Canada is on the brink of a mobile payments revolution that will empower consumers to turn their cell phones into “electronic wallets”—rendering plastic money, as we know it, obsolete.
Global payment giants Visa Inc. and MasterCard Inc. say emerging mobile payment technologies are not only poised to antiquate conventional credit and debit cards, but everything else we lug around in our wallets – including cash, loyalty cards, driver's licences and coupons.
Those smart-phone technologies, currently being tested around the world, are being billed as a game-changer for the payments industry.
There is already pent up consumer demand, prompting some experts to predict full availability of mobile payments in Canada in about 18 months. The industry, however, stresses it is important to manage expectations.
“I do think you are going to see some movement in 2011,” said Derek Colfer, business leader, global mobile product innovation at Visa Canada.
Still, he cautions the availability of mobile contactless terminals needs to be a “fairly ubiquitous” before Canadians can truly ditch plastic cards.
In fact, mobile payments represent a complex business opportunity that hinges on co-operation from a slew of stakeholders. Electronic payments networks, banks, mobile carriers, smart-phone manufacturers and retailers all need to get on board.
There is some traction on that front. Earlier this year, mobile handset manufacturer Nokia announced that all of its smart phones would be enabled with Near Field Communication technology starting in 2011.
“When you get a device manufacturer with that kind of power globally making a statement like that; that has impact,” Colfer said.
Near Field Communication, or NFC, is wireless technology that allows for the exchange of information between electronic devices over short distances.
The technology is generally embedded in the phone. That allows it to be waved in front of a contactless reader for mobile payment purposes, doing away with the need for plastic cards. After a purchase is made, a receipt is sent to the device.
In addition to emulating credit and debit cards, NFC-enabled phones have other capabilities including a “reader mode.”
That could allow consumers to hold their phones up near a “smart” poster, packaging or billboard to launch applications that access things like weather reports, electronic coupons or loyalty points.
The technology also has the potential to activate electronic home appliances. “You might actually use that to turn on your toaster,” observed Colfer.
Additionally, NFC allows for a “peer-to-peer” mode to link the phone with other devices through a secure connection to employ services like money transfers.
While NFC is only one type of mobile payments technology being explored, industry players are betting it will be the bellwether of the future.
Convenience is the key factor that will fuel consumer preferences for NFC, according to a report by professional services firm Deloitte earlier this year.
“I believe that we are 12 to 18 months away from full availability of NFC phones,” said Scott Lapstra, vice-president of market development with MasterCard Canada.
“It offers a more robust security and user experience in that you can actually control everything from the phone; including downloading new card information,” he explained.
“If you lose your phone, you can have the payment application turned off over the air. And it also allows you to lock the payment functionality by having you put a PIN on it.”
Nonetheless, the industry is also trying to whet consumers' appetites for other mobile payment solutions.
Among them are Micro SD (security data) cards that allow consumers to store banking information on mobile devices.
There are also payment stickers or tags that adhere to the back of mobile phones. Stickers, though, are considered less secure from a theft perspective. Moreover, they can destroy a phone's cool factor.
“The sticker can really wreck the aesthetics of an iPhone for example ... You slap a sticker on it and you really are not doing the design much justice,” Colfer said.
Both Visa and MasterCard have conducted test pilots of various mobile technologies in different countries around the world.
In Canada, Visa partnered with Royal Bank of Canada and Rogers Wireless in 2008. That trial used an NFC-enabled phone to make contactless payments using Visa payWave.
MasterCard, meanwhile, conducted an NFC pilot project in conjunction with Bell Mobility and Citibank, in 2008 using its comparable PayPass technology. It then conducted a second trial involving mobile tags with Bank of Montreal and BlackBerry maker Research in Motion that ended earlier this year.