Despite high contactless card adoption and NFC card reader rollout, mobile payments volumes are still low in Canada. Robin Arnfield reports.
Over the last year, Apple Pay, Android Pay, and Samsung Pay have launched in Canada, competing with proprietary mobile wallets from the major Canadian banks.
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“Canadian contactless card usage continues to grow at 35+% a year, and contactless comprises nearly 50% of credit and debit card payments,” says Mike Bradley, Managing Director of Canadian consultancy NorthCard
“Contactless has helped grow card penetration in key segments – quick service restaurants, convenience stores and grocery. Yet, a small proportion of these contactless payments are made through Apple Pay, bank mobile apps and Android Pay. For the vast majority of consumers, mobile payments still don’t provide compelling additional value over the card experience.”
The barriers to adoption are not lack of NFC chips on phones. According to Christie Christelis, president of Canadian consultancy Technology Strategies International, most new smartphones shipped in Canada have NFC chips on them.
“We estimate that about 40% of the active smartphones in Canada currently have NFC chips, around 10m phones,” he says. “Our forecast is that about 80% of Canadian smartphones will have NFC chips by 2021.”
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Research by Technology Strategies International found that the percentage of Canadian smartphone owners who have made in-store mobile payments at merchants other than coffee shops is just 5.1%.
“The bulk of coffee shop mobile payments in Canada are at Starbucks, whose mobile app uses QR codes,” says Christelis. “The percentage of smartphone owners who have made in-store mobile payments at coffee shops is 11.1% (including Starbucks).”
A ComScore survey for Visa Canada found that 12% of Canadian smartphone users had made an NFC payment in Q1 2017. This figure, which doesn’t include m-payments at Starbucks Canada, represents 100% growth since Visa’s previous NFC survey in Q1 2015 (6%). Visa Canada also found that 47% of Canadian smartphone owners had used their mobile device for purchases at physical stores or in-app in Q1 2017.
Visa Canada is seeing 25 PayWave transactions every second in Canada, and 44% of Visa Canada face-to-face transactions are PayWave-based,” says Derek Colfer, Visa Canada’s head of technology and digital innovation. “This goes up to 55% if you look at face-to-face transactions under C$50.”
However, Visa Canada doesn’t break its PayWave data down into contactless card and smartphone transactions.“Once we get transit into mobile wallets and you can wave your smartphone to get onto the TTC’s (Toronto Transit Commission) public transit network, that will be a great spur to mobile payments in Canada,” says Colfer.
“Nearly 80% of people in the Greater Toronto Area use the TTC transit system every day. I understand that Canadian public transit networks like the TTC and Vancouver’s TransLink are moving from closed-loop transit cards to open-loop – this means people would be able to use their open-loop contactless cards smartphones for transit.”
Colfer says Canada is more favourably positioned to adopt in-app and NFC mobile payments than other markets, as 71% of Canadian personal consumer expenditure is credit and debit card-based. “In the US, 44% of PCE spending is card-based,” he says.
Contactless versus mobile
“While NFC mobile payments are still very low in Canada, contactless card payments are growing nicely,” says Robert Smythe, an Associate with IDC Canada. “Unless you provide a clear advantage to consumers, they will use contactless cards rather than mobile for payments up to C$100.
In five years, mobile payments will be mainstream here, but a lot more has to be done to make mobile payments a seamless part of the transaction process. Transit payments need to be added to mobile devices, and loyalty needs to be integrated with the mobile payment process so consumers automatically get their loyalty points when using digital wallets.”
Christelis says his firm’s consumer surveys found that people will only adopt mobile payments if they see clear benefits such as receiving rewards or special offers on their phones.
An April 2016 survey by Canadian processor Moneris Solutions found that 67% of Canadians aged 18–34, 56% aged 35–44, 48% aged 55–64, and 49% aged 65 plus, preferred to use contactless-enabled cards.
“Based on consumer appetite for contactless payments, we expect mobile payments to see tremendous growth at the point of sale in Canada,” Moneris’ Chief Sales and Marketing Officer Jeff Guthrie says.
“Contactless payments now account for almost 40% of all transactions Moneris processes. While the majority of these transactions still happen on contactless-enabled cards, the act of tapping cards has become a familiar part of Canadian consumer culture.
“Combined with the advent of more mobile wallet options that make paying with your phone more accessible, we’ll soon see contactless users turning in their cards in favour of tapping with their phones.”
Smythe says Canadian banks aren’t heavily promoting Apple Pay to their cardholders as there is no financial incentive for them to do so. “It costs them money when their cardholders use Apple Pay,” he says.
“The banks are focusing their development and promotion funds on their proprietary wallets. Their object is to make services like Apple Pay an incidental part of their wallets, and they’ve already done this with Android Pay. They are promoting their proprietary wallets not so much for their payments aspect but for other features such as rewards or expense tracking.”
For example, RBC Royal Bank of Canada offers Siri-based voice recognition for initiating P2P payments and bill payments in its mobile app, along with the iOS- and Android-based RBC Rewards app.
Interac
Interac introduced Interac Flash contactless debit card technology seven years ago, says Oscar Roque, AVP, Mobile Product and Platform Development at the Canadian domestic debit scheme.
“Contactless cards’ growth curve in the first two years was similar to what we’re seeing today with mobile payments now,” says Roque. “But we’ll see mobile payments take off more rapidly than contactless. Over the last few years, Interac has seen 160% growth year-on-year in contactless and we’re now close to 1 billion Interac Flash transactions.”
Roque says that mobile Interac Flash adoption has been better than Interac had expected.
Mastercard Canada
“The fact that we have a great contactless infrastructure will feed adoption of mobile payments here,” says Pablo Cohan, SVP of Digital Payments & Labs at Mastercard Canada. “Apple Pay and the other Pay wallets just launched in Canada, so they are nascent compared to the years of contactless card payments and will have an adoption curve like any new technology.”
Cohan says that initial use cases for mobile wallets in Canada will include purchasing fuel at petrol stations, transit, taxis, parking, and ordering ahead at quick-service restaurants. “In the UK, contactless took off once the Tube (London Underground) started to accept contactless payments,” he says.
“Also, what’s happening with Uber and Lyft is that people are doing a lot of in-app payments for these services with their phones. As people find they can use one mobile wallet for multiple types of purchase (e.g. MasterPass, which can be used for in-app, NFC and online payments), we’ll start to see people using mobile not contactless cards. But NFC payment adoption will take time.”
Cohan claims that, by providing their cardholders with a Masterpass digital wallet, issuers can reclaim ground eroded to Apple Pay and other Pays. “Masterpass is omnichannel and helps card issuers offer greater value to their cardholders than the Pays offer,” he says.
“I think that a digital wallet which is omnichannel will gain more rapid consumer acceptance than a mobile wallet that can only be used for NFC or in-app, for example.”
RBC
“RBC has a significant history of payments innovation,” says Peter Tilton, SVP, digital, at RBC. “From our RBC Secure Cloud m-payments technology (which uses cardholder credentials in the cloud rather than credentials stored on a smartphone) to being the first Canadian bank with a mobile wallet solution, and, more recently, enabling clients to send P2P transfers and pay bills via Siri, we innovate to ensure we meet our clients’ evolving expectations.
We were the first bank to offer free email money transfers. The RBC Mobile app is the largest P2P mobile transfer app in Canada, and, in our second quarter to May 2017, RBC Mobile processed more value in P2P payments than Venmo did worldwide.”
“In our third quarter to August 2017 we achieved a significant milestone. Mobile sessions have now surpassed those on our online banking platform with active mobile users up 20% over the past year.
“As a result, we have seen a 40% increase in mobile financial transactions over the past year. As our mobile adoption rates increase, we’re introducing more features for our clients and at a faster pace. This year, we’ve released over 20 new mobile app capabilities to our 3 million plus mobile customers. That means that over 1 in 9 Canadian smartphone users use the RBC Mobile app, and free mobile payments is one of the largest transaction volumes.”
Scotiabank
“We believe mobile and digital payments are new technologies, and are relatively early in the adoptive curve,” says Tom Pawelkiewicz, Scotiabank’s director and head of digital Payments. “Most customers today already have contactless cards, so the act of just tapping your phone to pay doesn’t necessarily add much to customer experience.”
“We also believe customers aren’t concerned with how they pay, but care more about how they shop. This is why Scotiabank wants to play an active role in the entire shopping value chain. Whether it’s providing targeted offers, helping customers manage their loyalty cards, or storing and managing their receipts, the industry is evolving to provide a better shopping experience. Only then will we see a greater level of mobile payment adoption.”
TD
“At TD, mobile continues to be our top channel for transactions, so our customers’ preference for mobile has been well established,” a TD spokesperson tells RBI. “We’ve been very happy with the adoption of the TD mobile banking app, which has consistently held the number one position in the finance category on both the Android and iOS app stores in Canada. Our companion (personal financial management) app TD MySpend has over 1.1 million users who are benefiting from its real-time insights into their spending behaviours.”
