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(Bloomberg) — Google Inc. has been trying to make its mark in mobile payments since 2011 without much success. Now, the Web company is betting that a new feature called Android Pay will help it challenge Apple Inc., which entered the fray last year.

Android Pay, which will be available later in 2015, turns any smartphone application into a wallet that can be used in physical and virtual stores. Shoppers can buy goods in stores by tapping their phone on a payment terminal in about 700,000 U.S. locations and in over 1,000 apps including car service Lyft, David Burke, vice president of Android, said in a presentation at the Google I/O developer conference Thursday.

Google, Apple and PayPal are among the companies seeking to capture a piece of the mobile-payment market, which will top $142 billion by 2019, up from $67 billion this year, according to Forrester Research Inc. Apple Pay debuted last year and is backed by more than 2,500 banks and credit unions, while PayPal will be spun out from EBay Inc. later this year.

“Apple Pay took the industry by storm, and the Android ecosystem hasn’t really responded with anything equivalent,” Chetan Sharma, an independent wireless analyst. “The apps will benefit tremendously from this.”

Google’s earlier payments service, Google Wallet, will be retained and more focused on peer-to-peer payments in the future, said Ariel Bardin, vice president, product management.

Digital Payments

To set it apart, Google is combining Android Pay with loyalty programs, seeking to tap into a huge opportunity by linking mobile payments to advertising and offers. By combining mobile payments with loyalty points, coupons and offers, Google could potentially have a more appealing service for consumers, merchants and banks than what Apple offers today, according to Richard Crone, chief executive officer at Crone Consulting LLC.

“Android Pay will encircle the shopping experience,” Crone said.
Separately, Google unveiled new feature that will let users pay without pulling out their smartphones, said Sridhar Ramaswamy, a Google senior vice president. When a payment terminal senses a phone is nearby, the “hands-free” feature processes payments without having to use the phone. The service is being tested with McDonald’s Corp. and Papa John’s International Inc., he said.

To contact the reporter on this story: Olga Kharif in Portland at okharif@bloomberg.net To contact the editors responsible for this story: Cecile Daurat at cdaurat@bloomberg.net; Jillian Ward at jward56@bloomberg.net Reed Stevenson, Jillian Ward