Google to buy Softcard in latest round of financial services empire building

Google is in talks to acquire mobile phone payments company Softcard as it increases its financial services capabilities.

According to reports, Google is in talks to buy Softcard from AT&T, T-Mobile and Verizon for around $100m. Softcard enables consumers to pay for goods and services by tapping their mobile phone on a contactless reader. It uses near-field communications (NFC) technology.

Softcard was previously known as Isis Mobile Wallet, but changed its name last year to remove any association with the militant terrorist group that has the same name.

Large IT companies are increasingly entering the mobile payments space.

Apple has launched its Apple Pay service. In the US, where it has been in use since October 2014, the technology has had a flying start. The Apple Pay mobile wallet was responsible for 1% of digital payments in the US in November 2014, according to a survey.

In the past, Google has had less success. Despite being established with a 2011 launch Google Wallet only accounted for 4% of payments in the same month, according to the ITG Mobile Payments report.

While new banks are taking on traditional banks with current and savings accounts, as well as loans, some large IT companies are positioning themselves to provide services on the periphery such as payments and information enrichment.

In its Why Google bank won’t happen report, analyst firm Forrester said the high costs and strict regulation of setting up a traditional bank, in combination with advertising revenue coming from banks, will push internet firms into roles that support the relationship between banks and their customers. These include transactional payment services, financial advice, money management and product comparisons.

"Google’s reputation as one of the most disruptive firms in the market has left many digital financial services executives worried about a potential new rival: Google Bank," said Forrester analyst Oliwia Berdak.

The internet giant recently agreed to work with peer-to-peer lender, Lending Club, to offer loans to small businesses such as resellers, consultants and systems integrators that distribute Google products and services.

Consumers use web-based services which are trusted and have good IT every day. If services such as PayPal, Amazon and Facebook moved into banking, they would attract customers. Their systems already contain details about people and businesses, and handle monetary transactions.

Despite this, people still trust banks more with their personal details. A study of more than 6,000 people from Bizrate Insights found that 72% trust their banks when it comes to holding people’s account details. Challenger financial services firms such as PayPal and Amazon were the next most trusted, but were some way behind, with 48.9% trusting PayPal and 45.4% trusting Amazon. Tech giants Apple and Google were only trusted by 21.4% and 12.9% respectively.

But security fears are overblown, said one source in banking IT. “Of course, people would trust their bank the most with card details as the banks issue those cards and have the details already whether customers like it or not," he said. "You can't avoid your card issuer holding your card details.”

But bank customer numbers are much lower than some of their challengers, which also deal with customer personal details.

A simple web search reveals the scale of customer bases of banks and their challengers. PayPal has 157 million active users, which is more than most banks, while Facebook has more than a billion users and holds a lot of sensitive data. Meanwhile, Amazon boasts more than 244 million users.

In comparison, Lloyds Bank has 30 million customers, HSBC has 52 million customers and Barclays has 48 million customers.