Right after Apple announced the new iPhones with NFC, and explained how Apple Pay would work with them, many people pointed out that Google has had Android phones with NFC in them for over three years and that Apple is late to the payment party. That is a true observation, but it does not tell the important story of why Google Wallet has not been successful even though it blazed a trail in mobile payments.

To understand why Google Wallet has not taken off, I talked to some of my contacts in the major banks and they explained that it came down to Google's business model. When Google approached the banks and asked them to support Google Wallet, it explained that part of their support meant that they would also feed data back to Google on what people bought and other personal data that Google could use to serve targeted ads. Besides privacy issues, the banks were not thrilled about being forced into a position to feed all types of shopping data back to Google just so Google could make money on ads. Consequently, most banks were not willing to play the middleman and in most cases would not fully support Google Wallet.

This is a really important issue for consumers because Google wants to know as much about people as possible but tracks them in ways that can be very intrusive. However, this is Google's business model. The more it knows about us the more it can target us with ads. Now I know that in a lot of cases a consumer might actually want ads in context. I am a big user of Amazon.com and I give it permission to not only track what I buy but to also make recommendations based on things I bought in the past. Google is trying to do that, too, although its reach is much broader.

In terms of Apple Pay, however, Cupertino has said that it will ask for no personal information and instead just link the merchant payment to a person's bank card through a single-use secure token or code.

"A few years ago, users of Internet services began to realize that when an online service is free, you're not the customer," Apple CEO said in a recent note on Apple's website. "You're the product. But at Apple, we believe a great customer experience shouldn't come at the expense of your privacy. Our business model is very straightforward: We sell great products. We don't build a profile based on your email content or Web browsing habits to sell to advertisers. We don't 'monetize' the information you store on your iPhone or in iCloud. And we don't read your email or your messages to get information to market to you. Our software and services are designed to make our devices better. Plain and simple."

Cook goes on to say that "one very small part of our business does serve advertisers, and that's iAd. We built an advertising network because some app developers depend on that business model, and we want to support them as well as a free iTunes Radio service. iAd sticks to the same privacy policy that applies to every other Apple product. It doesn't get data from Health and HomeKit, Maps, Siri, iMessage, your call history, or any iCloud service like Contacts or Mail, and you can always just opt out altogether."

If you look at Google's business model versus Apple's business model it is easier to understand why Google Wallet has failed to gain any serious market traction with the banks and why Apple Pay could be a game changer for the payments industry. However, it also brings up the interesting dilemma for Google and its partners who will want to compete with Apple Pay. The big issue is that it is not in Google's interest to be the middle man between the customer and the merchant and just collect a small transaction fee. It can't really make much money doing this. What it needs to know from a transaction is that you bought a lawn mower so it can send you ads about lawn fertilizer and gardening tools. Or that you purchased some lobsters from a Maine Lobster Pound so it can send you ads about a clambake. You get the idea.

The Android hardware vendors I talked to about Google Wallet versus Apply Pay tell me they have no clue how Google and Android will respond to this Apple Pay challenge. They agreed that for Google to follow Apple's payment model would go against its business model and take away any real profit it could get from providing a Google Wallet transaction. Without the customer purchase data, there is no after-market link to enable targeted ads.

I don't believe Google will give up this market to Apple without a fight, but I also don't think it will give up its business model either. At the moment, Apple appears to have a potentially strong position on mobile payments compared to its biggest mobile competitors in the Google/Android camp.

We will get a better sense if this is true when Apple actually launches Apple Pay in October. However, watching how Google and its partners respond to this will be fascinating.

For more, see Why You Should Ditch Your Wallet for Apple Pay.

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