As consumers grow increasingly concerned about the privacy of their credit-card transactions, Canada's two major credit card issuers, MasterCard and Visa, are introducing plastic that is specially enabled for "contactless" super-secure convenience purchases.
MasterCard's PayPass and Visa's PayWave both use radio frequency technology to securely transmit payment details wirelessly between the new cards and a merchant's point-of-sale (POS) terminal.
The consumer doesn't have to hand the card to the retailer, have it swiped or (for transactions below a certain value) even sign a receipt.
In Canada, MasterCard's PayPass is clearly in the lead, with acceptance by retailers such as Cineplex Odeon, Tim Hortons, Petro-Canada, Loblaw and, beginning later this year, McDonald's.
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| Will Giles, vice-president of acceptance, MasterCard Canada |
But the new contactless payments scene will soon move to Phase 2, with the transformation of mobile phones into secure contactless payment devices.
The technology enables a secure, speedy transaction whenever a mobile phone equipped with a radio-frequency chip is "tapped" against an enabled POS terminal. Both PayPass and PayWave now have trials in progress.
"We're working directly with around 20 companies and we're at that tipping point where it's really going to take off," says Will Giles, vice-president of acceptance at MasterCard Canada.
"For the merchants, there are a number of things that are really attractive. The No. 1 thing would be the speed of transaction. Also, it moves them away from handling cash to electronic payments. There's a cost associated with depositing cash into a bank."
In some cases, adoption of the card also results in higher purchase amounts, he adds. Most merchants do the bulk of their transactions under $50.
The PayPass card will enable MasterCard to penetrate retail categories where plastic previously was not accepted.
"An example of that might be vending," says Giles. "In the past, people may walk past because they didn't have the required change to purchase from a vending machine.
"Now they can tap their card and get their goods."
Another possibility is public transit systems. In New York, PayPass is already being used to pay fares on a number of subway routes and buses. "We're hoping to roll that out in Canada, where anybody who has a PayPass card can ride a PayPass-enabled bus without having to buy that specific transit authority's tokens," says Giles. Taxis may also be outfitted with the new POS readers.
Retailers, who traditionally have been charged a fee of up to three per cent on each credit-card transaction, will not have to pay higher fees on PayPass purchases, says Giles. "Really, PayPass is just a different interface for the same card. It will have the same pricing whether the card is used with contact or 'contactlessly.' " MasterCard and Bell Mobility are doing a four-month trial on mobile phone-enabled payments with a select group of wireless customers in the Greater Toronto Area. The PayPass payment application can be password-protected so that a lost or stolen handset cannot be used to make payments.
No additional merchant infrastructure will be needed beyond the POS readers required for the contactless cards.
"The technology with the mobile phone will work at any merchant that accepts the PayPass card," says Giles.
"It's essentially sending the same information you would have sent from the card to the reader."
PetroCanada is one of the first retailers to accept the contactless cards. It outfitted its entire network of gas stations with the new POS terminals during the period from mid-2005 to mid-2006.
"If you do anything at the pump, you're talking several million dollars (of investment)," says Ken Lytwyn, director of payment systems and relationships, of the infrastructure overhaul.
"But buying gas is not the most fun thing to do in Canada in the cold winter, and whatever we can do to shorten the time for our guests, that's a big benefit to us."
For transactions inside the store, where 50 per cent of customers opt to pay for their gasoline, the new payment system shaves eight to 12 seconds off the transaction time.
At its top outlets, PetroCanada is approaching 5,000 transactions a month using the new payment system.
"We're the only retailer of fuel that is positioned to accept the PayPass cards," says Lytwyn. "Growth in the use of the card is up 35 per cent in the first six months of this year now that every MasterCard issuer in the country is issuing PayPass cards."
PetroCanada does 800,000 transactions a day, and the PayPass component is currently less than 10 per cent of them.
But by 2011 or 2012, when most MasterCard and Visa plastic has been reissued and debit cards also have the contactless feature, the use of the new payments system should rise to as high as 25 per cent of all PetroCanada transactions, says Lytwyn.
PetroCanada has not yet decided whether to convert its own proprietary payment card to contactless technology. "We're still looking at the costs and benefits of doing that," he says.
While competitors such as Shell and Esso accept contactless cards, those are their own proprietary cards and cannot be used at other retail outlets as PayPass can. "We looked at that, and decided it would become obsolete," says Lytwyn.
The POS readers that PetroCanada has already installed for the contactless cards will do double duty once mobile phones are enabled for purchases.
"I suspect it's three to five years out before we see any critical mass on the phone side," says Lytwyn.
Spokespeople for most participating retailers declined to discuss the impact of the PayPass card at their locations or were unavailable to comment.
However, McDonald's restaurants said it now accepts the PayPass cards at less than 20 of its 1,400 outlets in Canada, having only begun its rollout in August. The company expects to have full deployment by mid- to late-2010.
Meanwhile, Visa Canada is introducing its own contactless plastic - the PayWave card.
At the same time, Visa Canada is upgrading its traditional magnetic-stripe card, introduced in the early 1980s, with a computer-chip card that provides greater security through encryption and authentication.
The chip card is being tested in a trial begun last fall in Kitchener-Waterloo, Ont.
As part of that trial, TD Bank has issued chip cards to cardholders within Kitchener-Waterloo, some of which have the contactless VISA PayWave feature. RBC has also indicated plans to issue VISA PayWave cards.
"Both products are going quite well," says Michael Bradley, head of products for VISA Canada. "Consumers' response to the additional security that chip cards provide has been shown to be something that they understand and are enthusiastically supporting. As a result, we are going to be rolling out chip cards (across Canada) over the next six months or so."
RBC and CIBC have already begun advertising chip cards. As for the PayWave cards, TD and RBC will begin rolling them out nationally in the near future, says Bradley.
The PayWave cards are being tested in Kitchener-Waterloo at fast-food outlets (such as Dairy Queen, Quiznos, A&W and Subway) as well as at convenience stores and parking lots. Visa Canada's upper limit for contactless transactions is $25 per purchase, versus $50 for MasterCard's PayPass.
"The limits are an inherent part of the balancing that a consumer would have about how much they want to spend without doing a PIN swipe on the transaction," says Bradley. "The research we've done so far suggests starting at a smaller dollar-value level, where consumers are more comfortable."
He rejects the idea that contactless cards' orientation toward small purchases will cause inconvenience for some merchants.
"We haven't heard anything along those lines," says Bradley. "If the consumer starts breaking up transactions into several smaller transactions, it will very quickly lose its appeal in terms of speed and ease of use.
"This is a product that is designed for when the lineup is 10 people deep behind you - that you can just wave the card against the device and authorize your purchase and walk away quickly."
Visa Canada is also looking ahead to cellphone-enabled payments.
"Our research shows us that consumers want to be able to use their Visa cards on their cellphones," says Bradley.
A market trial is in progress with RBC in an undisclosed Ontario city. The trial has a $25 upper limit per transaction, but Visa has made no final decision on how high the cap will be set once the rollout begins.
The telecom carrier has not been disclosed.
(Sheldon Gordon can be reached at gordon@businessedge.ca)
