Will B.C. Embrace Mobile Payments?

Community Pizzeria | BCBusiness
About half of Michael Paul’s mobile pizzeria customers pay by signing an electronic bill with the swipe of a finger.

The technology for a wallet-free existence is here. But how ready are British Columbians to fully embrace paying with their smartphones?

It’s lunchtime on a sunny Friday on 8th Avenue in Vancouver and the crowd of hungry office workers waiting for Neapolitan pizza from the Community Pizzeria food truck is getting long. The truck’s custom, 850-degree-Farenheit wood-fired oven has limited capacity, which slows things down. But that’s the pickup line—the order line is taking no time at all. When a new order is placed, owner Michael Paul taps the total into a mobile device, and hands the device over to the customer, who swipes a credit card through a magnetic stripe reader connected to the device’s headphone jack, and signs with her finger. If she wants a receipt, she enters her email address, but even with that additional step, it takes about 20 seconds. Paul says about half of his customers pay this way.

With 88 per cent of British Columbians now owning a smartphone, according to a recent Insights West survey, the proliferation of Internet-connected mobile devices has already changed the way most British Columbians communicate. Now the same technology is transforming how we pay and get paid for goods and services. In the MasterCard Mobile Payment Readiness Index, which ranks 34 national markets in order of readiness for mobile payment adoption (including mobile point-of-sale, peer-to-peer payments and mobile wallets), Canada places second, behind only Singapore. Leading the way are businesses like Michael Paul’s, which are rapidly adopting mobile point-of-sale (POS) technology.

In the past, to accept credit cards, businesses needed expensive specialized hardware and software, as well as a wired phone line. Mobile devices eliminate the need for a wired connection and dramatically reduce the cost of both the hardware and software. Square, a hot California-based startup, is the service that Community Pizzeria uses. Founded by Twitter creator Jack Dorsey, Square is favoured by small businesses for its low start-up costs (both the app and the stamp-sized card reader that plugs into the device’s headphone jack are free) and simple pricing (2.75 per cent per transaction), with no minimums or additional fees. It’s on track to process US$30 billion in payments this year. Vancouver-based competitor Payfirma uses similar technology, but offers lower per-transaction rates (1.99 per cent, plus 25 cents per transaction) with a $10 monthly fee for smartphone systems. Mobile businesses such as Nurse Next Door and 1-800-Got-Junk that process payments larger than the cost of lunch are Payfirma’s bread and butter.

In the past two years, tens of thousands of British Columbians used a credit card with a mobile POS system for the first time, and for many of them it was their first transaction completed using a smartphone. Mobile POS systems are rapidly being adopted because they solve a series of obvious problems. For retailers, the technology enables salespeople to easily and cheaply accept credit cards anywhere, which means never losing another sale because the customer doesn’t have cash. For consumers, it means never going hungry because your local mobile pizza purveyor doesn’t take plastic.

Another reason mobile POS is leading the trend toward smartphone-based transactions is that many consumers are already conditioned to pay with their credit cards in all sorts of ways. Whether we use a MasterCard with a traditional pin pad, tap it on a PayPass-enabled gas pump or swipe it in a Payfirma reader, we trust that MasterCard will cover any fraudulent charges. But when it’s up to us to adopt a new payment technology, not the merchant, we’re worried that we’ll inadvertently make ourselves vulnerable. Paul says he almost never loses a sale because a customer doesn’t trust his Square system. In his current East Vancouver location, he hasn’t noticed much hesitation at all. “People actually think it’s fun to sign with their finger,” he says. But as with everything in the food truck business, location matters. “It depends on the area,” he explains. “We did all last summer in West Vancouver, and some of the older people didn’t really like it. They just say, ‘I’m going to go get cash.’”

[pagebreak] Survey data confirms Paul’s observation that older people are less comfortable with mobile POS systems, but not by a very wide margin. Insights West reports that 79 per cent of British Columbians over the age of 55 say that they are concerned about the security of financial transactions processed using a card reader connected to a retailer’s smartphone. Among those under 35 years old, 73 per cent said they were concerned. Payfirma CEO Michael Gokturk believes that trust comes with time: “Ten or 15 years ago, people were very apprehensive about using their credit cards on the Internet, and now it has become commonplace.” While 55 per cent of British Columbians are still concerned about using their credit cards online on a laptop or desktop computer, 70 per cent are concerned about the same transaction with the same website when made on a smartphone. “The mobile device is still somewhat a black box in terms of security features and who can actually hack it,” Gokturk says.

Following closely behind technologies enabling retailers to accept payments using their mobile devices are those that will soon let consumers leave their plastic cards at home: smartphone apps that store information from credit cards, loyalty cards and ultimately everything else in their physical wallets. For many Canadians, prepaid loyalty cards have been an introduction to the idea. On a recent conference call with analysts, Starbucks CEO Howard Schultz revealed that payments made using the Starbucks card mobile app now account for 14 per cent of the coffee giant’s take in the U.S. and Canada. If you’re more of a Tim Hortons type, you’re in luck—Canada’s top caffeine supplier launched its own TimmyMe app in May. In B.C., according to Insights West, two-thirds of those aged 18 to 34 have made a purchase with their smartphone in the past three months, and coffee shop apps were the most common payment method.

Paying for parking is another transaction that British Columbians have started using an app for in large numbers. What the early leaders in mobile payments have in common is that they’re predominantly small-transactions merchants, where an app can easily replace petty cash.

Canadians can already replace the prepaid loyalty cards in our physical wallets, like Starbucks’s, with apps in our digital wallets—and many have. What’s next is to replace our physical credit cards, a far more complex transition. In the U.S., Google’s solution, called Google Wallet, has been in the market since 2011, but with limited success. A joint venture between AT&T, T-Mobile and Verizon called Isis is also competing in the U.S. digital wallet space, along with an offering from PayPal. All three let consumers store credit card information and make in-person payments using the app, but none have yet achieved the combination of consumer and merchant buy-in needed to change behaviour on a mass scale.

In Canada, two new entrants into the digital wallet market are now competing to be the first to achieve widespread adoption. Ugo, by PC Financial and TD, will allow customers to load TD Visa, President’s Choice Financial MasterCard and PC Plus cards into the wallet app. The suretap wallet by Rogers launched with a prepaid MasterCard virtual credit card, but is expanding to accept more cards. Each has its own limitations, but there’s one big limitation both share: near field communication (NFC). Tap-to-pay terminals, which read payment information based on proximity from cards with embedded NFC chips, are nearly ubiquitous in Canada—that’s how many of us in B.C. pay for gas, for instance. Some Android and BlackBerry phones have the same chips, and therefore could be used for payment with the existing terminals. Conspicuously absent from the list of compatible devices is Apple’s iPhone, still Canada’s most popular smartphone.

The MasterCard Index uses six criteria to evaluate a market’s readiness for mobile payments: mobile commerce clusters, environment, infrastructure, consumer readiness, financial services and regulation. Mobile commerce clusters, the measure of successful partnerships among banks, mobile networks and governments, is a comparative strength for Canada, as are regulation and financial services. The category in which we’re weakest is consumer readiness, which “determines consumers’ knowledge of, comfort with and experience using person-to-person, point-of-sale and mobile-commerce payments.” Canada is technologically ready for mobile payments, but Canadians, it seems, aren’t. At least not yet. In B.C., 81 per cent of us say we are concerned about the security of transactions using a smartphone app with an authorized connection to a credit card.

Gokturk doesn’t think we’re technophobes; he thinks we’re just waiting for devices and services that give us a big enough incentive to outweigh our hesitation. “Canadians are actually very technology-forward,” he says, “and we embrace new technology as long as it shows value.” Mobile POS systems are starting to show that value: apart from some of the older denizens of West Vancouver, most British Columbians think there’s value in the convenience of paying for our lunch with a credit card, rather than searching for an ATM and paying a hefty withdrawal fee to get cash. Those of us who use the Starbucks mobile app to pay for coffee get value out of the free drinks and food we can earn through the integrated My Starbucks Rewards program. Now, Rogers, TD and PC Financial are hoping that those of us with NFC-enabled smartphones will see value in leaving our wallets at home altogether.

The technology is available to make 2014 the year British Columbians adopt mobile payments en masse. The remaining question is, How long will it be before it shows enough value for us to overcome our fears?