Digital wallets are coming to Canada
Digital wallets are on their way but, with only some of the pieces in place, Canadians still have to wait for a while
By Lisa Manfield
September 7, 2011
September 7, 2011
It could be argued we’re a nation as addicted to our smartphones as to our fancy lattes. According to a May 2011 Canadian Wireless Telecommunications Association report, 33 per cent of the 25 million mobile users in Canada have smartphones. And what do they really want to do with those smartphones (aside from playing Angry Birds)? They want to pay for things like their fancy lattes, of course.
So it is appropriate that Starbucks was one of the first merchants to launch a smartphone payment system. The Starbucks Card Mobile App, which dropped in May for BlackBerrys, iPhones and other smartphones, allows customers to pay for coffee with their phones. After downloading the app, customers load their mobile Starbucks card using a credit card or PayPal, locate a store and pay simply by holding the phone up to a countertop device that scans an on-screen barcode.
The service is currently only available in U.S. stores but it will likely reach Canada soon.
And that’s good news to the 56 per cent of Canadians who recently told Leger Marketing they would prefer using a digital wallet over cash, and 36 per cent who would make mobile payments for purchases ranging from iPods to cappuccinos. The study was conducted on behalf of PayPal Canada.
Further, the Mobile Life 2011 study by global market research firm TNS indicated 10 per cent of Canadians have already used a mobile wallet, 17 per cent want to pay for items in shops, restaurants and bars with their phones, 14 per cent want to pay bills and eight per cent said they’d make rent or mortgage payments with their mobiles. Canadian men aged 16 to 40 are the biggest drivers of this trend.
And it’s not just because carrying a phone is a lot simpler than juggling coins, bills and about a million loyalty cards in a bulging leather wallet. “A smartphone can think and figure things out for you,” said David Schropfer, author of The Smartphone Wallet and partner at Luciano Group, based in New Jersey. “Maybe one card has a bigger discount than another card. Your phone will remember that for you and keep track of offers as they change.”
While consumer demand is clearly there for a digital wallet system, the infrastructure required hasn’t yet proliferated to the point of enabling a widespread and cohesive payment system. In fact, there’s a bit of a race among banks, credit card companies, and other technology players to get to market with mobile payment technology. Both VISA and MasterCard have launched contactless payment systems and have made announcements about up-and-coming digital payment systems, Google is launching a digital wallet in the fall and numerous other players, like EnStream in Canada and Isis in the U.S., have been developing technology and slowly building momentum with wireless providers.
And this is good news for consumers and merchants alike, Schropfer said. “Retailers have always wanted to influence how consumers pay for things, because they get charged in different ways depending on how the customer pays. In a mobile communication environment, a retailer can say ‘I’m going to save two per cent if the customer pays with PayPal, so I’ll give one per cent back to the customer to motivate the use of PayPal.’ This is unprecedented—it’s never happened before.” But it’s not quite here yet.
PayPal pushes its wallet
While retailers wait for digital wallet infrastructure—the scanners, near-field communication (NFC) chips and software needed for digital payments—to proliferate, PayPal continues to grow its digital payment system.
Billing PayPal as the “first original digital wallet,” PayPal Canada managing director Darrell MacMullin said the company announced in June that it had surpassed 100 million active accounts globally. MacMullin added the company has four million Canadian users transacting every second, “not only domestically, but also across the border.”
The company reported $750 million in mobile payment volume in 2010 and anticipates this will increase to $3 billion globally by the end of 2011. “People love PayPal because they have access to funding sources without ever having to share account info. And businesses never have to collect that info,” MacMullin said. “The PayPal wallet can be accessed through a phone, but account info is never stored on the phone or transmitted through a network.”
This allows merchants to avoid having to comply with Payment Card Industry security standards around collecting and storing private data, which is “a bit of a burden for small businesses,” MacMullin said.
For retailers who want to get on-board with mobile payments right now, PayPal is a viable option. And it’s also launching a platform called X.Commerce to provide “turnkey apps that help merchants link the online experience with the offline experience,” MacMullin said. Merchants will have access to apps and APIs that enable online stores and turnkey mobile checkout systems. “We’re the first payment company to open up the platform and provide APIs,” MacMullin said. “And we have a robust developer community—2,800 developers in Canada have signed up for the PayPal platform and are developing APIs for merchants. Cineplex.com, for example, is one of the most popular apps in the country and enables ticket purchase using PayPal. People can check for movies online and pay for tickets through their phones.”
VISA: pixels to plastic
Not to be left behind, credit card companies are racing to develop their own mobile payment systems. VISA has already implemented payWave, its contactless payment technology “for small purchases under $50 in everyday spend categories,” said Mike Bradley, head of products at VISA Canada. “Simply wave the card near a [scanning] device to complete the purchase.” All five of the large VISA issuers now distribute payWave-enabled cards, which are embedded with an antenna and microchip and can be used at merchants like Blenz Coffee, Subway and McDonald’s, resulting in more than a million transactions per month for the tens of businesses that have signed up to accept payWave, Bradley added.
But credits cards are so 1960s, according to Schropfer. “The architecture of the system and process was designed 50 years ago and hasn’t changed since then,” he said. “A card can only deliver one chunk of data to a point-of-sale (POS) system. A card is not a computer. A digital wallet is the model that’s going to win.”
And so, VISA, like its competitors MasterCard and American Express, has recently announced plans for a digital wallet, focusing its efforts on bringing “more consistency across channels—Internet or mobile phone,” Bradley said. “There’s a need for a better shopping experience [online]. Selling and consumer buying is happening in a bunch of different ways and it’s not very friendly. Typing in all that bill-to information, security code and name on the card is not a very convenient experience. When you sign up for a VISA digital wallet, you can complete a purchase by clicking an option on checkout without the need to provide credit card info. People think they can point their phone at a vending machine and make a Coke appear, but this other scenario will have more impact; there’s not a lot of technology change there. The tech hurdles are not too dramatic.”
Three banks in Canada will start distributing VISA’s digital wallet: Scotia Bank, TD and RBC. “The digital wallets, pre-loaded with credit card info, will be distributed to users via Web banking,” Bradley said. “Once you get a wallet, you can go to a merchant [online], click on the digital wallet page and complete a transaction. There’s no need to provide credit card info or bill to/shop to addresses. It will be more convenient shopping,” Bradley said.
Google gets in the money
But it’s still a jump from online digital wallets to smartphone wallets, and what’s holding back the proliferation of the latter at the moment is the NFC chip required in both phones and cash registers to allow them to communicate. “NFC technology is the biggest zero-billion dollar business in the world, meaning it’s not there yet,” Schropfer said. “Most cash registers don’t have an NFC chip.” Nor do most phones.
Google, however, is set to launch the Google Wallet using the NFC technology built into Android phones, along with a Google pre-paid card or a Citi MasterCard in the U.S. “Our intention is that Google Wallet will be an open commerce platform that will eventually hold all the cards you keep in your leather wallet today,” said Wendy Rozeluk, communications and public affairs at Google Canada. “We’re already starting to see merchants adopt payment methods that allow you to tap your card, and people are familiar with contactless payments, so we’re starting to see a lot of interest.”
Google Wallet will eventually link up with Google Offers, Google’s version of Groupon, allowing merchants to push offers to customers in specific geographical areas. “Google Wallet will store Google Offers much like carrying loyalty cards and coupons without the bulk,” Rozeluk said. “And as a Google Wallet-enabled merchant, your business will also be featured on the ‘Where it works’ map.”
While questions around data security instantly come with the possibility that an NFC-chip phone could be making all manner of purchases as its owner innocently browses the mall—or worse, simply get lost, as many phones do—Google Wallet’s security system makes it very hard to steal or fake. And NFC works within such a small physical range that random purchases would not suddenly show up on a credit card. “It’s more secure than a credit card,” Rozeluk said. Not only can you lock your phone, but “if your Google Wallet is lost or stolen, everything can be wiped off of it and that can happen before you even contact your credit card company.”
Getting started
While Canadian merchants wait for Google and other digital wallets to launch in Canada, they can get a head start on digital payments by signing up for PayPal mobile apps, a VISA payWave system and a MasterCard PayPass.
But it’s clear the market for digital payment systems is about to get crowded. And all these systems may result in a bit of a format war, as Schropfer details in The Smartphone Wallet, which could translate into a lot of costly investments for merchants eager to provide their customers with the payment options they want.
Schropfer, however, advises a wait-and-see approach. “Retailers all have associations they belong to,” he said. “The associations should be saying very clearly that ‘We’re going to pick one of you and if we don’t choose you, you’re out.’ Within the next year is the only time for retailers to tell the industry what they want.”
So it is appropriate that Starbucks was one of the first merchants to launch a smartphone payment system. The Starbucks Card Mobile App, which dropped in May for BlackBerrys, iPhones and other smartphones, allows customers to pay for coffee with their phones. After downloading the app, customers load their mobile Starbucks card using a credit card or PayPal, locate a store and pay simply by holding the phone up to a countertop device that scans an on-screen barcode.
The service is currently only available in U.S. stores but it will likely reach Canada soon.
And that’s good news to the 56 per cent of Canadians who recently told Leger Marketing they would prefer using a digital wallet over cash, and 36 per cent who would make mobile payments for purchases ranging from iPods to cappuccinos. The study was conducted on behalf of PayPal Canada.
Further, the Mobile Life 2011 study by global market research firm TNS indicated 10 per cent of Canadians have already used a mobile wallet, 17 per cent want to pay for items in shops, restaurants and bars with their phones, 14 per cent want to pay bills and eight per cent said they’d make rent or mortgage payments with their mobiles. Canadian men aged 16 to 40 are the biggest drivers of this trend.
And it’s not just because carrying a phone is a lot simpler than juggling coins, bills and about a million loyalty cards in a bulging leather wallet. “A smartphone can think and figure things out for you,” said David Schropfer, author of The Smartphone Wallet and partner at Luciano Group, based in New Jersey. “Maybe one card has a bigger discount than another card. Your phone will remember that for you and keep track of offers as they change.”
While consumer demand is clearly there for a digital wallet system, the infrastructure required hasn’t yet proliferated to the point of enabling a widespread and cohesive payment system. In fact, there’s a bit of a race among banks, credit card companies, and other technology players to get to market with mobile payment technology. Both VISA and MasterCard have launched contactless payment systems and have made announcements about up-and-coming digital payment systems, Google is launching a digital wallet in the fall and numerous other players, like EnStream in Canada and Isis in the U.S., have been developing technology and slowly building momentum with wireless providers.
And this is good news for consumers and merchants alike, Schropfer said. “Retailers have always wanted to influence how consumers pay for things, because they get charged in different ways depending on how the customer pays. In a mobile communication environment, a retailer can say ‘I’m going to save two per cent if the customer pays with PayPal, so I’ll give one per cent back to the customer to motivate the use of PayPal.’ This is unprecedented—it’s never happened before.” But it’s not quite here yet.
PayPal pushes its wallet
While retailers wait for digital wallet infrastructure—the scanners, near-field communication (NFC) chips and software needed for digital payments—to proliferate, PayPal continues to grow its digital payment system.
Billing PayPal as the “first original digital wallet,” PayPal Canada managing director Darrell MacMullin said the company announced in June that it had surpassed 100 million active accounts globally. MacMullin added the company has four million Canadian users transacting every second, “not only domestically, but also across the border.”
The company reported $750 million in mobile payment volume in 2010 and anticipates this will increase to $3 billion globally by the end of 2011. “People love PayPal because they have access to funding sources without ever having to share account info. And businesses never have to collect that info,” MacMullin said. “The PayPal wallet can be accessed through a phone, but account info is never stored on the phone or transmitted through a network.”
This allows merchants to avoid having to comply with Payment Card Industry security standards around collecting and storing private data, which is “a bit of a burden for small businesses,” MacMullin said.
For retailers who want to get on-board with mobile payments right now, PayPal is a viable option. And it’s also launching a platform called X.Commerce to provide “turnkey apps that help merchants link the online experience with the offline experience,” MacMullin said. Merchants will have access to apps and APIs that enable online stores and turnkey mobile checkout systems. “We’re the first payment company to open up the platform and provide APIs,” MacMullin said. “And we have a robust developer community—2,800 developers in Canada have signed up for the PayPal platform and are developing APIs for merchants. Cineplex.com, for example, is one of the most popular apps in the country and enables ticket purchase using PayPal. People can check for movies online and pay for tickets through their phones.”
VISA: pixels to plastic
Not to be left behind, credit card companies are racing to develop their own mobile payment systems. VISA has already implemented payWave, its contactless payment technology “for small purchases under $50 in everyday spend categories,” said Mike Bradley, head of products at VISA Canada. “Simply wave the card near a [scanning] device to complete the purchase.” All five of the large VISA issuers now distribute payWave-enabled cards, which are embedded with an antenna and microchip and can be used at merchants like Blenz Coffee, Subway and McDonald’s, resulting in more than a million transactions per month for the tens of businesses that have signed up to accept payWave, Bradley added.
But credits cards are so 1960s, according to Schropfer. “The architecture of the system and process was designed 50 years ago and hasn’t changed since then,” he said. “A card can only deliver one chunk of data to a point-of-sale (POS) system. A card is not a computer. A digital wallet is the model that’s going to win.”
And so, VISA, like its competitors MasterCard and American Express, has recently announced plans for a digital wallet, focusing its efforts on bringing “more consistency across channels—Internet or mobile phone,” Bradley said. “There’s a need for a better shopping experience [online]. Selling and consumer buying is happening in a bunch of different ways and it’s not very friendly. Typing in all that bill-to information, security code and name on the card is not a very convenient experience. When you sign up for a VISA digital wallet, you can complete a purchase by clicking an option on checkout without the need to provide credit card info. People think they can point their phone at a vending machine and make a Coke appear, but this other scenario will have more impact; there’s not a lot of technology change there. The tech hurdles are not too dramatic.”
Three banks in Canada will start distributing VISA’s digital wallet: Scotia Bank, TD and RBC. “The digital wallets, pre-loaded with credit card info, will be distributed to users via Web banking,” Bradley said. “Once you get a wallet, you can go to a merchant [online], click on the digital wallet page and complete a transaction. There’s no need to provide credit card info or bill to/shop to addresses. It will be more convenient shopping,” Bradley said.
Google gets in the money
But it’s still a jump from online digital wallets to smartphone wallets, and what’s holding back the proliferation of the latter at the moment is the NFC chip required in both phones and cash registers to allow them to communicate. “NFC technology is the biggest zero-billion dollar business in the world, meaning it’s not there yet,” Schropfer said. “Most cash registers don’t have an NFC chip.” Nor do most phones.
Google, however, is set to launch the Google Wallet using the NFC technology built into Android phones, along with a Google pre-paid card or a Citi MasterCard in the U.S. “Our intention is that Google Wallet will be an open commerce platform that will eventually hold all the cards you keep in your leather wallet today,” said Wendy Rozeluk, communications and public affairs at Google Canada. “We’re already starting to see merchants adopt payment methods that allow you to tap your card, and people are familiar with contactless payments, so we’re starting to see a lot of interest.”
Google Wallet will eventually link up with Google Offers, Google’s version of Groupon, allowing merchants to push offers to customers in specific geographical areas. “Google Wallet will store Google Offers much like carrying loyalty cards and coupons without the bulk,” Rozeluk said. “And as a Google Wallet-enabled merchant, your business will also be featured on the ‘Where it works’ map.”
While questions around data security instantly come with the possibility that an NFC-chip phone could be making all manner of purchases as its owner innocently browses the mall—or worse, simply get lost, as many phones do—Google Wallet’s security system makes it very hard to steal or fake. And NFC works within such a small physical range that random purchases would not suddenly show up on a credit card. “It’s more secure than a credit card,” Rozeluk said. Not only can you lock your phone, but “if your Google Wallet is lost or stolen, everything can be wiped off of it and that can happen before you even contact your credit card company.”
Getting started
While Canadian merchants wait for Google and other digital wallets to launch in Canada, they can get a head start on digital payments by signing up for PayPal mobile apps, a VISA payWave system and a MasterCard PayPass.
But it’s clear the market for digital payment systems is about to get crowded. And all these systems may result in a bit of a format war, as Schropfer details in The Smartphone Wallet, which could translate into a lot of costly investments for merchants eager to provide their customers with the payment options they want.
Schropfer, however, advises a wait-and-see approach. “Retailers all have associations they belong to,” he said. “The associations should be saying very clearly that ‘We’re going to pick one of you and if we don’t choose you, you’re out.’ Within the next year is the only time for retailers to tell the industry what they want.”
Illustration: Jon Berkeley
