Google plans to launch by the end of this year its Google Pay digital wallet platform and online payment system in Israel as banks and credit card companies ready to battle over the emerging market segment.
The giant U.S. company has been undertaking a round of meetings with regulators, bank executives, credit card companies and financial-technology startups. The campaign, which involves a team from Google Israel, includes playing a role in Israel’s rapidly growing e-commerce sector as well as in brick-and-mortar retail.
Google Pay enables shoppers to pay for goods and services online or in stores with a mobile app. In the United States, India and Britain, the Google Pay app is also used to transfer money between people. In countries like Russia, Japan and Ukraine it can even be used to pay for public transportation.
Google Pay’s entry into Israel comes during a period of turbulence for the Israeli payments and finance sector. Under the so-called Strum law for increasing competition in the banking sector, Bank Hapoalim and Bank Leumi are required to sell off their credit card business – Isracard in the case of Hapoalim and Leumi Card in the case in Leumi.
In response, the banks have launched virtual services. Hapoalim has introduced its Bit service and in 2017 Leumi started its branchless-banking unit Pepper, which includes its Pepper Pay app. Israel Discount Bank, which for now has been allowed to retain its 72% stake in its Cal credit card subsidiary, has been offering the PayBox app in Israel after acquiring a license for it in 2017.
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As a result, a battle is underway between the bank and the soon-to-be-spun-off credit card companies over who will dominate the market. The fight is expected to be especially intense for lining up small businesses, the kinds the credit card companies have traditionally ignored.
As things stand now, Bank of Israel banks supervisor Hedva Bar is likely to impose restrictions on the banks entering the segment for at least the next three years, but she isn’t expected to bar them from it altogether,
Google Pay isn’t the only international giant expected to enter the fray. Alipay, a unit of China’s Alibaba and the world’s largest mobile payment platform, launched in Israel last January in cooperation with CAL and Leumi Card, although initially the service will only be available for Chinese citizens visiting Israel. Samsung Pay and Amazon are expected to follow, too.
In practice, Google Pay transactions are run through the credit card or PayPal account of the user. But in any case, it functions overseas like a digital wallet for all practical purposes. It can also be used to store a boarding pass for a flight or tickets to a concert.
As things are developing now, in Israel the Google Pay service will be used on ecommerce sites in a way similar to what PayPal offers. In other words, the shopper joins the service by registering his or her credit card details with Google Pay and from then on will be able to make payments at all online sites by pressing a single button without having to repeatedly re-enter credit card details.
Today Google already has many Israelis’ credit card details if they chose to save them through its Chrome browser.
For the system to work, Israeli ecommerce sites will have to incorporate the Google Pay button into their service. For global sites, which account for the great majority of Israeli online shopping, the option already exists, for instance at the travel site Kayak, Groupon and Starbucks.
The next stage of the Google Pay rollout calls for establishing a presence in Israeli bricks-and-mortar stories, as it does in the U.S. at chains like McDonald’s, Dunkin Donuts, Walgreens and Best Buy.
To begin accepting payments through Google Pay, merchants will need to install terminals that support it. Google is expected to help businesses to adopt the EMV, a payment method for smart payment cards and for payment terminals more sophisticated than the one now in use in Israel.
For small business, payments via the Google Pay applications will be done through the Israeli banks as part of their preparations for operating an open banking model in Israel that is expected to get under way in the next few years.
The payment itself in a physical store will be done by swiping the user’s smartphone by the terminal. The payment itself will be processed using network functions virtualization technology. Google Pay also enables payments by smart watches that it supports.
Payment is secure. The merchant does not get the shopper’s credit card details, just an encrypted code number and a timestamp for the purchase.