The use of mobile units like smartphones and tablets has skyrocketed in recent years. So has interest in their use for making payments at the cash register. They already can be used for making payments over the internet, and they are. But the idea of making payments with them directly at a store by interacting with the cash register has had a lot of discussion and a lot of intuitive appeal.
Canada is already a leader in the use of contactless technology for credit cards, which involves having a chip in the card which can be activated with a quick touch or even an “air-kiss”. But Canada does not lead in the use of smartphones for payments. So far, the leaders are in Kenya and Japan, with various other countries on the rise.
The most discussed technology for mobile unit payments involves the use of NFC (Near Field Communications), which is a means of transmitting short range messages between devices. There are other means, notably Bluetooth, but Bluetooth raises a host of security problems. And of course, security is critical.
There are various players in the development of mobile payment systems, including the banks, phone service providers and the phone manufacturers. It’s important to note that no payment system has ever succeeded in Canada without the support of the banks. What about Paypal, you say? Well Paypal has primarily been a means of using credit cards for payments on the internet, particularly where the seller can’t afford to put in a customized payment system. They have, however, introduced Paypal Mobile, which allows transfers between Paypal accounts just by touching two phones. This may be a popular application and shouldn’t be discounted.
But in addition to the banks, the active cooperation of the Service Providers is needed. Rogers has tried to bridge this need by becoming a bank itself, but the jury is out on whether that will work. Some banks have been trying to form alliances with the service providers, like Rogers, Telus and Bell.
The problem is that Canadians are used to a very stable and secure banking system and don’t trust their money moving outside the banking system. So the banks will remain an important ingredient.
This leads to the second major problem – the lack of standards. Whenever a technology is adopted, there is a need for standards so that the transmissions are understandable across platforms and systems. Without standards, payments cannot be easily sent between the parties to the payments. With all other payment systems, there are standards in place.
In May, 2012, the Canadian Financial Industry released a set of preliminary mobile standards in the form of the Mobile Payments Reference Model. This model, supported by all the Canadian banks and the Canadian Bankers Association, sets out guidelines for the development of mobile payment systems using NFC technology. The guidelines are voluntary, but were accepted by all the banks and are therefore a great start for a formal set of standards. The Model also includes several guidelines on security as well.
Mobile payments has other obstacles to overcome, a major one in Canada being the success of the alternative, more traditional, means of payment.
Canada is one of the largest users in the world of debit cards. They are convenient, secure (backed by the banks), very familiar, easy to use and understand and can be used around the world. These are all important attributes. Besides security and bank backing, the simple idea of convenience is critical. A payment system using mobile phones needs to be at least as convenient as debit cards. That’s a serious challenge to meet.
There seems little doubt that mobile payment systems using smartphones will succeed in Canada. But efforts have been disjointed so far and all the players need to get their acts together first.