It is not unusual for start-ups, even large start-ups such as Isis and Google Wallet, to change business models in significant ways, early in their development. You might argue that both Isis and Google Wallet have adopted strategies that are the opposite of what each initiative intended originally.
Isis, you might recall, started out intending to be a payments processor, more along the lines of PayPal, perhaps, than MasterCard or Visa. Google Wallet, on the other hand, started out eschewing any interest in the payment processing part of the business.
But both firms essentially have reversed course. Isis now eschews any direct interest in the payments processing revenue stream, while Google has shifted to a stance that makes more likely it will benefit, in some way, from payment transaction fees.
In other words, each company has adopted the opposite strategy. Google, which initially said it didn’t want to be a payments processor, might be drifting that way. Isis, which did want such a role, now rejects that approach.
Wiith the recent Google decision to support virtually all the major branded cards inside Google Wallet, a shift of revenue strategy could occur. A new cloud storage strategy does a couple of things. First, all major card brands can be accommodated, even if the resident application on a Google Wallet device is the prepaid MasterCard account.
The new approach is closer to that of PayPal than was the case for Google Wallet’s initial positioning, says Zilvinas Bareisis, Celent consultant. And the change makes Google Wallet a venture that makes money from transactions, something the older Google Wallet did not attempt to do.
The cloud-based credentials still require use of the MasterCard PayPass terminals and software loaded on each Google Wallet device. But since the MasterCard prepaid account is linked (in the cloud) to MasterCard, Visa, Amex and Discover accounts, Google Wallet users can use the wallet in much the same way as PayPal.
You might argue that Google Wallet has become a merchant of record. Google sits in the middle of its Wallet transactions, rather than just passing through plastic credentials to an NFC enabled smartphone.
The new approach also bypasses the need to cooperate with mobile service providers, and allows Google Wallet to be provided “over the top,” without using the mobile service provider secure elements. Card issuers might like that angle, since it means they are relieved of the obligation of paying fees to any mobile service providers who want to get a slice of transaction processing revenues.
Now, from the merchant point of view, they are accepting a prepaid MasterCard, while it might an Amex card that actually funds the transaction. PayPal deals with that issue by having direct “acquiring relationships” with its merchants and offering them a discount rate which represents an expected blend of funding transactions, says Bareisis.
Google Wallet might also have to establish relationships with the acquirers. Or, Google Wallet might ultimately move to charge fees to load credentials into the Google Wallet. Either way, it is a shift of revenue model.