Google Wallet (GOOG), the mobile software that allows Android users to pay for purchases online and in stores with their phones, has become a money pit. The company has dedicated hundreds of developers to Wallet and spent about $300 million to acquire digital payment startups to help develop the app. But consumers aren’t sold. Wallet has been downloaded fewer than 10 million times in the two years since its launch, according to Play, Google’s app store.

For Google, the goal wasn’t to generate fee revenue from the transactions, as banks, PayPal (EBAY), and other companies do. The idea was to collect data on consumer habits and target ads to them. Google pays such high fees to the credit-card companies it works with, though, that it loses money on every transaction, says Osama Bedier, who stepped down as head of Wallet on May 20 and will shortly leave the company.

Google declined to disclose how much it’s invested in Wallet, which uses a phone to store credit- and debit-card information. More than half a dozen people close to the company say it’s reconsidering or has abandoned projects designed to broaden Wallet’s appeal. Chief Executive Officer Larry Page in March gave advertising head Sridhar Ramaswamy control over Wallet. Google is weighing whether to scrap a Wallet credit card it’s developing, according to three people familiar with the project. It’s already changed its plans to build a Wallet-compatible Android tablet that can read credit cards for brick-and-mortar retailers, intended to rival Square’s card-reading tool, according to four people familiar with that project.

Bedier, a former PayPal executive who joined Google in 2011, says the streamlining is a big shift and that he was encouraged to spend freely to develop Google Wallet. “Payments are a big part of what people do every day, and we’re committed to making them easier for everyone,” says Nate Tyler, a Google spokesman. Tyler wouldn’t say whether investment in Wallet has shrunk or if Google expects the app to ever turn a profit.

After two years, most consumers still can’t use the app. Of the four largest U.S. wireless companies, only Sprint Nextel (S) supports it. Verizon Wireless, AT&T (T), and T-Mobile USA (DTE) block Wallet on their phones and have teamed up to develop their own software, called Isis. MCX, a consortium of retailers including Wal-Mart Stores (WMT) and Target (TGT), is also working on a similar app. Forrester Research (FORR) estimates that U.S. mobile payments will top $90 billion in 2017, up from $12.8 billion last year, but successful companies like PayPal and Square make money by charging retailers fees in excess of what they owe to credit-card companies.

To succeed, Google Wallet must do more to show advertisers that shoppers who see its digital ads as they stroll down a store aisle are actually buying their products, says Dana Stalder, a former PayPal executive and a general partner at venture firm Matrix Partners. Facebook (FB) is expanding a program to track when any of its billion-plus users buy something advertised to them on the social network, says spokeswoman Elisabeth Diana. Jason Gardner, the CEO of loyalty-card startup Marqeta, says brick-and-mortar payment information is too lucrative a possibility for Google to ignore. “The amount of data at the point of sale is so significant that they’re not going to throw in the towel,” he says.

The bottom line: Google is having a hard time breaking into the $12.8 billion mobile-payment market, even with $300 million in acquisitions.