Last month, Google began piloting Hands Free – a new payments platform on Android phones for in-store transactions – at certain Silicon Valley retail locations, including McDonald’s and Papa John’s. The Hands Free consumer experience is designed to be as seamless as possible. A consumer with a Hands-Free-enabled Android phone can walk into a merchant’s store, shop for merchandise, and simply state his or her name to the cashier at checkout to pay for a transaction. The cashier verifies the consumer’s identify through a picture of the consumer that appears on the merchant’s point of sale (POS) device. Behind the scenes, the Hands Free API is integrated into the merchant’s POS, enabling a connection between the Android phone and the POS terminal. Wi-Fi, Bluetooth Low Energy (BLE), and other location services verify that an Android user is physically located in the specific retail location where he or she is making a purchase.
Although Hands Free will provide a sleek consumer experience, there are five major unanswered questions that will hamstring its ability to scale and become the primary payment method in stores.
Point of sale integration
Hands Free is contingent on API integration into the various POS systems that merchants use, including Micros, NCR, NCR Aloha, and IBM, among others. How easily can Google scale its APIs across POS systems? Major and mid-sized retailers often have customized versions of their own POS software, which makes scaling across merchants a challenge. Will the onus be on Google or the technology teams at merchants to integrate the Hands Free API into the POS infrastructure? If the latter, then Hands Free must create a compelling merchant value proposition.
Merchant value proposition
The success of Hands Free is also contingent on merchant push for Hands Free. Based on public disclosure, the merchant value proposition may be limited, as it relates to consumer engagement and driving incremental foot traffic. From a marketing perspective, merchants may stand to benefit from integrating Hands Free, but most major merchants are already in a testing phase with different types of mobile payments technology. Once the short-lived marketing benefits fade (soon after the technology is released), what long-term benefits can merchants expect to achieve?
Consumer value proposition
Although PayPal and Square have already tried to build something similar, Google has clearly created a novel and seamless payment experience that will save consumers time at checkout. But what are the other incremental benefits that consumers will derive from using Hands Free? For instance, will Hands Free be integrated with loyalty and private label card programs? Will consumers receive live-streamed and targeted coupons and offers once they enter the stores? Is the value-add with Hands Free enough to fundamentally change consumer behavior? How frictionless will the initial onboarding process be for consumers?
Bank issuer participation
By partnering with Apple Pay and Android Pay, banks increase their brand visibility. Bank brands are incorporated into mobile wallets and clearly visible at the time of purchase – theoretically, they help defend against brand disintermediation. Furthermore, banks were instrumental in co-marketing their brands with Apple Pay when it was released. But Hands Free eliminates issuer brands from the payment process. Will issuers accept being relegated to a truly brand-less, faceless token? Hands Free needs to guarantee long-term issuer cooperation in order to scale effectively.
Fit with Android Pay
Google is clearly learning about and testing mobile payments, as evidenced by Android Pay’s rollout and Hands Free’s pilot testing. How do the two initiatives fit together? What are the synergies? Ultimately, which platform will Google prioritize?
Mobile payments are strategically vital for Google and represent a large growth lever for Android. Hands Free is clearly another one of Google’s attempts to break into mobile payments. Yet, there are plenty of challenging, unanswered questions that will ultimately preclude Hands Free from reaching sufficient scale and traction with consumers and merchants alike.
FOLLOW-UP: Google is killing its experimental Hands Free payment app (external link)
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here.