What Google Mobile Payment Talks With Softcard Mean For Apple Pay

By Leo SunFool.com

Google could be in talks to acquire mobile payments company Softcard, according to recent reports from TechCrunch , The New York Times , and The Wall Street Journal . eBay 's PayPal and Microsoft have also reportedly expressed interest.

Softcard, which uses NFC (near field communication) chips for mobile payments, was established as a joint venture between AT&T Mobility, Verizon Wireless, and T-Mobile USA in 2010. When Google launched its own NFC payment system, Google Wallet, the following year, Softcard blocked it across most of its devices. That blow nearly knockedGoogle Wallet out of the mobile payments market. Meanwhile,Apple added NFC support to the iPhone 6 andintroduced Apple Pay last year, which effectively prevented Softcard from launching an iOS app.

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Source: Softcard

Reports indicate that Google is offering between $50 million to $100 million for the company -- which would represent a big loss from the "hundreds of millions" of dollars that the three companies invested in the venture, according to TechCrunch. It might seem like acquiring Softcard could turn Google Wallet into a major rival to Apple Pay, but that plan has three big flaws.

1. Limited growth potentialSoftcard blocked Google Wallet by locking Google out of the secure part of its SIM cards. However, Google later bypassed that lockout in Android 4.4. This means that any AT&T, Verizon, or T-Mobile customer with an Android 4.4 device can already install Google Wallet.

As more devices are upgraded to Android 5.0, the number of Android smartphones that can use Wallet will only increase. Moreover, AT&T allowed Google Wallet to be installed on select NFCdevices back in 2012. In other words, most of Softcard users will be able to use Wallet with Android devices regardless of whether or not Google acquires the company.

Google Wallet. Source: Google Play

Acquiring Softcard can help Google reach 200,000 merchants, matching the 200,000 merchants which now use Apple Pay. But Softcard and Apple Pay also share overlapping merchants, which means that the clash between the two will simply boil down to OS market share -- Softcard and Wallet will mainly be used by Android users, while iPhone users will stick with Apple Pay. Android has a market share advantage worldwide, but the mobile payments market is still centered on the U.S. where Apple holds a 41% market share, according to Kantar Worldpanel.

We should also remember that several major retailers -- including Wal-Mart, Rite-Aid, and CVS Health -- are still blocking Apple Pay, Google Wallet, and Softcard in favor of CurrentC, a rival mobile payment platform developed by the Merchant Customer Exchange.

2. PIN codes vs. fingerprintsOn the surface, blending Android's dominant market share in smartphones with Softcard's big vendor base and partnerships with Wells Fargo and American Expressseems like a recipe for success. Unfortunately for Google, Apple Pay will likely retain the upper hand in the mobile payments battle simply because it's easier to use.

Google Wallet and Softcard both rely on cumbersome PIN codes. By comparison, Apple Pay on the iPhone 6 uses a Touch ID sensor, and the upcoming Apple Watch keeps a PIN code active as long as it is worn by the same user. iPhone users simply press a finger on the sensor and tap the device on an NFC terminal, while Apple Watch users hold down its crown to do the same.

Apple Pay. Source: Apple

Google Wallet and Softcard could both be upgraded with fingerprint sensors in the near future, but Samsung alsoplans to launch its own mobile payments platform. Samsung currently controls 24% of the global smartphone market, its newest Galaxy smartphones already have fingerprint scanners, and it dominates the fledgling smartwatch market. Those three advantages put Samsung in a prime position to launch its own mobile payments platform to take on Google, Softcard, and Apple.

3. Burning cashLastly, Softcard is not a healthy business. The company recently laid off 60 employees -- approximately 12% to 30% of its workforce -- and is reportedly burning through $15 million in cash per month, although official top and bottom line figures are unknown.

Spending $50 million to $100 million to acquire Softcard won't matter much to Google, which reported $16.5 billion in revenues last quarter. However, Softcard's current business struggles indicate that it could be a liability, rather than an asset.

A $90 billion market opportunityForrester Research forecasts that the U.S. mobile payments market will grow from $12.8 billion in 2012 to $90 billion by 2017. There are still plenty of unanswered questions about digital wallets, but Google might benefit from buying Softcard and expanding its presence in that market.

However, investors shouldn't overestimate the impact of the deal nor underestimate Apple Pay's advantages.

The article What Google Mobile Payment Talks With Softcard Mean For Apple Pay originally appeared on Fool.com.

Leo Sun owns shares of Apple. The Motley Fool recommends American Express, Apple, CVS Health, eBay, Google (A shares), Google (C shares), Verizon Communications, and Wells Fargo. The Motley Fool owns shares of Apple, eBay, Google (A shares), Google (C shares), Microsoft, and Wells Fargo. 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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