Google takes another swing at payments with Android Pay

Google unveiled Android Pay, which will enable MasterCard credit, debit, prepaid and small business cardholders to use their Android phones for everyday purchases in-store and within Android apps

Google is overhauling its approach to mobile payments with Android Pay, which will let people use their smartphone to make payments in brick and mortar stores as well as in apps like Lyft and GrubHub.

The changes are an effort by Google to reclaim momentum in the area of mobile payments, where Apple Pay has been fast taking hold and other rivals like Samsung's LoopPay are emerging.

Android Pay will be incorporated into the next version of Android, currently known as Android M, which was unveiled at Google's I/O conference for developers in San Francisco Thursday. The service will also work with previous versions of Android as far back as KitKat, said Dave Burke, VP of engineering at Google.

Much like Apple Pay, the service will allow people who've set the app up on their phone to walk into a store and wave their device in front of an NFC reader to make a purchase. Google is working with 700 stores across the U.S. that accept contactless payments, including Bloomingdale's, McDonald's and Subway.

Android Pay will also allow in-app purchases, so a person can order a car from Lyft and pay for it from within the app, Burke said.

And because Android M will standardize a way for developers to incorporate fingerprint recognition, phone users will be able to confirm purchases using a thumbprint. Target, for instance, is developing an app that lets you confirm a payment with a thumbprint.

Google is working with credit card companies including Discover, Visa, MasterCard and American Express, and with carriers like T-Mobile, AT&T and Verizon, so people can use Android Pay right away when they leave the store, he said.

Users set up the app by first entering their debit or credit card information, but, like Apple Pay, it gets converted to a "virtual" account number, so their actual credit card details aren't transferred during the transaction, a measure to improve security.

Android Pay, first announced in March, was initially positioned as a way for developers to add payment capabilities to their apps, but not for in-store payments.

Google didn't give an update on Google Wallet, its previous app for in-store payments, and it wasn't immediately clear how the two services will coexist.

Zach Miners covers social networking, search and general technology news for IDG News Service. Follow Zach on Twitter at @zachminers. Zach's e-mail address is zach_miners@idg.com