How the smartphone is changing how you pay for stuff
Square, Interac, Rogers among players looking for traction in fast-moving market
Calgary food truck owner Cosmo Spina used to watch potential customers walk away hungry because he couldn't accept their credit cards and they didn't have any cash.
"I found that as I got busier and got to more places and more people, a lot of people just don't carry cash anymore, not even $10," Spina said in an interview outside the Husky building.
Now, after adopting e-payment technology from one of the many players jockeying for position in this new market, both Spina and the customers who want to use credit cards at his Italian pasta truck are much happier.
Late last year, Spina signed up for Square, the tiny credit card reader that attaches to a smartphone and was the brainchild of Twitter co-founder Jack Dorsey and his vision of making commerce "easy for everyone."
Square joins other companies like Interac and Rogers, all trying to eke out a position in the highly competitive — but still nascent — mobile payment marketplace.
Interac recently announced the first NFC (near-field communication) debit transaction via a smartphone in Canada, and hopes to roll out the service for consumers later this year.
Rogers says it is expanding its "suretap" service for mobile payment to more smartphones.
"To continue driving adoption and growth of mobile payments in Canada, it is essential that a strong ecosystem is established to include multiple devices, operating systems and payment networks," Jeppe Dorff, Rogers' vice-president of transaction services, said in a recent release.
For a small merchant such as Spina, however, just gaining access to the mobile pay world was a huge step.
Spina estimates that one in every five of his customers looking for his gnocchi bolognese or bacon carbonara pays by a credit card run through his iPhone — a marked change from the days when perhaps one in 10 potential customers left empty-handed because he wasn't accepting plastic.
Spina is the kind of merchant Dorsey and his Square co-founder Jim McKelvey were hoping would sign up after the card reader arrived in Canada — its first stop outside the U.S. — five months ago.
Square isn't releasing specific data on the uptake in Canada, but Dorsey says "it's been amazing to watch" how adoption of the reader and its accompanying Square Register app have taken off.
"We had pretty high expectations for growth in the market but they've exceeded those expectations."
Square says it is processing more than $12 billion in payments annually in Canada and the U.S., and that the Canadian uptake is double what it had predicted. The average Canadian transaction size is larger ($120) than in the U.S. ($70), where Square launched in October 2010.
"In the U.S., we saw a very different set of initial merchants. We saw a lot of cafés and coffee stores and much lower transaction size," says Dorsey.
In Canada, more independent services such as language schools or accountants have adopted Square, which takes a flat fee of 2.75 per cent per transaction.
Square's adoption also ran into an unexpected factor, but one that plays into so much of Canadian life: the weather.
"It tends to be colder up there," Dorsey said in an interview from California.
"In the United States, we saw a lot of food trucks and food carts signing up immediately, but when we launched in Canada, we launched in a cold time so we didn't see a lot of that type of merchant. But we expect that to change as we go into spring and summer, and go into all the festivals that places like Montreal have for instance."
As much as Square has opened up retail potential for merchants such as Spina, it has limitations — no debit capability, no chip-and-pin technology, no capability on BlackBerry smartphones — which reflect how tricky and fragmented the Canadian mobile payment system is.
Dorsey acknowledges the limitations, but says Square had to start somewhere and isn't standing pat.
"The simplest way to start is to start with magnetic strips and the card the majority of the world has, so that's where we started," he said.
"We think we've done a great thing in making commerce easy for people, and easy to start and easy to run and easy to grow your business, but we think we can do a lot more and we continue to evolve and build."
Interac also wants to evolve and sees its recent announcement as an important step, says Avinash Chidambaram, the company's director of mobile programs.
A partnership involving McDonald's Restaurants, RBC Royal Bank, Moneris Solutions and BlackBerry will give some customers the chance to buy smaller-value items such as Big Macs and McMuffins by debit with the wave of a smartphone at an Interac Flash terminal.
"Generally, younger people like to use debit," says Chidambaram, who notes that 56 per cent of all point-of-sale transactions through Interac's network are debit.
Unlike Square, Interac's technology is built around chip-and-pin, something Chidambaram says has been responsible for a reduction in card fraud.
"We've been very careful in developing this technology and ensuring we're leveraging a lot of the security features and capabilities that we've already put into our network and our products."
Still, for any mobile payment system to take off, it has to resonate with someone who wants to use a smartphone for a transaction.
And for that to happen, says Doug Macdonald, a senior manager at consulting firm Deloitte in Toronto, it has to be as easy as using a plastic card, and give a person more benefits.
Make it easy to use
If the new system is "too hard to unlock it," says Macdonald, "if it doesn't work, if the battery is dead, then it's not going to replace your physical wallet."
For all the action taking place in the mobile payment market, however, widespread adoption and usage of phones for payment is still sometime down the road.
"We're still very much in the early days," says Macdonald. "The first generation of NFC wallets that's coming out right now are very much just replicating what a physical card does, and then linking it into the mobile banking experience of that particular bank.
"The path to one wallet, one application on your phone that holds all of your receipts and keeps track of your spending and helps you make payment from whatever card you want, is still going to be a couple of iterations away."
Macdonald says there is pent-up demand in Canada for a service such as Square and similar products, such as Moneris's PAYD.
"I think this trend towards using consumer devices to accept payments has the potential to really shake up both the payments industry and the way that consumers pay."
What about the cash register?
The fact that Square doesn't process chip cards is something it will have to solve in the Canadian market, Macdonald says.
In Europe, similar card readers that plug into smartphones have been replaced by a small pin reader that connects to a phone via Bluetooth.
"You'll start to see more of that," says Macdonald, adding that there will be more changes in the way consumers pay inside stores, as well, with cash registers potentially fading away.
"You’re increasingly going to be seeing, for instance, sales people carrying tablets and phones with them and making the purchase while they help you shop."
Still, if you want to pay with cash, that is still going to be an option for the foreseeable future.
"You can still send a telegram if you really want to, too," says Macdonald.