Google’s Cheap Smoothies Fuel Phone-Pay Push: Rich Jaroslovsky

Does a pair of bright gold socks represent the future of electronic commerce?

It just might. The socks in question were purchased at a Macy’s in Silicon Valley, using a wireless phone and a Google Inc. (GOOG) app instead of a conventional credit card. It’s part of the first wave of mobile payments, a topic you’ll be seeing and hearing a lot more of in the months to come.

Companies like Visa Inc. (V), MasterCard Inc. (MA), eBay Inc.’s PayPal unit and the wireless carriers are pouring resources into ways to get us to use our smartphones to replace cash and credit cards. While the Google Wallet app is limited in scope, it’s one of the first out of the chute, having launched six weeks ago.

At the moment, the Google system involves a single model of phone and a limited number of merchants in the New York and San Francisco areas. The phone is the Nexus S 4G, which is made by Samsung Electronics Co., uses Google’s Android operating system and runs on Sprint Nextel Corp. (S)’s fastest network, called WiMax. It includes a chip and internal antenna enabling what’s called Near-Field Communication, or NFC, which allows the wireless sharing of data over very short distances.

The obvious, and biggest, question is why anyone would want to use a phone to buy socks. True, I carry enough plastic in my hip pocket to throw my spine permanently out of alignment. But pulling out a credit card to pay for something isn’t so complicated or inconvenient that I’ve ever longed to replace it.

Photographer: Andrew Harrer/Bloomberg

Rich Jaroslovsky, technology columnist with Bloomberg News. Close

Rich Jaroslovsky, technology columnist with Bloomberg News.

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Photographer: Andrew Harrer/Bloomberg

Rich Jaroslovsky, technology columnist with Bloomberg News.

Smoothie Operator

But what if I could get a discount on those socks -- or a special deal on a smoothie at the Jamba Juice shop -- without having to clip or print out a coupon? What if I could automatically get loyalty points from OfficeMax or Foot Locker? From the consumer’s standpoint, those may be the most important services Google Wallet provides; the actual payment is almost incidental.

The home screen of the free Wallet app consists of four icons labeled “Payment cards,” “Loyalty cards,” “Offers” and “Transactions.” Under payment cards, you’ll find three options. If you have a MasterCard issued by Citigroup Inc. (C)’s Citibank unit, you can directly enter your credit-card credentials, making the phone essentially a duplicate of your plastic.

Using a different credit card, for now, entails a two-step process requiring you to add money to a Google-branded prepaid debit card that appears on screen. Perhaps to soften the inconvenience, Google starts you out with a $10 balance on the prepaid card. (Yes, the company is paying you to use its app.) You can also enter information on gift cards from a limited number of retailers, including Macy’s and Bloomingdale’s, which are both owned by Macy’s Inc. (M)

Cashing In

To test out the process, I headed to the upscale Stanford Shopping Center in Palo Alto, California, and opened the app to see what deals it had for me. One immediately caught my eye: a 16-ounce all-fruit or fruit-and-veggie smoothie at Jamba Juice, which normally costs $4.25, for only $2. I pressed the “Save” button on the screen, which qualified my phone for the offer, and headed over to cash in.

At Jamba Juice, I ordered my Strawberry Whirl and pulled out the Nexus S. Among the several security safeguards Google has built in, the system won’t work until you wake the screen; you also have to enter a four-digit personal identification number. And your credit card information is stored in the phone in a form that, Google says, other apps aren’t able to access.

Swipe-and-Go

When I passed the back of my phone across the same MasterCard PayPass reader used for swipe-and-go credit cards, my discount was automatically applied, the $2 was deducted from the balance and a digital receipt was created under the app’s Transactions tab.

Then I moved on to Macy’s, which offered me an extra 10 percent to 15 percent off sale and clearance merchandise. Things didn’t go quite so smoothly this time, though, largely because neither the salesman nor I knew the technology well enough. When I tapped the phone on the reader, it deducted the discount on my socks but didn’t close the transaction. It took a few minutes of fumbling before the two of us realized I had to tap it again to actually make the payment.

Although the Nexus S has built-in GPS, like just about all smartphones, the receipts from Jamba Juice and Macy’s included just the name of the store, not its location. I fared better when I used my Google Wallet at a Peet’s Coffee & Tea shop in Santa Rosa, an hour north of the Golden Gate Bridge. Not only did the electronic receipt give the address of the store, it even plotted the location on a map.

No Deal

Alas, no discount here: All I got besides my drink was the information that I was the store’s first-ever phone payer.

Keep an eye out for other smartphone-based payment systems in the works. Isis, a joint venture including wireless carriers AT&T Inc. (T), Verizon Wireless and Deutsche Telekom AG (DTE)’s T-Mobile USA, has announced partnerships with a number of major handset makers and plans to start trials next year. Notably missing from its roster of manufacturers is Apple Inc. (AAPL), which might be positioned to do something on its own thanks to the millions of credit card numbers it already has on file through its iTunes Store.

Then there are smaller players. Square, the mobile-payments startup run by Twitter co-founder Jack Dorsey, has an app called Card Case that lets you pay by speaking your name at checkout. And Jonathan Kaplan, the entrepreneur behind the Flip video camera, is opening a chain of mobile-payment-enabled grilled- cheese-and-soup restaurants called The Melt. I like the food -- even if there aren’t any $2 smoothies.

(Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: Rich Jaroslovsky in San Francisco at rjaroslovsky@bloomberg.net.

To contact the editor responsible for this story: Manuela Hoelterhoff at mhoelterhoff@bloomberg.net.

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