As part of its “Google (News - Alert) Wallet” initiative, Google is working with Citi, First Data, MasterCard, and Sprint on a service that will allow consumers to turn their Android (News - Alert) mobile phone into a wallet, designed to contain payment credentials as well as loyalty cards, coupons, and other personal information.

In taking that approach, Google has made an important decision about where value lies in the mobile payments application, and where it believes it can create a sustainable revenue model. That is among the very-first decisions any would-be provider has to make.

Isis, the mobile payments venture launched by AT&T, Verizon Wireless (News - Alert) and T-Mobile USA, initially made a different choice, namely, to build a business around transaction fees. Isis has since changed course, aiming instead to create a platform for third parties to create services using their mobile networks and features.

Many other providers still are working the transaction revenue stream model, while some will hope to profit at least in part by supplying retailer transaction terminals. Already, some application providers are working on payment systems adapted specifically for some vertical markets, such as restaurants.

Starbucks believes the primary value of its own mobile payment system is loyalty, though it already offers a popular “prepaid” Starbucks card that also offers some amount of float on the funds users put on their loyalty cards.

Google believes its own revenue will be created by advertising and promotion opportunities, including various discount offers, retailer promotions and local advertising services. And though Google and Isis are banking on near field communications as the communications platform, others, such as Starbucks, think they can get to critical mass using only simple bar codes and existing retail point of sale terminals.

And despite the “gold rush” mentality that currently is building, “mobile payments are entering a disruptive phase that will take a long time to play out,” said Charles S. Golvin and Thomas Husson, Forrester (News - Alert) Research analysts. “We are in fact quite some ways from knowing which revenue models, technology approaches and ecosystems are most viable. Likewise, we are only at the beginning of a process that will uncover which services and applications make the most sense for retailers and end users as well.” In fact, we are likely to see much more development of related e-commerce applications and value than simple “transactions,” though the transaction capabilities will be part of the ultimate solutions. In real ways, the effort is to expand the realm within which real world commerce can be melded with online commerce, marketing, promotion and loyalty programs.