Until the corner variety store in your neighbourhood installs a near field communication (NFC)-enabled payment terminal and your aunt feels comfortable paying for milk with her smartphone, it will take some time for mobile payment systems to catch on in Canada.
In fact, it may take four to five years more for technologies such as mobile wallets being used in Europe and Asia for the last half decade to enjoy mainstream adoption here, according to a recent report released by Oakville, Ont.-based analyst firm Technology Strategy International (TSI).
The firm’s Canadian Payment Forecast 2012 is a compilation of published industry statistics and studies, supplemented by TSI’s own research and executive interviews of payment industry thought leaders and experts.
Some highlights from the study include:
- Contactless payments continued to extend their reach over the past two years, achieving a substantial penetration level in appropriate payment settings. Interac’s Flash is expected to make an impact in the next two years.
- Smartphone penetration is increasingly rapidly. By 2016 almost 80 per cent of the smartphones in Canada will be NFC-enabled. This will provide a solid foundation for the uptake of mobile contactless payments.
- The closed-loop gift card market is expected to expand rapidly, accounting for about $5 billion in redeemed value in 2016.
- Cash will remain the most frequently used form of payment in Canada over the next five years. This traditional payment method will continue to suffer substantial erosion from contactless debit and credit payments.
All hype no adoption
“We see a continuing trend that various forms of electronic payments will continue to wrest market share from traditional payment forms such as cash and cheques,” said Christie Christelis, mobile and payment industry analyst and president and CEO of TSI.
“However, despite the hype and posturing, we don’t see a whole lot happening with mobile payments in 2012,” said Christellis. “It will likely take another four to five years for the technology to enjoy mainstream adoption.”
Christelis said in recent months there have been several mobile payment announcements from key mobile service providers and large financial institutions.
For instance, late last month Rogers Communications Inc. and the Canadian Imperial Bank of Commerce (CIBC) jointly announced the launch of a NFC-based mobile wallet service. The system will put consumers’ credit card information in smartphones and enable them to pay for purchases with the device.
Earlier in January this year, PayPal Inc. partnered with Toronto-based point-of-sales (POS) AJB Software Design Inc., to roll out its own mobile wallet system.
“It’s one thing to make announcements and quite another to get merchants to offer the service and for consumers to use the technology,” Christellis pointed out. “There will have to be a substantial behavioural adjustment on both ends.”
On the consumer side, the TSI executive said, fears over the security of NFC transactions and getting around the idea of using a phone to pay for purchases need to be overcome.
Merchants need to hop on mobile payment train
Push back from merchants is primarily based on hesitance to spend money on new technology, especially when no mobile payment system has proven it will be the dominant technology adopted by consumers, according to Michael Gokturk, CEO of Payfirma Corp. Payfirma is an award-winning Vancouver-based startup that offers a service that allows merchants to accept credit card payments with a smartphone of tablet device.
“The problem in Canada is that 80 per cent of merchants are not enabled to accept NFC-based payments,” said Gokturk. “Consumers have been very slow to adopt the technology as well.”
He said many merchants had only recently spent money on updating their systems to accept “chip and PIN ” payments. Another upgrade to NFC could cost upwards of $1,000 per terminal.
He said some mainstream stores’ experience with mobile payment systems have been dismal.
A few years ago coffee shop chain Tim Hortons introduced chip-based fob and card payment based using MasterCard’s PayPass readers and chip card terminals. “But have you checked how many of those terminals are actually being used by customers or if they are turned on at all?” asked the Payfirma chief.
However, Gokturk is slightly more optimistic than Christelis. “It will take maybe another three years before we get anything close to mainstream adoption of mobile payment,” he said.
Apart from security issues, technology hurdles to mobile payment adoption centre around ease of use and flexibility, according to Gukturk. The system will function on an ever increasing number and types of mobile devices and would need to facilitate different types of payments such as debit card and credit card payments.
Gukturk recalls the failure of Google Wallet to catch on. “For one, it works only on Android phones. Then you download the app then you need to create a separate account for it. It’s just too much trouble.”
Eventually, all handsets will be NFC-enabled and this will give mobile payments a big boost, according to Christelis
Recent industry stats show that:
- Handset penetration in Canada will reach 90 per cent by 2016.
- Smartphones will comprise of 75 per cent of mobile subscribers in the next four years.
- Seventy-nine per cent of smartphones will be NFC-enabled by 2016.
“NFC is fast becoming cheap. More and more phone makers are building them into their devices,” he said.