It was late March when a crowd of Bay Street types gathered at a luncheon in Toronto to hear a rare public speech by Visa Canada chief executive Tim Wilson.
From behind the podium, Mr. Wilson pulled his wallet out of his pocket and waved it in the air.
"We hope that one day this ... will become this," he said, putting the wallet down and flashing his BlackBerry in his other hand.
That day is closer than most Canadians realize.
Canada is on the cusp of a revolution in payments, one that major credit card companies and a number of banks are yearning to exploit. If they succeed, wallets full of cash and cards will be replaced by cellphones embedded with payment chips.
But the way that Canadians will pay for goods and services a decade from now hinges on the outcome of battles that are taking place now.
Major credit card companies are going head-to-head with the Interac Association in a fight to win over the banks that issue debit cards, and the stores that accept them. Banks and cellphone providers are experimenting with new innovations. And Ottawa is weighing how to spur competition and ensure that the costs of the payment system don't skyrocket for consumers and retailers.
At his luncheon speech, Mr. Wilson asked members of his audience to imagine themselves, a few years from now, walking down the street past their favourite deli.
Sandwich coupon
"You remember receiving a two-for-one sandwich coupon on your phone from that shop the day before, an offer made based on your personal spending patterns," he said. "So you go inside. Once at the cash, you order lunch, redeem the coupon and pay by waving your mobile phone.
"As you're walking out of the shop, you receive an SMS [text message] alert that your card has been used, where it was used, the purchase amount and your updated account balance. You then sit down on a bench to eat and, using your phone, you send some spending money to your daughter who is studying in the U.K., to her debit card. ...You finish your sandwich and hop on the subway, flashing your phone in front of a reader before you enter the turnstile, instead of fumbling for a token."
It's not a far-fetched scenario. Each of the technological capabilities that Mr. Wilson described already exist.
The development that will hasten their entrance in Canada is the introduction of chip cards, which use a microchip and PIN number rather than a magnetic stripe and signature. After years of discussions, planning and consensus building among banks, credit card companies, retailers and others, the cards are finally being rolled out.
"We're still at the beginning of the deployment, but it's going to radically reshape the interaction at point-of-sale in Canada over the next couple of years," says Anne Koski, head of payments innovation at the Royal Bank of Canada.
Many countries, from Australia to Hong Kong and France, are much further down the chip card road. The United States, which has a highly fragmented and complicated banking and payments system, is a notable holdout.
The primary reason for converting is that chip cards reduce so-called counterfeit fraud, where a retailer steals a copy of the information stored on a magnetic stripe. Counterfeit fraud accounts for about 40 per cent of the fraud that affects Visa cards in the country, says Mike Bradley, head of products at Visa Canada. In comparison, the damage done by lost and stolen cards is a fraction of that.
Chip data encrypted
Think of a magnetic stripe like the tape in a VHS videocassette; it can store a limited amount of information, and that data can be read by anyone with the proper technology. Chips, on the other hand, have the capacity to store pages, as opposed to lines, of data, and can be securely encrypted.
Industry experts estimate that the deployment of chip cards is roughly one-third complete, so it will be some time yet before fraud is drastically reduced. Cards will continue to have magnetic stripes for the time being to accommodate the old card readers and Canadians travelling to the United States, but experts say that once most retailers have chip readers the incentive to steal magnetic stripe data will disappear.
