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Physical Currency Is Dying: Long Live Google Digital Wallet

Google (Nasdaq: GOOG) yesterday unveiled its rumored cellphone payments initiative that employs Near Field Communication (NFC) technology, mobile wallet software, and mobile coupons, and involves a variety of financial and retail partners. Frankly, it's more interesting and potentially useful than I anticipated, but the initiative faces a plethora of challenges and competitors. NFC is a slow-speed (less than 0.5 Mbit/s), short-range (4 inches or less), wireless technology for one-way and two-way communications. To initiate communications, an NFC-enabled device, such as a cellphone, is tapped on an NFC point-of-sale (POS) terminal or anything containing an NFC chip. Google's new venture revolves around the “Google Wallet” application for storing credit/debit card information and paying for purchases, and “Google Offers” for mobile coupons. At the outset, one cellphone incorporating NFC will be available for payments, Samsung's Nexus S 4G. It's sold by Sprint Nextel Corp. (NYSE: S), a partner in the venture. Other manufacturers, such as Research In Motion Ltd. (RIM) (Nasdaq: RIMM; Toronto: RIM), have said they will offer NFC-enabled handsets in the future. Initially, there are two ways to pay for purchases: Citigroup's Citi MasterCard with PayPass and a Google prepaid virtual card. Users need to enter a MasterCard and/or Google card number into Wallet, which is used for paying for purchases. PayPass is a contactless method of payment that's accepted by 300,000 merchants worldwide, and PayPass POS terminals can accept NFC phones with Wallet. Google wants many other credit card companies to join its "open" venture, as it emphasizes. Google's new prepaid card may be loaded with funds from a user's bank account or other credit/debit cards. Users don't receive a plastic card in the mail; all account activities are managed online. To encourage participation, Google will give everyone $10 in credit when signing up.

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