Google Wallet is Making Strides, But it's No Venmo Killer

By Matthew Cochrane Markets Fool.com

Last month, Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) announced Gmail users would now be able to send and receive money on Android devices through its Google Wallet platform. The service had been available through Gmail since 2013 but, until last month, was unavailable on mobile devices.

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To use the service, all that is needed is to compose a new email in the Gmail app on any Android mobile device. Once a new email is opened, users simply choose the "Send money" or "Request money" options under he attachment icon. After a debit card is linked and the amount of money is selected, the funds can then be sent to anyone with an email address or phone number. The recipient does not need to be an existing Google Wallet user or have a Gmail account and is free to all users. The service is currently only available in the United States and United Kingdom.

Image source: Pixabay.

The feature is the latest attempt by Alphabet to engage its over one billion active Gmail users.The Android operating system, which runs on most smartphones and tablets, had 1.4 billion active users as of September 2015. The overlap between the two is almost certain to be in the hundreds of millions, making this new feature an avenue Alphabet could pursue to deepen its relationships with its huge account holder base.

Google Wallet's uninspiring past

While Alphabet has never released official figures on how many active users exist on Google Wallet, it doesn't take too much digging to discover it is not widely used; a situation almost assuredly of Alphabet's own making. From the beginning, the platform has struggled from a lack of attention and strategy from its parent company. As a prime example of this neglect, this very feature of using Gmail to send money to other people was first available to desktop users in 2013. Yet it took four additional years for Google to incorporate it into Gmail's app on mobile devices.

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Image source: Alphabet Inc's Google blog.

Originally, NFC (near field communication) technology was to be used in conjunction with Google Wallet so that the app could be used to make point-of-sale (POS) purchases. However, this capability was dropped in September 2015. In 2016, Google discontinued the Google Wallet card, a physical debit card linked directly to one's Google Wallet account. These decisions effectively ended any way customers could use their Google Wallet accounts to make POS transactions at physical retail locations, though there are some work-arounds, such as linking a Google Wallet account to Android Pay, a separate payment app available only to Android users.

Google Wallet's uneven present

The constant meddling with Google Wallet's capabilities has certainly contributed to its lagging popularity. It is now essentially a P2P payment platform left to compete with the likes of PayPal Holdings Inc's (NASDAQ: PYPL) Venmo and the newly launched Zelle, a P2P app provided by many of the nation's largest banks to their customers.

Google Wallet will have to overcome many obstacles if it is to capture significant market share. In Accenture's 2016 North America Consumer Digital Payments Survey, consumers indicated they trusted traditional card providers, alternative payment providers (e.g. PayPal), and established retail banks as potential mobile payment providers over larger tech companies.

And the competition isn't standing still. In 2016's fourth quarter, PayPal's Venmo app, a hit with millennials, facilitated $5.6 billion in payment volume, an eye-popping 126% increase year over year! In December 2016, Venmo crossed the $2 billion total payment volume mark in a single month for the first time in its history. It was just earlier in the year when it first passed the $1 billion threshold in a single month!

Zelle is a P2P payment service operated by Early Warning which is owned by some of the country's largest financial institutions including Bank of America, BB&T, Capital One, JP Morgan Chase, PNC Financial, and Wells Fargo. As with Google Wallet's new service, these banks' account holders will be able to send and receive funds using nothing more than a person's email address or phone number. Many of Zelle's future users will be able to access the service through their existing mobile banking apps, meaning no additional apps will need to be downloaded onto their smartphones.

Google Wallet's uncertain future

Will this latest feature spark renewed interest and user engagement in Google Wallet? While it is impossible to tell, I believe it is highly unlikely, although I certainly see some uses for it. Earlier this spring, I was exchanging emails with my sister about an upcoming summer vacation our families were taking together. She mentioned she would book a large cabin in the mountains and I could pay her back later. It would have been nice to simply respond via email with the accompanying payment attached.

While I know it would not have taken much effort to sign up for the service, it still would have taken more effort than using PayPal, a service my sister and I both regularly use. And, while it is possible to send money through Gmail to people who are not yet users of the service or who do not have a Gmail address, I did not want to put my sister through the aggravation of having to link her debit card to the email to retrieve the money.

The uphill battle Google Wallet faces is one many platforms are familiar with -- once users are comfortable using a certain system, it's tough to get them to switch.

PayPal's core platform currently has 200 million active accounts and is consistently growing by double-digit percentages each year. As noted above, Venmo is currently growing by triple-digit percentages year over year. Given the gigantic lead these two PayPal platforms enjoy, it's hard to see Google Wallet closing the gap without a huge marketing push and lots of accompanying attention from its parent company. With Alphabet's track record with Google Wallet, that's not something to count on.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools board of directors. Matthew Cochrane owns shares of Alphabet (A shares) and PayPal Holdings. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and PayPal Holdings. The Motley Fool has a disclosure policy.