“This absolutely strengthens Google’ position in mobile payments,” said Nick Holland, senior analyst with Yankee Group. “The big issue for mobile payments has been the secure element, the physical hardware that allows someone to own the mobile wallet. By having ownership of Motorola, which makes 10% of smart phones in U.S., Google has the potential to put its own secure element in all those devices.”

The deal will also help Google keep pace with ISIS, the company’s main m-payments competitor. ISIS has the backing of mobile operators AT&T, Verizon and T-Mobile, as well as the four major credit card companies: American Express, Discover, MasterCard and Visa. So far Google Wallet has only signed Citi, MasterCard, Sprint, First Data along with sixteen other merchants.

But with Motorola’s 10% market share under its belt, Google will hold a lot of sway in convincing these mobile operators on board with ISIS to carry Google Wallet-powered phones, according to Holland.

Moreover, Holland says that Google will gain an edge on ISIS due to the fact that card issuers can hop on Google’s mobile wallet platform is free. ISIS, on the other hand, will charge a rental fee to card issuers for space on its wallet.

The new phone making capability should also allow Google to cut out the middle man and deal directly with operators, rather than make a deal with a phone manufacturer who then makes a deal with the operator.

According to OWS, Google intends to keep the Android operating system open and run Motorola as a separate business post-acquisition.

Look for Google Wallet to make its commercial debut on the Sprint network later this year.

Read more here.