Canadians are changing the way they pay for retail transactions. Cash use is on the decline; the Bank of Canada estimates that less than half of all purchases are made in cash. Cheques are not dead yet, but are on the way out. And soon, many will choose to leave their wallets at home altogether.
The highest growth is in credit card use, which accounts for 31% of transactions. Next up is a wave of technological advances that will have consumers using everything from cell phones, smart watches, and even their retinas to pay for goods at the checkout.
The way we pay for everyday items has evolved quickly. In just a few short years, we went from simply swiping our cards and signing, to using chip-and-pin technology, and now the more common “tap” or “wave” contactless cards. Canadian banks and retailers are bracing themselves for the next technological shift: mobile payments.
While the number of consumers who pay for goods and services with their phones is relatively small at just 7%, the launch of Apple Pay in the fall is expected to begin a tipping point for mobile payment technology. And tech companies, such as Google, PayPal and Facebook, all want in on the action.
That has Canada’s big banks worried because their payment and credit card business is highly profitable and has been largely unchallenged, until now. These technology disrupters have the ability to do to the banking industry what Netflix and Uber have done to the cable and taxicab industries.
Despite the slow adoption of mobile payments in Canada, Dr. John-Kurt Pliniussen, an eMarketing expert at Queen’s University, says the mobile payment revolution will make credit cards obsolete, even though banks and credit card companies will remain part of the payment execution mix.
“It’s fait accompli,” he said, meaning the banks have no option but to adapt.
What’s at stake for Canada’s banks? It’s not all about money—Apple Pay takes a tiny 0.15% cut of each transaction—although that will be a key driver. These technology intermediaries also intercept valuable data about the consumer transaction, preventing banks from gaining insight into its customers spending habits. Without that knowledge, there’s less opportunity for banks to cross-sell products and services to their customers.
For consumers and retailers, that also means more secure transactions and less chance of the wide spread credit card fraud that plagued stores like Home Depot last year.
“The death blow would be if Apple decides it wants to open its own bank and cut the credit card companies out altogether,” said Pliniussen.
While the challenge seems daunting, it’s a mistake to bet against the banks and credit card companies like Visa and MasterCard. CIBC launched a mobile digital wallet in 2012 and more recently partnered with Facebook to allow its clients to transfer money on the world’s largest social network. RBC is testing a wristband that uses the owner’s unique heartbeat as a security check when making purchases with a debit or credit card. And most major banks have or are launching mobile payment platforms.
MasterCard is launching a pilot program this fall that will have customers snapping a photo of themselves to approve purchases. The new program uses fingerprints or facial scans to confirm the owners’ identity and securely complete transactions.
With technological innovation ramping up at high speeds in the payment space, the concern for consumers and retailers alike is that there becomes one standard platform that can work for everyone. Retailers simply won’t be able to keep up with a plethora of possibilities based on what type of device consumers carry, where they bank, which mobile carrier they use, and what kind of digital wallet app they prefer.
One thing is clear: the stage is set for a revolution in the way we pay for purchases in Canada.