Its been almost three years since Google introduced Wallet, a payment processing service that allowed users to make payments via their smartphone at participating retailers or by the use of a Google-issued credit card. In essence, Wallet sounds a lot like Apple Pay. But while Google Wallet never saw the demand that many on Wall Street anticipated, there are three big reasons why Apple Pay might be different.
1. The convenience advantage
Google Wallet and Apple Pay are built upon the same concept, but one fundamental difference is in the way that each service gains its users. With Google Wallet, users had to enroll in the program. They had to pair their credit or debit card online, and Google then sent them a physical card in the mail. In other words, Google Wallet required work on behalf of the consumer.
But with Apple Pay, the service is leveraging information that is already known and stored on iTunes. On Apple's iTunes there are already more than 800 million accounts with credit card information. Therefore, for those who purchase the iPhone 6 or iPhone 6 Plus, the service is already available to the user based on their stored information. This gives Apple a huge advantage of convenience, requiring little to no work on behalf of the consumer.
2. Apple owns everything
Apple owns its own hardware and software, therefore Apple Pay becomes a service that's associated with the company's iPhones. As a result, Apple can create features to compliment its phone, such as the sensor that acts with Apple Pay, which can distinguish Apple Pay from the competition -- Google Wallet. The reason is because Google only owns software, but aside from Nexus, does not own all of the hardware that uses its operating system, putting it at a distinct disadvantage on many levels.
In fact, one of the founding engineers of Wallet, Jonathon Wall, touched on this very topic after leaving Google, calling carriers the most dangerous player, of many, that emerged following Wallet's launch. Wall admitted that Wallet had become a failure, draining millions in quarterly costs from Google on top of an initial investment estimated to be in the hundreds of millions of dollars. Further, Wall went on to elaborate that it was difficult to get hardware makers to support Wallet, as there was uncertainty surrounding the level of support that handset makers would receive from carriers, meaning hardware companies were slow to commit to Wallet.
This turned out to be a valid concern, according to Wall, who said, " Sprint remains the only major U.S. carrier to support the service; AT&T , T-Mobile , and Verizon have instead decided to support Isis, a competing mobile payments service, effectively denying their customers access to Google Wallet (or vice versa )."
However, with Apple, carriers are not given the opportunity to object Apple Pay, and Apple doesn't have to try and convince the hardware makers to implement their service because it owns its own hardware, and makes all of the decisions. Therefore, Apple has a larger audience with the iPhone versus any single Android smartphone and more power over carriers. While Android may be a more popular operating system than iOS, the iPhone is still the most popular phone in the U.S., a device that all carriers want in their stores.
For example, in the U.S., where the Apple Pay discussion is currently relevant, Kantar estimates that Android's market share of more than 60% is double that of iOS. However, statcounter estimates that 50% of all smartphone usage in the U.S. comes from iOS, nearly 10% better than Android. Lastly, Android is comprised of countless phones and developers, including Samsung, Nexus, and many others. Meanwhile, all of iOS' usage and market share comes from iPhone alone, which also gives Apple more flexibility.
In other words, Apple having no resistance at any level of Apple Pay allows the company to concentrate on what really matters, the user experience.
3. Security and privacy are 2 big deals for potential users
That said, another benefit of owning the software and hardware is being able to effectively develop and implement the security measures associated with the payment processing system. Given the enormous and very public attacks on Home Depot and Target during the last year, consumers are more aware than ever about security risks, and are fearful of being targeted.
As previously mentioned, Apple's home button works as a part of Apple Pay, requiring fingerprint verification in order to process a payment. This is a security feature that would be very difficult for Google to implement, simply because it does not own the hardware that's using an Android OS.
Aside from fingerprint verification, Apple's biggest advantage lies in actions it is not taking. This sounds strange, but unlike Google, Apple does not actually see the transaction that a user is making with Apple Pay, or at least the company has said that it will not. This is not because Apple can't, but rather it's a choice.
Tim Cook recently said in a letter posted on the Apple site, "We don't 'monetize' the information you store on your iPhone or in iCloud. And we don't read your email or your messages to get information to market to you." As it appears, Cook is taking a shot at Google and Facebook , who create the overwhelming majority of their revenue from advertising. In the case of Google, Wallet's monetization was built around learning more about the consumer's purchasing habits, "seeing the transaction," and then targeting advertisements at the consumer.
This difference in approach is also one of the more distinguishing differences between Apple Pay and Google Wallet, two services that appear similar, but when it comes to security and privacy, are not.
Foolish Thoughts
All things considered, these three major advantages for Apple Pay over Google Wallet all seem to work in tandem. For example, Apple can implement more aggressive security features, migrate iTunes users onto the Apple Pay platform, and maintain control over carriers because it owns its own hardware and software.
As a result, Apple has a good shot to succeed where Google struggled, thus far. If Apple Pay is a success, Apple has a good opportunity to become more involved in all ends of the payment transaction business , which could result in Apple Pay becoming very lucrative for the company.
As of now, Apple will reportedly receive $0.15 for every $100 spent on Apple Pay from credit card companies, a deal that Google never received. When you consider this fact along with the power that Apple has over consumers, carriers, hardware, and software, what's not to like about Apple Pay?
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The article 3 Big Reasons Apple Pay Can Succeed Where Google Wallet Failed originally appeared on Fool.com.
Brian Nichols owns shares of Apple. The Motley Fool recommends Apple, Facebook, Google (A shares), Google (C shares), and Home Depot. The Motley Fool owns shares of Apple, Facebook, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .
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