Paying With Cell Phones

By Gerald Trites, FCA

Means of payment for goods and services have been changing drastically in recent years, moving away from cash. In Canada, debit cards have been particularly popular, although credit cards still retain significant allure. For online payments, credit cards remain the most significant payment means for purchases (accounting for 90% of all online transactions), although for bill payments, online banking has become the norm.

Numerous attempts have been made in the past to create cash-like means of payment for online purchases, ranging from e-cash to e-cheques to Mondex cards. E-cash was a system that was being tested a decade ago, but failed because of a lack of interest among banks, whose support was needed to make the system viable. Mondex cards, a version of smart cards that could be loaded with cash and then used like a credit or debit card gained more traction in Europe, but never took off in North America, despite the support of some of the major banks and several pilot programs. They were intended for both online and offline transactions.

Tap and go cards, using Near-field communications (NFC) and other devices using RFID, such as American Express’ ExpressPay, MasterCard’s PayPass and Visa’s payWave have been used for offline payments for some time, with various degrees of success. It’s fair to say that none of them have achieved massive acceptance.

Recently, much attention has been given to the use of cell phones for payments. With the advent of smart phones, this is much more feasible than it once was because smartphones facilitate the addition of apps that can be used to process transactions. Cell phone payment systems have been widely used in Europe and Asia for several years.

In this vein, Google offers Google Wallet, a payment system for cell phones that enables the purchaser to tap their phone on a screen and immediately have the charge made to a designated credit card. Google has recently signed up all the major credit card companies for this service. Others are experimenting with this technology, including Mastercard, Visa, Paypal and some of the cell carriers.

Google has also announced that they are taking the basic application for storing the credit card data to the cloud, i.e. storing it on the internet rather than on the phone itself. That way, if the phone is lost or stolen, its purchasing power can be easily shut down. Security has been a major concern of users, or potential users, with regard to such systems.

Whether this new payment system catches on depends on a number of factors, not least of which is the quality and attractiveness of the apps developed to implement it. North Americans have been slow to adopt high-tech payment solutions. Maybe the idea of tapping cell phones will change all that. Or maybe not.