Why a New Google Product Should Have Credit Card Companies Worried

Google

is widely expected to announce its newest offering Thursday: a mobile payment system that would allow consumers to use their smartphones in place of credit cards. A source familiar with the matter told Reuters on Tuesday that Google will work with MasterCard Inc

, the world's second-largest credit and debit card processing network, to launch the system. This has been a popular technology in parts of Asia, and has been widely expected in U.S. markets for about a year or two. Ideally, the service could allow users to sync their credit cards, debit cards, bank accounts, and other personal financial information with their already-handy smartphone. Visa

has conducted testing on similar technology with several large banks, but has yet to release a product. Security is a significant concern, and consumers likely won't adopt any new technology unless recognizable safeguards are enacted. Especially with the proliferation of identity theft and data breaches, users are increasingly scrutinizing how they conduct day-to-day finance. The Reuters report notes that "Google invited reporters to attend a "partner event" on Thursday in New York to demonstrate what it called its "latest innovations." It plans to unveil a mobile payments system that will run on the Android operating system and be available on phones from Sprint Nextel Corp, Bloomberg reported on Tuesday." It's unknown exactly how such a system would work, and who would control the profitable transaction fee revenues. Still, it's good news for consumers because competition is creating new services and convenience. Further, it's evidence that credit cards companies should be worried about the current business model. It's increasingly likely that consumers will shy away from credit card use if they are offered a better alternative. If technology companies can challenge the established industry players for a piece of the pie, then new avenues of profit must be established for credit card companies. It appears that MasterCard and Google are hoping to take advantage of being first-to-market. While this is no doubt an advantage, watch for other services to roll out over the next year. Consumers (and investors) will benefit if companies produce convenience and security without compromise.