When Berkeley Scott discovered his 67-year-old father was paying for his coffee with his smartphone, the Vancouver digital media expert knew the idea of mobile payment was starting to take hold.
Of course, cash and credit cards aren't going to disappear in Canada any time soon, but those who watch how we pay for everything — and those who want to control how we do it — see a major shift in the offing.
'What's holding it back is because there's so many players that are involved.'—Douglas Macdonald
Just how it will evolve, and who will lead the way, aren't clear, but in a Canadian mobile payment world that seems a bit like a Wild West right now, there's no doubt the stakes — and the prizes — are high.
"The takeup of mobile banking, mobile wallet, e-wallet, mobile apps has been extremely fast in the last two or three years," says Scott, vice-president of digital media for TNS Canada, a market research firm.
TNS's most recent Mobile Life study found 16 per cent of Canadians mobile users pay for products or services by using a mobile phone app or by holding the device up to a sensor.
Scott says he was shocked when he saw the data and questioned it. He also decided to go down to his local Starbucks to see if it was true: were people really eagerly flashing their smartphones in front of a scanner to pay for their brews and beverages?
"And yeah, it was true."
Scott also talked to his parents — folks he says aren't terribly tech-savy — and discovered "lo and behold … my father is using mobile wallet. He has an app from Starbucks. He uploads his card. He connects to his Starbucks card for his rewards.
"That's kind of my litmus test."
While Starbucks created its own payment ecosystem — a bar code that gets scanned on your phone — that has proved popular, such measures are really only useful interim steps toward a long-term solution for mobile payments, says Douglas Macdonald, a senior manager at consulting giant Deloitte in Toronto.
Before mobile payments can take off, however, a lot of digital stars have to align in Canada, a country that has a high rate of smartphone ownership, but which lags after countries such as Japan in how those devices can be used for payment.
"We're always behind," says John Pliniussen, a professor of internet marketing in the School of Business at Queen's University in Kingston, Ont.
"Go to Japan and you will be shocked," he suggests. "Everything is done on your smartphone. Everything is smartphone-enabled — cabs, restaurants, vending machines."
But in Canada, a lot of players have to come together and agree on some common standards before basic transactions via smartphone become more widespread.
"You need to have the banks ready for it. You need to have the phone companies ready for it," says Macdonald.
"You need to have the cellphone operators. You need to have the manufacturers ready. Then you need to have the devices ready at point of sale if that's the type of payment you're doing."
The banks are pretty much ready, Macdonald says. Most smartphones coming out now — other than Apple products — are being enabled with NFC, or near field communication, a wireless technology that allows the devices to make payments just by touching them to a sensor.
In Canada, half the mobile phones in use are smartphones, and 10 per cent are NFC-enabled, Deloitte says. By 2015, it expects that figure will have risen to 70 per cent.
Ten per cent of merchant terminals are currently enabled for contactless transactions with smartphones, a number Deloitte expects to double by 2015, but with high penetration in target markets such as fast-food restaurants and gas stations.
We are, Macdonald says "at the edge of this going mainstream."
So many players
"What's holding it back is because there's so many players that are involved in that, from the handset manufacturers to the phone companies to the banks and each one of them is an industry in itself," says Macdonald.
"The industries have to get together and agree with each other and it’s taking a while to sort out those standards just because of the technology hurdles that are involved, but also in terms of things like how do you share the revenue and who controls the relationship with the customer."
All of which begs a bigger question: who makes the decision about bringing all of this together?
"Right now it's all a bit of a faceoff," says Macdonald.
But some steps have been taken.
Earlier this year, the Canadian Bankers Assocation revealed its blueprint for how financial companies and large telecoms could work together to turn smartphones into mobile payment terminals using NFC or "tap-and-go" technology.
"The banks and the credit unions got together and they put out what they believe their standards should be ... and they've agreed that's what they're going to do in a unified way and it's good because it's based on open standards and it's based on cross-compatibility," says Macdonald.
That leaves the phone companies in the position of deciding to what extent they might agree to those standards and roll them out.
CIBC and Rogers Communications have also agreed to work together on an e-wallet. Under that arrangement, a person's CIBC credit card information will be stored on the SIM card of a Rogers phone that is NFC-enabled.
"We're going to start to see more of that," says Macdonald. "And again, it's going to take off when the standards are set and everyone agrees to them."
Derek Colfer, Visa Canada's business leader for global mobile product innovation, says it's a bit too early to call what companies are developing e-wallets or mobile wallets.
Doing that "infers everything in your physical wallet will also exist within that secure application on your mobile device," he says.
"I think that's going to happen over time, but today what we're looking to do is work out payment."
And Visa and others are working hard in that direction.
Ann-Marie McIntosh, head of strategic solutions and partnerships for Visa Canada, says the company likens its effort, V.me, to a container, similar to a leather wallet today, only in the digital world.
That digital container space would house information, including what is currently on credit cards (not just Visa), and work when a consumer makes a payment from any digital platform, whether it's from a computer while sitting at home, from a tablet while waiting for flight at the airport or a smartphone while buying gas or a hamburger.
"It really is talking about convenience for the consumer, and then security," she says.
McIntosh acknowledges that the mobile payment world is like a Wild West in some aspects right now, but says Visa's "fundamental roots" and experience offering secure transactions stand it in good stead.
"We’ve been a technology company for 50 years. There's a misperception out there that we issue cards and we do a lot of things that we don't really do, but Visa is a technology company.
"Certainly the feedback we've heard from the market is they're looking for us to bring the same standards we've brought to chip and pin, to debit, just general secure credit card transactions and bringing this into the new landscape."
Security has been front and centre in development of V.me, which has already launched in the U.S. and has a Canadian introduction pending.
"One of the reasons why we’re taking our time to get this out to market is that we're actually fundamentally ensuring that the security is everything a consumer expects it to be," says McIntosh.
While security is a major consumer concern, Queen's University's Pliniussen says the technology already exists to make smartphones as secure as PayPal or online banking.
"It's just people fear it because it's still an unknown commodity."
When the banks start getting involved, "then you know we've arrived," adds Pliniussen, who expects the mobile payment world will have evolved to the point credit cards will be obsolete by 2020.
Of course, anyone who successfully creates an e-wallet that takes off with consumers is getting more than their business. They will also have all the data that reveals how people spend their money.
"Successful mobile wallets will deliver innovative products and services that are customized for individual users. Understanding the data generated by transactions is one way that the wallet providers can create that customized experience and differentiate themselves," says Macdonald.
But that also holds the potential to cause concern for consumers worried about their privacy, and is something wallet providers will have to take into consideration.
"Successful wallet providers will demonstrate that they are capable of managing payments information appropriately, which includes asking for explicit consent and safeguarding personal information," Macdonald says.
"Those wallet providers who fail to respect their customers’ privacy will see their customers move to competitors that do respect stakeholder needs."
Deloitte expects mobile payments from smartphones will go mainstream in 2014.
That's not to say it will be the only way people pay, but the die seems cast.
"Just like debit and credit cards have taken over the vast majority of transactions in Canada, we expect that within a few years a large portion of those transactions are going to shift onto mobile, but it's going to be a while before people stop carrying plastic in their wallet."