be quite high on the in-app purchase side and Android Pay has already seen some announcements from partners. Companies such as Stripe and Braintree are providing support for it and were quick to market the fact. Braintree said in a tweet - "We’ve integrated Android Pay into the SDK. Sign up for our private beta today"

Android Pay is expected to be initially supported at 700,000 physical stores and by 1,000+ mobile apps merchants in the U.S.

Security Highlights of Android Pay

  • First-stage device based authentication using Biometrics (fingerprint to be specific) not yet shown but finger print scanner for authentication will be supported along with the launch of Android M
  • NFC based Android phones with secure element in the phone and/or HCE (secure element in the cloud) for in-store payments
  • Tokenization of the transaction so that the PAN details are not transferred during the transaction. Your credit card number and details are not sent to the retailer system for security

Here is a video illustration on how to pay via Android Pay:

Comparison with Apple Pay

Android Pay is an Apple Pay replica in many respects. It includes tokenization, tie-ups with retailers, NFC capability and in-app payments. But all these don’t matter much in the comparisons when it comes to volumes. The market share of iOS devices in the U.S. stood at 41%, while that of Google’s Android is 53%. Though Android Pay has no novelty, but is expected to be bigger than Apple Pay because of the volumes and here are the reasons:

  • Android Pay will be able to launch globally faster as Android has 78% share globally compared to that of Apple iOS which is 18%. The OEM and carrier support on a regional basis will do the wonders for Android Pay
  • Google’s partnerships with AT&T, Verizon and T-Mobile, where the carrier will pre-install Android Pay on devices with NFC capability is a slight edge over Apple.
  • Android Pay is also expected to integrate loyalty programs apart from payments in the future. e.g., Android smartphone users in North America will soon be able to buy a Coke and redeem My Coke Rewards points. (Apple Pay is also releasing a similar feature next month)

--> To me the most important thing is Google's ongoing war with Facebook on advertising. For becoming the ultimate advertising powerhouse, one needs to combine demographic data (purchase intent) with purchase data. Every such company (ad-tech) is trying to do that. If Google is successful in its effort, it will be the first company to successfully integrate Customer demographic data with transaction data using Android Pay (if Facebook can't move Facebook Messenger based payments fast). Ofcourse there are challenges. Safeguarding privacy of information being the prime challenge.

Apple has been pretty straightforward about how Apple Pay works, clarifying that it will not store, share or track your purchase data. As for mobile payments newcomer Samsung, it’s still not completely clear how the company will manage transactions. So far the firm has revealed that Samsung Pay users will be able to track transaction histories on their own devices. More on this sometime later...

Finally what about Google Wallet, and Samsung Pay

Google’s unsuccessful attempt at a mobile wallet is not going away and would stay it seems. According to some sources, Google Wallet is being reintroduced as a P2P payments app, which is a way for customers to easily transfer money to each other’s debit or bank accounts in a quick way.

On the other side, Samsung Pay with its acquisition of Loop Pay has gained access to a technology (MST) which ensures that the wallet works well with Non-NFC magnetic card readers. The approach helps them to expand globally, where penetration of NFC is lower. But at the same time it will compete with Android Pay. Especially if Samsung will enable both for its customers.

For our US readers --> Android Pay will be made available for U.S. Android users (running KitKat or higher) in the upcoming months. Contactless payments are currently accepted at major U.S. stores, restaurants, fuel and convenience stores who will now also accept MasterCard transactions made using Android Pay. To find a listing of contactless-enabled merchant locations, you can find them here.