Google Wallet: Five things you need to know

Breaking down the basics on Google Wallet payment platform

Now that Google has officially released its mobile payment platform, here are five things you need to know about it.

Now that Google has officially released its Google Wallet mobile payment platform, here are five things you need to know about it.

ANALYSIS: Smartphones as credit cards: Possibly dangerous, definitely inevitable

First: Yes, you'll really be able to use your smartphones to pay for stuff. Google Wallet utilizes near-field communications (NFC) technology to send very short-range signals to nearby NFC tags to complete payments - or as Google tells it, you'll only have to tap your smartphone on a store's credit card processor and you're good to go. Obviously, the store you're in will need to have NFC tags embedded into its credit card processors in order for your Google Wallet to work properly. To that end, Google has lined up 15 big-name merchants that will accept Google Wallet payments starting today, including RadioShack, American Eagle Outfitters, Subway, Macy's, Footlocker and Walgreens.

Second: You can take any of your credit cards and transform it on your smartphone into a "Google Prepaid Card." Google describes the card as a "virtual card" that can be funded with any existing credit card. In a lot of ways, it's like transferring funds from your checking account into your PayPal account - you essentially put a predetermined amount of cash into your Prepaid Card and you can use it to pay at any store that accepts Google Wallet. You also have the option of having a Citi MasterCard embedded directly on your phone and of storing digital gift cards on your Google Wallet that can be used at participating stores.

Google unveils mobile wallet service  

Third: Why yes, Google Wallet does have security features. You obviously wouldn't want someone to steal your smartphone and use it to go on a $10,000 shopping spree, so you'll really want your Google Wallet to have top-notch security. With this in mind, Google is initially offering three key features to keep your virtual wallet secure. The first is a simple PIN number that Google says you'll need to enter before making any purchase; or put another way, the same basic security measure that you enact every time you pay with your debit card.

Google has also created a separate chip for its Wallet called Secure Element that stores encrypted credit card data and that is separate from your smartphones memory. Even cooler, Google says the chip is designed to "self-destruct" if anyone tampers with it and it has built-in defenses against laser attacks. And finally, Google is also using MasterCard's PayPass technology to encrypt your credit card information as it's being sent from your phone to an NFC tag.

Of course, Google can't protect you from everything, as the company helpfully notes that you'll still have to call your credit card company to cancel your cards if someone steals your Google Wallet-equipped smartphone.

Fourth: Google will use location-based technology to sell you stuff. If you're the sort of person who doesn't like Google's algorithms knowing exactly where you are and what you're doing then you probably won't be a fan of Google Wallet. The new Google Offers program will figure out exactly where you are and will then let you know about numerous deals and sales in your area that can be accessed with your Google Wallet. So let's say it's winter and you're walking by Walgreens. Google Offers will alert you to the fact that Walgreens is offering a 50% discount on NyQuil to all Google Wallet holders. Since you have a nasty cold and you want to pass out on your bed that night in a NyQuil-induced coma, you happily trot into the store and pick up all the foul-tasting cough syrup you could ever want.

Fifth: You most likely won't be able to get access to Google Wallet right away. That's because Google is putting its system through a trial first on the Google Nexus S 4G, its own smartphone currently available only on the Sprint network. And when Google does eventually push out Google Wallet to more Android-based devices, you'll need to make sure your phone runs Android 2.3 ("Gingerbread") or higher to take advantage of NFC capabilities.

What's more, NFC isn't really expected to become an integral part of smartphones for at least a few years. Communications chip manufacturer Broadcom has estimated that only 10% to 15% of all smartphones will have NFC capabilities next year and Google doesn't see NFC becoming ubiquitous until 2014 or so. That's why ABI Research analyst Mark Beccue thinks Google Wallet is less about transforming the world today and more about making sure it stands atop the mobile payment market by the time NFC-embedded smartphones become standard.

"This is setting things up for later," he writes. "Google knows for NFC mobile payments to gain momentum there needs to be a significant percentage of NFC-equipped handsets in the marketplace. The same thing applies to merchant POS systems - very few can accept NFC mobile payments today."

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