Google's Android Pay to duke it out with Apple Pay

Its Wallet app failed to take off, but Google is trying again with a new system.

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Android Pay's new partners include Macy's, Walgreens and Whole Foods. James Martin/CNET

The world of mobile payments is expected to grow quickly, and Google is hoping it isn't left behind.

After the search giant's initial forays into mobile payments failed to catch on, Google on Thursday unveiled details of its new payments platform, Android Pay, at its Google I/O developer conference in San Francisco. Customers can use Android Pay for in-store purchases, much like Apple Pay, and to buy items within mobile apps. Android Pay can also power third-party apps from banks and other institutions.

"We built Android Pay as an open platform, so people can choose the most convenient way to activate Android Pay," Dave Burke, a vice president of engineering at Google, said at the event.

Android Pay can be used in about 700,000 stores throughout the US, and will be integrated into apps from Lyft, GrubHub, Groupon and others. Mastercard, Visa, Discover and American Express are all part of the system, which can be used with debit, credit, prepaid and small-business cards. The platform will be included as part of the rollout of Google's next mobile operating system, nicknamed Android M, coming later this year.

Android Pay was initially announced in March, but Google at the time provided scant details on the service. Google Wallet, the company's earlier effort to spread adoption of mobile payments, was not mentioned during the Android Pay announcement.

After mobile payments failed to gain consumer interest for years, competition in the space has started heating up since Apple in September announced its own service, Apple Pay, which works with iPhones and the Apple Watch. About 72 hours after its October debut, over 1 million credit cards had been activated on Apple Pay, more than any similar service combined. That service now is forcing other players to up their game to stay competitive. Samsung in March announced its own service, called Samsung Pay, for its Galaxy S6 and S6 Edge smartphones. Also, Google in February acquired some of the technology behind Softcard, a payments system backed by several US telecommunications firms. PayPal, too, is working to improve its mobile services.

If Android Pay becomes a draw, it could help mobile payments take off and keep Google relevant in that burgeoning market. Smartphone payments at a point-of-sale terminal totaled $3.5 billion in the US last year. That number is expected to surge to $118 billion by 2018, according to eMarketer.

"The stakes are huge," said Vijay Koduri, an executive at payments processor Adyen. "Payments have always been strategic for Google. They've tried several initiatives, but like mobile payments at large they haven't gotten mass adoption."

Having a payment system, he said, is critical for any mobile operating system to remain successful not just in smartphones, but the growing areas of wearables and other connected devices. Koduri, a former Google executive who helped launch Google Wallet, said Android Pay looks to be an improved system, thanks to its ability to integrate with banking or loyalty-card apps -- something Google Wallet couldn't do -- making it easier to use for both customers and merchants.

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Android Pay will let you access your debit and credit cards directly from your smartphone. James Martin/CNET

Android Pay could gain from Apple Pay's momentum and help foster two payment systems that can be used by the vast majority of smartphone users. Android runs more than three out of four smartphones worldwide, while Apple's iOS operating system accounts for 18 percent of the market -- making up a combined 96 percent of the market, according to IDC.

"When Apple Pay was launched, that was a pretty big rock in the pond," said Ed McLaughlin, chief emerging payments officer for MasterCard, which partnered with both Apple Pay and Android Pay. "I really think this helps complete the picture."

Companies like Google and Apple should benefit by taking small cuts of mobile transactions, while also gaining more insights into consumer spending. For consumers, the new systems should do a better job protecting their data than magnetic-stripe credit cards.

"We absolutely believe we will make the digital as or more secure than anything we can do in the physical world," MasterCard's McLaughlin said.

See all of today's Google I/O news here.

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