Google Wallet Constrained by Secure Element, Limited Availability

Google Wallet adoption is limited thanks to availability on one Android smartphone. Also, carriers such as Verizon Wireless are reticent to support Wallet's secure element chip.

Google has earned some kudos and respect for shepherding its Google Wallet mobile payment platform, which the company launched in New York City and San Francisco last September, to market before Apple (NASDAQ:AAPL), PayPal and others with a stake in the mobile commerce sector.

For the uninitiated, Wallet includes a mobile application that communicates with smartphones equipped with near field communications (NFC) technology to let consumers tap and pay with their phones at supporting check-out terminals in more than 20 retailers and restaurants. Google Wallet supports Citi MasterCard and the Google Prepaid Card. Visa, American Express and Discover pledged their support at a later date.

While major credit card purveyors are on board, Wallet is still severely limited. The service is only available via Sprint (NYSE:S) Nexus S 4G Android smartphones, though Google has promised that more Wallet-enabled handsets are on the way.

One of the reasons this has taken so long is that in the current implementation, handset makers and carriers must agree to support Wallet's "secure element," a special, encrypted chip that resides on the motherboards of smartphones.

As the back-end infrastructure for Wallet, the secure element stores consumers' credit card information. Naturally, its inclusion on smartphones is a sensitive issue.

Verizon Wireless, AT&T (NYSE:T) and T-Mobile (NYSE:T) have not endorsed Wallet. Verizon balked at including the secure element for its Samsung Galaxy Nexus Android 4.0 Ice Cream Sandwich handset, which does not include the chip. Determined folks can install the Wallet app on the phone, but the Galaxy Nexus lacks the supporting secure element.

Global Equities Research analyst Trip Chowdry noted that while Google has the right vision in using the cell phone as the next-generation consumer wallet, he faults the secure element approach, which ensures Wallet is tied to one particular carrier.

"If for some reason the consumer decides to change carriers, the user will need to go through the complete provisioning/authentication/verification process for each and every card he has, which is a very poor customer experience," Chowdry wrote in a Jan. 5 research note.

Chowdry also pointed to Verizon's decision not to include Wallet on the Galaxy Nexus, and added that some Asian handset OEMs are leery of using Wallet because it requires making changes to their phones' motherboards. They also don't want to get stuck with unsold inventory in the event Wallet doesn't take off the way Google expects it to.

Google declined to comment for this report.

However, a source familiar with Google's plans said the company is more than aware of the limited availability of Wallet and is working hard to make it available on more phones.

The issue with carriers is tricky because Verizon, AT&T and T-Mobile are preparing their own mobile payment offering under the Isis consortium, which is launching in Salt Lake City and Austin in the first half of 2012.

These companies appear to be more interested in releasing a mobile wallet that resides on the phone's SIM card, rather than a secure element chip because they get more control over how the mobile wallet works.

Google argues that the secure element is the way to go for its Wallet service, which could ultimately be to the platform's detriment if carriers and other handset makers don't get on board with it.