Nokia Inc. showcases a new phone that doubles as a credit card at the 2007 International Consumer Electronics Show (CES) in Las Vegas, Wednesday, Jan. 10, 2007. The Nokia 6131 NFC (Near Field Communication) phone has been used in trials in New York City, in cooperation with Mastercard, Citibank and Cingular. (Damian Dovarganes/Associated Press)

After one of his drivers was held up at knife-point in May, taxi cab operator Ahmed Hussein began looking for a different way his workers might handle day-to-day financial transactions. More specifically, he wanted to take cash out of the equation.

Though his driver managed to fight off the robber and flee the cab, Ahmed said the incident was a trigger that led his Grand Prairie, Alta., company Dial-A-Cab to participate in a pilot project with Verrus, a Vancouver-based company that specializes in cellphone parking payments.

The pilot project is one of three in Canada — the other two are in Barrie and Sault Ste. Marie, Ont. — to test a service this year in which passengers with a Verrus account can dial a number and enter transaction information to bill their credit cards for a cab ride.

After the transaction goes through, the cab driver's cellphone receives a text message saying the fare has been paid.

"For the customers, it's convenient too, because they don't have to give out any credit card information, so there's less concern about fraud," said Hussein.

"The drivers like it because you don't have to worry about making change, and you don't have so much cash on hand, so you're not a target."

'M-payments' growing worldwide

The technology behind the Verrus pilot is relatively simple, using existing text messaging standard in most mobile phones. But the idea behind it — the use of a mobile phone as a kind of electronic wallet — is fast becoming the next big thing in mobile technology.

According to reports from U.K. analyst Juniper Research published earlier this year, the value of mobile transactions (or m-payments) around the world is estimated to grow from $2 billion US by the end of 2007 to $22 billion US by 2011.

While remote payment systems like the one Hussein's cab drivers are testing make up the bulk of the m-payment economy today, over half of the market — or $11.5 billion US in 2011, according to Juniper analyst Alan Goode — is expected to come from phones using near field communication (NFC) technology — essentially a computer chip embedded in the phone — which will allow consumers to simply wave their phones in front of a reader to buy a concert ticket, subway ride or a steamy cup of coffee.

The technology has taken off in South Korea, Japan and other Asian markets, but has been slow to come to North America, though Royal Bank of Canada and Visa Canada announced in early November that they would be testing the technology in an Ontario-based pilot project running in 2008.

But turning the cellphones of Canadians into "contactless" electronic wallets is easier said than done, because of all the players needed to make the system work, said Robert Burbach, a senior financial analyst with IDC Canada.

"You need input from the wireless operators, financial institutions, credit card companies, retailers and handset manufacturers before it can work," said Burbach. "If one of these guys tries to take the ball and run with it without the others, they are going to fail."

Coming soon to Canada?

A phone equipped with a wireless payment chip would include software that allows the handset owner to make payments or set up a password for use. (RBC Financial Group)

Tejas Rao, director of technology for cellphone manufacturer Nokia Canada, said phones with integrated NFC chips are already on the market in Asia; parent company Nokia introduced one model of such a phone at the Consumer Electronics Show in 2007.

And while he agrees that "entire ecosystems" need to come together before NFC-chip enabled phones become commonplace in North America, he said trials of chip-enabled "contactless" credit cards — like the one currently being run at the Tim Hortons chain — suggest a retail infrastructure capable of handling point-of-sale payments is coming into place.

"Once you get retailers on board for point-of-sales payments, you start to build partnerships, and it's easier to take it to market," he said.

He said his company anticipates NFC-enabled phones will begin hitting the market in Canada in 2009 and spur adoption by 2010.

Similarly bullish on the technology's prospects is Anne Koski, head of payment innovations at Royal Bank.

"Our vision would be to have the service available in 2009, where a Royal Bank customer could choose to have the capability added to their phone," she said.

More conservative in their view are the wireless carriers themselves. In 2005, Canada's three national wireless service providers, Bell Mobility, Rogers Wireless and Telus Mobility, launched a joint venture called Wireless Payment Services with a mandate to investigate the potential of both remote mobile commerce — where customers pay using existing text or SMS capability on their phones to make transactions — and physical point-of-sale technologies like the NFC chip-enabled phones.

Two years later, Wireless Payment Services president Robin Dua said the venture is planning to bring new services to market in 2008 — without the NFC chips.

"NFC chip technology is further down the road," said Dua. "Right now we're focused on network-based payment options."

Dividing the spoils

Part of the problem with NFC phones for the carriers is determining who would be responsible for what when it came to servicing the handsets, said Dua.

"If consumers run into trouble with the software, it's the mobile operator and not the bank who they are going to call," he said.

Money is also an issue. According to Koski, the RBC-Visa contactless payment plan would not include service charges from the wireless carrier for each payment, because the chip is separate from the wireless network.

While this is true, said Dua, the carriers themselves are responsible for the software on mobile handsets, and so would have a stake in any NFC-enabled phone.

"The business model is still to be determined," said Dua. "Nobody has figured out yet how wireless operators would be compensated."

It's a difficult partnership in Canada, said Burbach, where the wireless carriers and banks are both used to being the top dogs in any partnership.

"Culturally here in Canada, we never had to have the banks and telcos work together," he said. "You can see the banks wanting to offer the chip-enabled phones, but how are they going to include the carriers? How the spoils are divided is going to be a big question, particularly if they want to make it affordable to consumers."

Payment methods blur the lines

A larger question, said Burbach, is who in the industry will be able to seize the market with a service that is both inexpensive and easy for customers to use.

He points to Google Inc.'s launch of a mobile software platform as a potentially disruptive force to the Canadian market and singled out U.S. remote mobile service PayPal, owned by online auction company eBay Inc., as a company that could capitalize.

"If all of the sides can't get together on this technology, someone from outside could grab the whole market," he said.

Meneske Gencer, PayPal Mobile's director of business development, said the two methods of mobile payments operate in distinct niches and should be able to co-exist. She points out that NFC technology is ideal for smaller purchases in retail outlets with high traffic, while remote payments services like PayPal's are better suited for more complex transactions.

But even those lines are blurring. In November 2007, PayPal partnered with Calgary-based mobile ticketer RepeatSeat, Bell Mobility and Cineplex Entertainment to offer movie ticket purchasing and barcode delivery to mobile phones. Bell Mobility customers can use the service to pay for the tickets using PayPal, and RepeatSeat sends the barcode to the mobile phone. When the customer arrives at the movie theatre, the barcode is scanned as if it were a ticket, said Gencer.

"It's really bridging the gap between the remote and point-of-sale payment methods," said Gencer.

Neil Podmore, who runs the Verrus remote payment system behind the taxi cab trial used in Grand Prairie, said acceptance of wireless payment as a viable technology has reached consumers in the United Kingdom and Europe, where his company does the bulk of its business. Whether the payment method is through a chip or the phone network, he said the key to its success in Canada would be providing a service consumers actually want.

"Consumers aren't going to adopt m-payment just because it's the latest technology and replaces cash," he said. "There has to be a benefit to using the phone that you can't get anywhere else."

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