Can Google Inc. Flank Facebook Inc. In This $90 Billion Market?

By Markets Fool.com

According to a recentRe/codereport, internet search giantGoogle (NASDAQ: GOOG) (NASDAQ: GOOGL) is planning to let users pay their bills directly from Gmail. The service will arrive in the fourth quarter, and could strengthen Google's payment initiatives against rivals like Facebook (NASDAQ: FB), which recently unveiled a payments platform within Messenger.

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Source: Wikimedia Commons, brionv.

Google's service, known as "Pony Express," wouldn't be the first to unify bill payments in a single app. A start-up called Manilla offered a similar service, but it was shut down last year. A mobile app called Check, which Intuit bought last year for $360 million, does the same thing. The difference, of course, is that Google can leverage Gmail's 500 million active users to quickly expand its service.

Google's payments puzzle
Pony Express is just the newest piece of Google's puzzle of payment solutions, which could help it tap into the growth of mobile payments, which research firm Forrester estimates will soar from $13 billion in 2012 to $90 billion by 2017.

Google Wallet, the company's digital wallet solution, connects to financial accounts and offers peer-to-peer and NFC payments. Google launched Wallet nearly four years ago in the U.S., but it was initially blocked on devices running on AT&T, Verizon, and T-Mobile USA networks.

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That animosity stemmed from the three companies' investment in Softcard, their competing joint venture in NFC payments. Google eventually bypassed that blockade with Android 4.4 in late 2013, but the damage had been done. Google finally bought Softcard earlier this year to integrate its technology and team up with the three carriers.

Google Wallet. Source: Google.

In March, Google announced Android Pay, amobile payments framework which lets companies support payments on Android in retail stores and apps. This framework will also let abroad vendors, which lack access to Google Wallet, accept payments from Android smartphones, tablets, and smartwatches. Google hasn't discussed how it will partner with regional financial institutions, but it stated that Android Pay's API (application programming interface) will eventually be integrated with third-party apps.

Why messaging matters
Google Wallet is traditionally seen as a competitor to Apple Pay/Passbook, Samsung Pay, eBay's PayPal, or Square Cash.

However, mobile payments have become increasingly intertwined messaging services, as seen with monolithic messaging apps like Tencent's WeChat. Spotting that trend, Square added pay-by-message features to its Cash app last August, then integrated those features into Snapchat's new payments app, Snapcash. Paypal owns Venmo, a comparable pay-by-message app.

Last year, Facebook poached PayPal's president David Marcus to run its stand-alone Messenger app. That led to Facebook introducing pay-by-message services for Messenger earlier this month. Twitter also jumped on the bandwagon by offering pay-by-tweet services in Europe last October.

Facebook's pay-by-message service. Source: Facebook.

To compete against these messaging services, Google has made Gmail look less like an email service and more like a messaging one. It added a "conversation view" so email exchanges feel more like chat sessions. It also automatically filters mail into categories, which keeps "social" and "promotion" emails out of the main inbox. This means that Pony Express might deliver bills straight into a "bills" folder to be quickly paid via a Wallet-linked bank account.

It's about ecosystem growth, not revenue
Google probably won't generate much meaningful revenue from processing bills. Instead, it will be used to lock users into the Google ecosystem and ensure that they use Gmail as their primary email account.

If Google can successfully convert Gmail into a payments platform, it could eventually turn Hangouts, its messaging service, into one as well. If Google can get Hangouts, Gmail, Wallet, and Android Pay all on the same page, it could widen its defensive moat against rival platforms.

Yet there are potential pitfalls which could prevent Gmail from becoming a viable payments platform. Google scans all Gmail messages, except for ones inside its Google Apps for Education suite, to craft targeted ads. If a user's bills are also scanned, that data could be used for similar purposes, which raises serious privacy issues.

Gmail is also hackable -- last September, a hacker posted 5 million Gmail usernames and passwords to a Russian bitcoin forum. Therefore, linking recurring bills to Gmail could be less secure than setting up automatic bank payments or paying via a secure website.

The road ahead
On its own, Pony Express makes Gmail more useful than rival services like Microsoft's (NASDAQ: MSFT) Outlook or Yahoo Mail. If that isn't enough ,it can also tether more users to Google Wallet and increase the fledgling service's mainstream visibility, which will boost Google's chances at securing a piece of the mobile payments market.

The article Can Google Inc. Flank Facebook Inc. In This $90 Billion Market? originally appeared on Fool.com.

Leo Sun owns shares of Facebook. The Motley Fool recommends eBay, Facebook, Google (A shares), Google (C shares), Intuit, Twitter, and Verizon Communications. The Motley Fool owns shares of eBay, Facebook, Google (A shares), Google (C shares), Intuit, and Twitter. 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.