Digital payment systems - take your pick

When the owner of Toronto’s Caplansky’s Deli, Zane Caplansky, added a mobile food truck to his College Street-based deli last year, he started losing out on business right away. Not because his food wasn’t delectable (in fact, he was recently named one of five food trucks worth lining up for by The Globe and Mail), but because he was only able to accept cash payments. “We were asked daily, ‘Do you take credit cards or debit?’” And the answer was no, simply because a merchant credit and debit account cost too much for a small business like his. “It was even worse at festivals and events,” Caplansky said. “It was a very real problem. Fifteen to 20 per cent of my business was affected. I was waiting for a really good payment system.”

Caplansky’s problem was solved earlier this year when he signed up for PayPal Here, the new card reader device and application from PayPal that turns any smartphone into a mobile payment system. PayPal Here’s small card reader attaches to a smartphone through the headphone jack. The reader allows for payments by credit, debit and PayPal, and the accompanying app allows for electronic billing, uploading cash payments and even inventory management. You can almost run your entire business via smartphone. “This is a product based on what customers have been telling us they want,” said Darrell MacMullin, PayPal Canada managing director. “Over 200,000 businesses have signed up to receive the card reader, and 90 per cent are small- to medium-sized businesses.”

Small businesses looking for a digital payment system want something both they and their customers feel comfortable with, and that’s what sold Caplansky on PayPal. “When dealing with money, both you and your customers must trust the vendor. PayPal is the closest thing to a bank, so it was a no-brainer,” Caplansky said. “People have accounts already that they use as bank accounts. My account, I treat as disposable income. Canadians have money in these accounts that they’re willing to spend.”

Canadians are going cashless

As digital payment systems begin to proliferate, more Canadians are looking to dispense with bills and coins. A June 2012 Leger Marketing study conducted on behalf of PayPal showed that 71 per cent of Canadians are comfortable going cashless for all of their purchases, but that 43 per cent of Canadian smartphone users worry about having their financial details stored on their phones, as some digital wallets do.

“Canadians like the idea of their money being digital, but they don’t like the idea of their money going from a chip on a card to a chip on a phone. And the idea of tethering their wallet to one specific device isn’t practical,” MacMullin said.

That’s why PayPal stores sensitive financial information in the cloud. “We want to make your money available to you anytime, anywhere,” MacMullin said, adding that PayPal has seen its user base grow by a million active customers every month, to 110 million worldwide, and is one of the frontrunners in the digital payments landscape. “As long as you can connect to the Internet and log in to your account, you can access your money. You never have to share your financial info with businesses, or store the info on your device.”

And with the PayPal Here app, users can locate mobile businesses in their area that accept smartphone payments, a feature that has worked in Caplansky’s favour. “We’ve seen an increase in sales in the truck. We often do lunch service at Bay and Front (in downtown Toronto),” he said. “You can be sitting at your desk and if you have the PayPal Here app, you can see that the truck is right downstairs. I know that at that location, the truck is just killing it.”

Phones into wallets

But others are working to turn cellphones into digital wallets, and many of the banks and mobile companies are aligning with the technology that enables this: near-field communication. NFC-based digital wallets use a chip in smartphones to allow payment applications to share information with merchants. Basically, it means you can swipe a virtual card on your phone to pay for your goods.

Rogers Communications announced the first such application in Canada, in partnership with CIBC. “Customers of MasterCard and VISA will be able to receive a virtual version of their card on their phones with NFC,” said David Robinson, vice-president of emerging business at Rogers. “You open the application on your phone, put in your password and it turns on the card. Once the card is live, you have 30 seconds to present your phone to the (in-store) reader the same way you would with a credit card reader. It’s the same tap process as with PayPass or payWave.”

Robinson said the “beauty of this technology is that we’re changing as little as we need to,” so that consumer behaviour doesn’t have to change much. “It took five or six years to figure out how to make a phone act like a MasterCard, VISA or American Express,” Robinson said. “We had to make sure all the stakeholders were comfortable with it.”

And he insists the virtual wallet will be more secure than a physical wallet. “There are two levels of security before you get to the card—phones have passwords. And the application will have a password on it. Plus, VISA and MasterCard take the liability on fraud.”

“We’re very excited about this,” said Derek Colfer, business leader for global mobile product innovation at VISA. “We’ve been rolling out PayWave diligently, and from a mobile NFC perspective, that’s the infrastructure. Today, we’re seeing one PayWave transaction every second. The challenge has been (availability of) NFC phones, but they’re putting NFC in devices as a default now and Canadians are ready.”

MasterCard’s recent Mobile Payments Readiness Index ranks Canada number two worldwide for mobile payment readiness, in part because of the proliferation of NFC phones and the existing tap-and-pay infrastructure. “In two years the vast majority of Canadians will be able to do this on their phones,” Robinson said.

Future digital payments

In May, the Canadian Bankers Association released guidelines for the mobile payment industry in support of the NFC model and existing infrastructure, for the “accelerated adoption of mobile payments in Canada to ensure that Canadians will have access to a secure, efficient and convenient mobile payment tool,” as stated in the Canadian NFC Mobile Payments Reference Model – Summary. “This is really great news for Canada,” Robinson said. “The banks now get it.”

Numerous banks and carriers have indicated that other announcements like Rogers’ are in the works, and Robinson said it’s going to become a scale game. “Every carrier wants every issuer and every bank wants every carrier.”

And once all the credit and debit card issuers are on-board, digital wallets will move toward inclusion of other types of cards like gift certificates, loyalty cards, library cards and even building access cards. “The whole model is founded on emulation of payment cards, but there are lots of other types of cards,” Robinson said. “The average Canadian has 28 cards in his or her wallet—all of which can be distributed this way. That’s what it’s about in the immediate future.”

But with the proliferation of options for digital wallets, some worry multiple systems could be confusing. “There are multiple wallets on the market and a lot of collaborations,” Colfer said. “For example, we licensed PayWave to Google and to ISIS so consumers can use VISA credentials through those wallets.”

In addition to the Google Wallet, which has been available since last year, the big technology hardware and software players are starting to build wallet functionality into their phones and applications: Microsoft is including a Wallet hub in Windows Phone 8 with NFC functionality, and Apple’s Passbook app for iOS 6 allows for loyalty card storage, although it doesn’t include payment cards. Some merchants, like Starbucks, are also launching their own payment apps.

Rogers’ Robinson believes consumers will ultimately choose which system wins. “Customers will decide what to carry and where to put it,” he said, “and merchants are going to be the biggest beneficiaries.”


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