Doug MacDonald has a warning about mobile commerce for Canada’s small and medium sized businesses: don’t believe the hype.
There’s so much information coming out each week about new mobilepayment, banking and e-commerce services that SMBs can be forgiven forbeing confused or losing track of it all, says MacDonald, a seniormanager in Deloitte Consulting’s Toronto-based consulting practice.
“It’s a lot like the dotcom bubble of the early 2000s. There’s a lot ofhype and clutter flying around. But there’s a fundamental shift takingplace,” MacDonald says.
That shift is the push by IT companies, wireless service providers,smartphone makers, banks, credit card firms and retailers to drivecommerce from the bricks-and-mortar age to the e-commerce era to themobile commerce revolution. But just like the hype during the earlydays of the Internet, not all of what’s being announced will actuallycome to fruition, MacDonald says. Exacerbating that is the fact thatCanada’s mobile commerce landscape is very undeveloped compared toother nations.
“Although Canada is an established leader in payments technology, weare relatively immature when it comes to mobile payments,” states arecent Deloitte report titled TheFuture of Mobile Payments in Canada.
“It’s early days. There’s not that much available on the market (inCanada),” adds Christie Christelis, president of Technology StrategiesInternational in Oakville, Ont.
That being said, to help SMBs choose the best mobile commerce optionfor them, here’s a snapshot of what’s out there right now, what’s stillto come, and which option might be adopted by Canadian SMBs first basedon variables like cost, ease of integration and security.
What’s out there now
There are two major mobile commerce technology streams today: NFC (nearfield communication) uses a chip (usually in smartphones but also foundin stickers that can be applied to the outside of phones or cards)allowing you to make a purchase by tapping it against an NFC-enabledpoint-of-sale (POS) terminal.
The other type, non-NFC mobile commerce, usually involves a retailerdeveloping its own card and customized POS terminals. Starbucks, forexample, has an iPhone app that allows a bar code to show up on thephone, which can then be scanned by the POS terminal to pay for coffeeor other products. It can also be used to track activity and balanceson Starbucks gift cards. PayPal is just introducing anothernon-NFCoption to Canada this year. It allows consumers to authenticate theirPayPal accounts by swiping a PayPal card, or entering in their linkedmobile phone number and PIN on the POS key pad.
Other non-NFC services being introduced in Canada include one byVancouver’s Payfirma, which offers smallmerchants a combination oftraditional point-of-sales terminals, e-commerce tools, and asmartphone dongle used to swipe credit cards. It competes in Canadaagainst the e-Select plus mobile app from Monteris and the GoPaymentMobile product from Intuit. In the U.S., Square Inc. has asmartphoneattachment that allows merchants to process credit card transactions.
In Canada the only mobile commerce options being widely used are theaforementioned non-NFC type used by retailers like Starbucks, or theNFC-enabled PayPass service offered byMasterCard at retailers such asMcDonald’s and Canadian Tire. The latter allows consumers to tap theirNFC-enabled smartphone, fob, sticker or card to a PayPass NFC POSterminal to make payments. Overall though, mobile commerce of thetap-your-NFC-phone-and-go variety isn’t really being used in a big wayhere yet.
“It’s very limited,” Christelis says. “There are some (PayPass) Walletapplications but they’re usually developed by MasterCard and they’renot really widespread yet. It exists but it’s not really (widespread)commercial deployment.”
Why Canada’s behind There are a few reasons Canada’s mobile commerce sector is so farbehind countries like Japan. One is that the refresh rate for buyingnew mobile phones in Canada has been lower than in some other nations(a comScore study found that Canada has the oldest handset ownershiprate in the world with 20 per cent of us holding onto our phones forthree years or more),so we’ve adopted NFC smartphones later than in other regions. Anotheristhat NFC chips and phones are only one part of the equation. The otherpart is a mobile commerce infrastructure that allows NFC to tap intosensitive financial data securely.
“You need some kind of payment credential that’s attached to it andthat’s where the bottleneck is,” Christelis says. “Different paymentcredential issuers have to figure out ways for the Canadian market toget the credentials into the secure element.”
In Canada, banks are the key issuers of these credentials, Christelissays. The other necessary ingredient is a “trusted service manager”(ie, wireless carrier) to manage the communication part of thosecredentials during transactions. Bell, Telus and Rogers formed theEnstream joint venture in 2005 todevelop a secure mobile commercenetwork but so far its only foray into NFC was a 2010 trial run of itsZoompass NFC stickers that can be adhered to phones.
In Japan, a dominant mobile network operator teamed up early to developa standardized NFC chip for use in the country, made deals with banksand credit card firms, and hammered out revenue sharing standards forall parties involved. As a result, NFC commerce was rolled out quitequickly in Japan, according to the Deloitte Canada report. Cooperativeefforts marrying both the carrier and secure credential parts togetherare just gaining steam here in Canada with the recent announcement thatRogers and Canadian Imperial Bank of Commercewill roll out a mobilewallet system.
What’s still to come
Speaking of mobile wallets, they’re seen as the ultimate frontier formobile commerce in the future. Google Wallet will be a competitor whenCIBC and Rogers launch their own version.
“The holy grail is the mobile wallet. That’s about collecting the dataand what you do with it,” says Jonathan Magder, manager at DeloitteConsulting in Toronto.
“It’s everything you carry around in a wallet,” adds MacDonald. “It’sI.D., multiple payment methods, receipts, coupons. The difference is ifyou lose your wallet it’s gone but an electronic one is kept encryptedand secure.”
That brings us to security. Like any technology,mobile payment systemsare not foolproof.
“The NFC portion of the transaction is extremely secure,” MacDonaldsays. “That encryption has not been broken…But if someone picks up anunlocked phone or hacks into your phone and puts malware onto it,that’s what the industry is still working through.”
Christelis says it’s too early in the game to tally up all thepotential costs involved for SMBs looking to deploy mobile commercetechnologies. MacDonald, however, is willing to venture that CanadianSMBs may embrace NFC faster than non-NFC systems because the latterrequire hardware and app development that could prove too costly forsmaller businesses to innovate or acquire.
“Starbucks had to change their computer systems to read a barcode onthe phones and then develop an app that uses the cellphone to updatethings. But they controlled both ends of that (non-NFC) system so theydid it faster because they didn’t have to rely on anyone else,”MacDonald says, referring to the fact that Starbucks built its ownsystem rather than waiting for a bank and a carrier to partner with.
“But if you’re an SMB you don’t have that kind of money or time soyou’re pretty much going to have to go with the NFC as your first run,”he concludes.
Then again, there are drawbacks to NFC for smaller businesses too.
“NFC relies on existing technologies that are rolled out,” MacDonaldpoints out. “The disadvantage is you’re at the mercy of the banks.(Still,) the cost of developing (the service) goes onto the banks andthe (carriers) to develop the technology.”