Google Faces Lawsuit Over Mobile Phone 'Wallet'
Google faced a lawsuit on Friday hours after it unveiled a free mobile application that turns a smartphone into an electronic wallet and is designed to replace plastic credit cards.
PayPal and eBay filed a lawsuit in a California state court Thursday charging that the Internet giant tapped into trade secrets for its newly released Google Wallet. Google did not immediately respond to the allegations.
PayPal spent three years trying to work out a deal in which it would handle payments for Android smartphones, only to see Google scuttle the talks and hire its lead negotiator Osama Bedier, according to court documents.
Bedier worked at the eBay-owned online financial services unit as a vice president of platform, mobile, and new ventures until being hired in January by Google.
He played a central role at Google's official unveiling in New York with financial partners Citibank, MasterCard and First Data and telecom ally Sprint, saying Google Wallet is being field tested and will be available this summer.
Google Wallet will initially work with Google's Nexus S 4G smartphone from Sprint, the third-largest U.S. wireless provider, and will eventually be expanded to other phones equipped with near field communication (NFC) technology.
An NFC chip in a phone allows a user who has entered his or her credit card details to "tap-and-pay" for purchases at a checkout register equipped with the PayPass system from CitiMasterCard.
Customers can also use a Google Prepaid card to pay for purchases and take advantage of Google Offers, the Mountain View, California-based company's online discount coupon program.
The company said Google Wallet will be accepted at more than 124,000 U.S. merchants at launch and more than 311,000 around the world.
Stephanie Tilenius, Google's vice president for commerce and payments, described Google Wallet as the "next generation of mobile commerce."
"We're building an open commerce ecosystem that for the first time will make it possible for you to pay with an NFC wallet and redeem consumer promotions all in one tap, while shopping offline," Tilenius said.
"We are looking at expanding internationally, Europe first and then Asia."
The PayPal lawsuit contends that Tilenius helped Google poach Bedier and named both executives and the Internet company as defendants in a civil case alleging misappropriation of trade secrets.
Mobile payments are being tested or used in a number of countries already, notably France and Japan, but Google Wallet will be among the first to bring NFC technology to stores in the United States.
NFC technology uses short-range, high frequency wireless to enable the encrypted exchange of information between devices at a short distance.
Three of the largest US wireless carriers -- AT&T, T-Mobile and Verizon Wireless -- announced in November that they were teaming up to build a national network called "Isis" to allow for payments by mobile phones.
They said they expect to introduce the service during the next 18 months.
Then-Google chief executive Eric Schmidt said shortly before the Nexus S smartphone hit the market in December that he expects tap-and-pay technology to eventually replace credit cards.
Forrester Research analyst Charles Golvin said it remains to be seen, however, whether Google can change the payment behavior of consumers, and it will take time and more widespread adoption to find out.
"Relying on an installed base of phones that is today indistinguishable from zero, a single payment system, a single card issuer, and a modest network of merchants capable of accepting these phone-based payments means that the near-term impact will be negligible," Golvin said.
Andrew Eisner, director of community and content at Retrevo, agreed that "the big question is how consumers will warm up to NFC."
"So far it looks like consumers are a bit skeptical," Eisner said. "They worry about security and privacy issues."
Google said it has built a number of security systems into Google Wallet including the need for a PIN number and credit card encryption. If lost, the payment system can be disabled with a phone call.
In addition to allowing for mobile payments, Google Wallet lets consumers pay using gift cards and redeem promotions such as discounts or coupons.
"Google Wallet will start with offers, loyalty and gift cards, but some day items like receipts, boarding passes and tickets will all be seamlessly synced to your Google Wallet," Google said in a blog post.