With Google Wallet in hand, who needs Groupon now?

Google Wallet ushers in an age where users can now merely tap their phones at the point-of-sale (POS) to actualize a transaction. The mobile app is currently available on Nexus S 4G on Sprint's Network. Google uses MasterCard's PayPass payment method.

MasterCard explains the Paypass technology as: A tiny microchip and radio antenna embedded in your PayPass-enabled card, key fob, device or phone transmit your payment details wirelessly to a high-speed PayPass reader at checkout. The reader then verifies your transaction with your bank through MasterCard's reliable network and indicates approval almost instantly.

Google's attempt is being hailed as a catalyst to usher in a mobile payment revolution. However, Google has its own agenda - its advertisement-based model which is at the heart of the mobile payment venture.

With Google Wallet, Google has reached the holy grail of consumer marketing space - the point-of-sale. Coupled with its other services like Google Offers, AdMob and location-based service, Google can now offer a potent opportunity to targeted ads.

WSJ reported that Google is not going to generate any revenue from Google Wallet transactions but will target advertisements as a source of revenue.

Google has been looking at NFC-enabled payments on mobile phones in a much broader context than merely transforming a phone into a wallet.

Google Wallet allows users to store credit cards, coupons, loyalty cards and offers on the smartphone. Thus, users can redeem these offers when they tap to pay at the POS.

All transactions passing through the Google Wallet become treasure trove of vital information as to what exactly customers are buying. Coupled with this information, Google can offer more targeted coupons through Google Offers.

The potential to tap into the payment system becomes more potent with location-based services as Google can transmit relevant ads which could influence customer buying decisions.

Google Wallet also eliminates Google's need to buy Groupon. In Nov. 2010 it was reported that Google had attempted to acquire Groupon for $5.3 billion. Groupon sends local Deal of the Day coupons to members of the site via e-mails. Here, the deal was only triggered when a critical minimum number of users have applied for them. The onus of creating a viral effect falls on the user thus diverting promotion costs away from merchants.

But with Google Wallet, Google can offer targeted coupons based on customers' past transactions, and taking away the onus of marketing from the merchant. Thus, Google gets a different model from the one Groupon uses to advertise coupons.

Google is building its mobile payment model on top of its search algorithm, Android ubiquity and online advertising. Until now NFC-enabled mobile payments failed to generate traction due to the chicken-and-egg problem -- the payment model requires enough number of merchants who want to invest in the new POS equipment that supports contactless payment and enough number of customers who want to use the technology. In order to achieve this, there has to be a strong proposition to switch both merchants and consumers to mobile payment. Google with its Android ubiquity has the potential to bring the merchants and consumers together.

With the existing load of consumer data that it sits on, Google has an incentive to draw merchants to plant mobile payment readers at the POS. Also Google can drive the POS terminal adoption by funding the merchant costs as Google's revenue will be based on advertisements, rather than on marginal transactions cost. WSJ in March reported that Google was in talk with VeriFone Systems - a maker of point-of-sale terminals - so that VeriFone's terminals would be able to accept payments from NFC-enabled mobile device.

In fact, for the first time NFC has a strong chance of success because of Google's backing.

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Read: How Google Wallet works? Read: Google Wallet: Has Google done enough for NFC mobile payment renaissance? Read: What is inside Google Wallet? Read: Google Introduces Google Wallet (PHOTOS) Read: Google: With A Single Tap, Your Phone Will Be Your Wallet Read: Red light for Google Wallet: Sued by PayPal