Apple Pay needs a legit challenger, but Google and Square's Plaso collaboration has some work to do

By Michael Carney , written on February 13, 2015

From The News Desk

Anything you can do I can do better. Or, the same. Or, similar. Or, not quite as good but shhh, nobody will notice.

Google and Square’s newly revealed brick-and-mortar payment collaboration, which is aimed at regaining the turf ceded to Apple Pay over the first few months of the platform’s rollout, falls somewhere on the above spectrum. Where, and thus how impactful it will be on the payments ecosystem remains to be seen.

A report by The Information (paywall) indicates that Google and Square employees have been testing a new payments platform called Plaso (“play-so”) in select retailers since the end of last year. The report name-drops Papa John’s and Panera Bread (the latter was an Apple Pay launch partner), without stating explicitly whether these are hypothetical or existing partnerships.

The Plaso technology would allow Android users to pay in store using their mobile device by connecting to a special Square-manufactured payment terminal based off an Android tablet and connecting to the consumer’s Android device (phone or watch?) via bluetooth. The latter an interesting choice, given Apple’s decision to rely on NFC for Apple Pay. NFC is generally thought to be safer for this type of data transfer due to its limited range, which would require any hacker to be within inches to compromise a transaction.

There is also the question of how successful a payment system can be that is based on a proprietary merchant terminal. An analog would be Visa credit cards only working at merchants the elect to use a specific register manufactured by a Visa partner. While some merchants may adopt, it would hardly be enough for Visa to achieve the "It's everywhere you want to be" tagline around which it’s built its business.

Apple Pay, on the other hand, works anywhere there’s a contactless (NFC) payment terminal, regardless of who the manufacturer is and what type of register system it connects to. This is a far more universal approach that has contributed to Apple Pay’s rapid adoption. NFC is still far from ubiquitous, but the early popularity of Apple Pay, combined with the upcoming need for merchants to begin supporting EVM-(secure chip)-equipped credit cards, suggest that more merchants will adopt the technology in greater numbers.

While details on Plaso remain scarce, the Information adds that retailers will receive an alert when a consumer with a Plaso-capable mobile device enters the store. Reports further indicate that consumers will sign their transactions by confirming their initials to a cashier. This is reminiscent of an earlier failed attempt by Square at simplifying in-store payments called Pay with Square, which required the consumer to state their name at the time of checkout. Whether consumers didn’t understand this system, didn’t trust it, or weren’t aware of its existence, Pay with Square never caught on and was eventually shuttered by the company. Google too has swung and missed a few times in the mobile payments space. Whether the two companies can find more success working together will be interesting to watch.

The other question that will need to be answered before we can handicap Plaso’s prospects is how will the technology interact with a consumer’s Android device. Android’s open nature means that Google has limited control over the hardware that its manufacturer partners incorporate into their devices – save for the broad requirements that it stipulates for access to its ASOP services. Conversely, Apple has complete control over the makeup of its mobile devices, and thus can incorporate and utilize components like TouchID and a secure element chip in facilitating payments transactions. Without this level of consistency across devices, Android is at a significant disadvantage, meaning that Plaso will either be badly handicapped in terms of security and user experience, or will feature some new, creative approach to user authentication. (Hopefully it’s more than just blurting out your initials. Would you speak your debit car PIN number to a pimple-faced cashier?)

With smartphones now in the pocket of nearly every global consumer, the question is when, not if, payments will go fully-digital. Companies like Apple, Google, Square, PayPal, and others are scrambling for position ahead of this massive market transition. The company that owns mobile payments – those enabled by a mobile device, either in-store, online, or in-app – will stand to make a killing. It’s not just standard payment processing fees that are at up for grabs – and the value of these could change as the banking system becomes further digitized – but also a crucial touch point with consumers that will enable the winning company to do things like deliver targeted advertising and offer merchant services like loyalty.

With the stakes so high, it’s not surprising that Google would once again throw its hat into the payments ring, or that Square would eagerly accept such as powerful partner (and possible future acquirer). But the companies will have to do more than just build an Apple Pay competitor to succeed in this market. They’ll need to build something that’s significantly better than all the alternatives in the market, including tried and true plastic and cash. It’s not clear from the details we have thus far that this is the case.

Since the launch of Apple Pay, we’ve seen the big fruit up to its old tricks of entering an existing but unpopular category and making it a must-have consumer favorite. Competition in any market is good for consumers in that it drives product innovation and price competition. Hopefully Plaso is a serious enough offering to give Apple Pay a run for its money.

In the meantime, just put it on my tab: MRC.