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Personal Finance

The mobile-payments revolution

Increasingly, smartphones will replace paying with plastic.

Gail Bebee 15 May, 2015 | 5:00PM
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Charge cards ushered in a world of paying with plastic. Debit cards have accelerated the move to purchasing goods and services using plastic instead of cash. In the near future, those plastic payment cards in your wallet are likely to disappear. The latest trend is to pay for things using a mobile device, be it a smartphone, tablet or watch.

Amazon, the mammoth American online retailer, has developed a Canadian mobile-shopping app for iPhone, iPad, Android and Windows Phone that replicates its online experience in the mobile environment.

A customer with a registered Starbucks loyalty card can pay using his smartphone at the company's Canadian, U.S. and UK stores. Once the Starbucks mobile app (available for iPhone or Android) has been installed, paying is a matter of tapping the app's Pay button and holding the phone near the store's scanner which reads an app-generated QR code.

Most merchants do not have the resources to develop their own mobile-payment systems and are turning to third-party payment specialists for this capability. There are numerous competitors vying for their business.

PayPal, a pioneer in online payments, has established its brand in the world of mobile payments. The PayPal Mobile app provides the company's well-known online-payment and money-transfer functionality for Android, iPhone and Windows smartphones. As is typical for digital commerce, online or mobile, a customer first opens an account and registers her method(s) of payment, usually a credit or debit card, and sets up a PIN. Then, transferring money or making purchases at one of the millions of online merchants that use PayPal is a matter of logging on to the account.

The PayPal app also allows users to pay in-store at a relatively short list of merchants. A customer must have an account and a profile photo. To make a purchase, she opens the account, picks the store from a list in the app, and checks in by sliding an icon across the phone screen.

Many of the new mobile-payment solutions are based on Near Field Communications (NFC) technology. With an NFC-equipped smartphone, a consumer can pay by holding the phone near a merchant's NFC-enabled point-of-sale terminal. The phone transmits the user's payment information to the merchant by radio frequency.

Google launched Google Wallet, a digital payment service, in 2011. The Google Wallet app allows users to store and use their credit, debit, gift and loyalty cards and offers; send money to anyone with a U.S. Gmail address or a Wallet account; and shop online at participating merchants. Android and iPhone versions are available. Users who own certain models of NFC-enabled Android devices can also pay in-store anywhere MasterCard PayPass is accepted by tapping their phone on an NFC-enabled point-of-sale terminal and entering their Wallet PIN.

Apple's contactless payment service, Apple Pay, was first released in October 2014. Only the iPhone 6 or higher has the necessary NFC antenna to take advantage of this service. Users must first set up an account via Apple's Passbook app and add their payment source, either a credit or debit card. To pay in-store at participating retailers, the customer holds the phone near the store's contactless terminal with a finger on the phone's Touch ID. Apple Pay also works with the Apple Watch. Some merchants have added the Apply Pay option to their own shopping app.

Neither Google Wallet nor Apple Pay is available in Canada, and no release dates have been announced. The rumour mill is suggesting that Apple Pay will launch in Canada later this year.

In March, at the Mobile World Congress, Google revealed that it is developing Android Pay, a tool that other businesses can use to build Android-based payment systems. At the same conference, Samsung announced plans for the summer 2015 launch of Samsung Pay, a proprietary mobile payment service that will work with its Galaxy S6 phones.

Clearly, the mobile payments business is growing rapidly. Several Canadian banks are participating in its development, in part driven by the threat of new players muscling in on their transaction-processing business.

Last year, RBC launched RBC Wallet, an NFC mobile-payment service for small purchases which is powered by the bank's own technology, RBC Secure Cloud. To use this service, a customer must have:

  • An eligible RBC credit or debit card;
  • An NFC-capable smartphone with a data plan on the Bell Mobility or Virgin Mobile network;
  • An NFC SIM card installed in the phone;
  • The latest version of the RBC Mobile app (available for Android and BlackBerry).

To pay, a customer launches the RBC Mobile app, opens the RBC Wallet, selects the payment card, enters a pass code and holds the phone near the merchant's point-of-sale terminal. The Wallet can be used to pay anywhere that VISA payWave, MasterCard PayPass or Interac Flash is accepted.

The Scotiabank Mobile Banking app includes My Mobile Wallet, an NFC-based function. The Wallet allows customers to use their smartphones to pay for purchases of up to $100 at VISA payWave point-of-sale terminals. The app is compatible with certain Android and BlackBerry smartphone models on the Rogers Communications network.

TD Mobile Payment, which is embedded in the TD mobile-banking app, also uses NFC technology and works with certain Android and BlackBerry smart devices from Bell, Virgin, Rogers, SaskTel and Telus. It can be used at merchants with VISA payWave terminals for purchases of under $100.

Other financial institutions with mobile payment apps include CIBC and Desjardins. PC Financial has partnered with UGO Wallet to provide mobile payment and loyalty-card management for its customers.

It's still early days in the mobile-payment revolution. The technology is evolving quickly. Some apps do not work reliably. Not all smartphone models can be used for mobile payments. Some payment systems are not widely accepted. Store staff may not know how to process mobile payments. There are questions about the security of mobile transactions. These are all probably just bumps on the road to a world where a smartphone, not plastic, is the standard way to pay.

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About Author

Gail Bebee

Gail Bebee  Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

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