Explainer: How card payments via Google Pay work

Google now moves from just being a Unified Payments Interface (UPI)-based payment application to a full-fledged digital payments platform. Until now, Google Pay users only had the option of using their UPI handles related to a bank account for payments. Now, a customer will just save his or her card onto Google Pay; while making a payment, the customer will have the option of paying through the card as well as through UPI.

Sounds interesting, but what is tokenisation and how does it work?  

Tokenisation is the latest card payment technique. It makes card payments safer. Let us try to understand the basics of tokenisation first. Every card has a 16-digit number, which is the customer’s identifier. Now, Visa converts this 16-digit number into a random number and stores it in its vaults. When the customer wants to make a payment using that card, Visa shares the token number with the merchant instead of the actual 16-digit number. This ensures that the card number remains hidden and transactions are one step safer.

Okay, so how does this work with Google Pay?

Very simple. Just add the card to Google Pay using an OTP and keep it stored in a tokenised format so that it is safe. While making payments, open Google Pay, select the card for the transaction, authenticate via an OTP… and voila! the payment is done. There is no need to repeatedly share the 16-digit card number, CVV and expiry details. This makes card payments as smooth as a wallet or UPI transaction. They can be used for offline merchant payments, ecommerce payments and bill payments.

It all sounds revolutionary but what’s the catch? Is there something missing?

The only catch here is customers will have to use their mobile phones to make payments and they have to be NFC enabled (near field communication). Not a lot of smartphones in India are NFC enabled. This is one of the reasons why Visa tokenisation payments have not scaled up a lot in India yet. Now, with Google Pay, there is one advantage: just scan any BharatQR code and pay through the card. This helps bypass the entire NFC hurdle easily.

Right, so where can this facility be used to make payments?

Since Google Pay has partnered with Visa, it practically opens up every merchant in the country accepting digital payments. In the first launch, Google Pay users who have accounts in Axis Bank and SBI Card can avail of this service. But the company will expand its banking partners and is already in talks with Kotak Mahindra Bank.

While banking partnerships are great, SBI Card is a critical partner here since this will open up credit card based transactions on Google Pay.

In terms of numbers, 25 lakh merchant points will accept these payments along with 15 lakh merchants who have BharatQR stickers.

So, it’s great for customers. But what’s in it for Google Pay?

A lot, actually. This makes Google Pay expand from being just a UPI-based payment app to a complete digital payments platform. Imagine the new business opportunities for Google here. It will bring customers who prefer to pay using their credit cards or debit cards into the Google Pay fold.

Plus it will also open up new merchant locations for Google Pay. While it has been trying to encourage merchant payments on the app through multiple partnerships, UPI continues to be the major P2P payment mode on Google Pay. Cards dominate the merchant payments space and that is where Google will make inroads.

Google wants to emerge as a broader financial services player in the ecosystem and tracking cash flow at the merchant end is a vital cog in this wheel. It will open up those payments too and eventually a host of financial services will follow.