Mobile Payments in Canada – A Market Ripe for Disruption

There has been a flurry of activity in the mobile payment space over the past few months; and while the press releases are somewhat lacking details on actual product roll outs, for those of us observing the industry it certainly seems as though the rhetoric around the future of mobile payments and m-commerce is being ratcheted up considerably.   A variety of players are beginning to position themselves for this long awaited future to arrive.

If you’d like a bit of primer on NFC, mobile payments and why this is such an exciting opportunity, Mark Healy recently did a very solid post on the Globe and Mail detailing how this tech could change the game for a variety of players.

A few weeks back, I attended a conference put on by KPMG on their 2011 Mobile Payments Outlook.  The folks over at KPMG presented their research where they consulted with over 1000 stakeholders in this broad industry.  You can download the report here to get caught up on your reading.   This was a global survey but it was interesting to sit in Toronto with a panel and hear how the Canadian market is looking at the mobile payments opportunity.  For the purposes of this blog post, my analysis will mainly focus on the Canadian industry.

So what of it?  Is 2012 going to be the year of mobile payments, NFC and a new era of mobile commerce in Canada?  Or is this just another round of industry Kool Aid considering that there still aren’t any NFC enabled Smartphones actually in peoples hands and our financial institutions continue to print money by sticking with the status quo.   Not to mention consumers are quite comfortable paying with those trusty plastic cards and merchants are asking themselves, “Didn’t I just purchase a chip & pin terminal…Now you want me to invest in a Tap and Go machine?!?”

The recent unveiling of the new iPhone 4S, a phone which many tech analysts were expecting to have NFC built into it could have really poured gas on the fire in terms of thrusting NFC and tap and go transactions into the glare of mainstream consumerism.  Alas, Apple disappointed the mobile commerce nerds this time but there are a host of other device manufacturers now rolling out North American devices with NFC chipsets built-in; including the new Blackberry devices and the Nexus S phones.

These are just a few of the issues at play in what is a very complex business and technology process.  Perhaps the biggest challenge in the mobile payments space, and one that hasn’t necessarily been overcome yet, is that the companies who have a vested interest in the future of mobile payment, haven’t yet figured out how to make money in this strange new world.

Mobile Payments = Big Upfront Cost and Lower Revenues for Existing Players?

Too many mouths to feed in a complex value chain.  Attempts to cut players out have been successful in other markets.  Ie. NTT Docomo, M-PESA, Isis, Enstream are examples where carriers ‘became the bank’.

New Kids on the Block

So which players are well positioned to upset the barrel of monkeys with a strong mobile payments play?  Recently, Rogers filed an application with the federal government to become a bank.  This is a separate development from the fact that Rogers, Telus and Bell have been collaborating together for several years on their mobile payments venture called Enstream.  I have heard reports of some major personnel changes over at Enstream which could mean these players are refocusing their efforts to launch a carrier agnostic mobile payments platform without the help of  banking partners.   Similarly, US carrier backed Isis is beginning to make more noise regarding its technology being supported by a variety of handset manufacturers.

Google has made a big splash by being first to market with the launch of their Google Wallet.  High-quality retail partnerships, arriving pre-loaded on (currently only the Sprint Nexus S but presumably coming soon to) a variety of Android powered devices, as well as a beautifully simple approach to branding and marketing are just a few of the things Google has going for their mobile wallet.  Google is aiming to be the first to unlock the full benefits of a mobile wallet meaning that phones supporting their technology will be able to pay for stuff, as well being the ‘one stop shop’ for loyalty cards, local offers and even transit transactions all powered through NFC.  Sexy stuff – say goodbye to your Costanza! I recently heard that Google Wallet could make its debut in Canada in early 2012.

Paypal seems to be moving towards rolling out their solution with recent reports saying we could see something in market as early as Q4 2011. Interestingly, PayPal has been quite vocal in their criticism of NFC stating that they are not building their transaction method around Tap and Go technology and even going so far as to label NFC as being, “not for commerce.”  Don’t underestimate the Ebay – PayPal – Where connection as a serious contender to change the game of mobile, social and local.

To this point, we have heard surprisingly little out of Visa.  Visa has been interested in the mobile payments game probably longer than anybody else and for years they have been piloting new technologies and working with partners to facilitate a future where mobile payments are possible.  Just because we haven’t seen anything yet, I wouldn’t count these guys out and have been hearing whispers that they are getting ready make some major announcements around mobile in the coming months.  Stay tuned…

In my opinion, new entrants are beginning to show real potential to disrupt the space quickly given the pent up consumer demand for everything mobile, which is forcing the big guys to take stock and get a strategy together.

Canadian Banks Don’t Compete, They Pillow Fight

Just like CIBC was the first to do mobile banking, one bank will get to market first with a mobile payment strategy and the rest will all follow suit with very similar products.  I don’t think we can expect any significant innovations from Canadian banks until the ecosystem develops and they get to see what works and what doesn’t based on the bumps in the road experienced by the disruptors.  And honestly, who can really blame them?!  Life is pretty good as a Canadian bank and I think most Canadians appreciate the steady hand approach as well as the regulatory oversight that defines life as a financial institution in Canada.

However, Canadian banks do have a lot going for them when it comes to mobile payments potential.  Primarily, they already have your trust and your credit card.  If you own a Smartphone, you probably have their mobile banking app and use it at least a couple of times a month.  It is not too far of a stretch to believe that if that app could do more for you (like buy stuff!) you would be most comfortable entrusting your bank with your most personal details vs. handing over your info to some new 3rd party.  Lets face it, consumers are creatures of habit and a bit lazy.  The KPMG 2011 Mobile Payments Outlook identified security and convenience as the two key factors that will determine how quickly mobile payments will be adopted in North American.  In terms of getting people to try new forms of payment, banks have a lot going for them and will probably do just fine when the dust settles and it is safe for them to enter this strange new world.

So there it is.  That was a brief overview of who we think they are going to be players in the future of mobile payments in Canada and a snapshot of how they are positioned to enter the market.  To be sure, it is a rapidly evolving market with a large number of potential winners and losers that are going to try and claim their stake on what has become some very precious real estate; your smartphone.  Tell us here in the comments, who you think could be a mobile payments winner in Canada and why?  How long do you think till we actually see mass adoption of mobile payments?

This post is the first of a series we will be doing on mobile payments in Canada and how Smartphone technology is impacting our lifestyles as consumers.  Stay tuned!