Google Moves on M-Payments

The publication of Google's patent application for a mobile payment system fans the flames of speculation over Google's real mobile ambitions and the elusive Google Phone. But the search giant's move into payments could jumpstart mobile transactions where others have mostly failed.

The mobile payments patent revelation is the latest addition to the newsflow on Google's mobile strategy. (See Google Phone: Out of India?, Google's Mobile Hiring Frenzy, Google's $5B Broadband Bid, Femtocell Startup Pockets $25M, Google Pledges $4.6B for Spectrum, Google's Mobile Content Plans, and Google Euro Boss Confirms Phone Rumor.)

Google applied for the mobile payment patent in February this year, and the U.S. Patent and Trademark Office published the application last week. The application describes an SMS-based payment system, dubbed GPay.

Here's how it works: A user would send an SMS to the GPay system to make a purchase in a shop, the amount of the purchase is debited from the user's bank account and credited to the shop's account, and an SMS is sent to the shopkeeper to confirm that the transaction has been processed.

If that's not clear, the patent application spells it all out like this:

A computer-implemented method of effectuating an electronic on-line payment includes receiving at a computer server system a text message from a payor containing a payment request representing a payment amount sent by a payor device operating independently of the computer server system, determining a payment amount associated with the text message and debiting a payor account for an amount corresponding to the amount of the payment request, and crediting an account of a payee that is independent of the computer server system.

Google's GPay looks a lot like existing m-payment systems, such as the mobile version of Pay Pal. And there are other companies already providing SMS-based payments, such as Firethorn Holdings LLC , mFoundry Inc. , and Obopay Inc. . (See AT&T Offers Mobile Banking, Cingular Plans Mobile Banking, Verizon, MFoundry Team, Obopay Lands $29M, Verizon Launches Obopay, and Cellular South Offers Obopay.)

"It's difficult to see what's new in [Google's system]," says Vincent Poulbere, principal analyst at Ovum. "Google's idea around mobile payment is very similar to PayPal's SMS payment capabilities."

While SMS-based payment is common, it is mostly used to purchase digital content that is downloaded to a mobile phone, such as ringtones. Payments are usually added to a subscriber's mobile phone bill. Companies like PayPal, and now Google, aim to get more people making everyday purchases in shops by sending SMS messages from their mobile phones.

But Ovum's Poulbere says that efforts to expand mobile transactions to non-digital purchases have been hindered by lack of interest from users and merchants.

"Initiatives around developing payment of non-digital content have mostly failed," he says.

But this is where Google can make a difference. With the weight of its advertising business, Google can entice merchants to its m-payment system by offering a discount on transaction processing fees in exchange for advertising. Google already does this with its online payment system called Google Checkout.

Poulbere explains: For every $1 spent on advertising with Google within a month, the merchant can get $10 worth of transactions processed for free during the following month. The cost to the merchant to use Google Checkout is a fixed fee of $1.62 per transaction plus 2 percent of the transaction value.

Google launched Google Checkout in the summer of 2006. It is available in the U.S. and U.K. In May this year Google launched the mobile version. But transactions through Google Checkout Mobile only work on merchants with WAP-enabled sites.

Poulbere says he does not know whether Google plans to subsidize Google Checkout Mobile with advertising, but the potential is certainly there.

"There are already many companies positioned to offer SMS-based payments," says Poulbere. "Google is uniquely positioned and can make a difference with its strong advertising position."

"This is a form of disruption for the payment business," he adds.

With Google Checkout Mobile and the potential for the SMS-based GPay system, Google is covering two different ways to make purchases from mobile phones.

— Michelle Donegan, European Editor, Unstrung