Canada's big banks are preparing to launch "virtual wallets" as early as this fall that will allow consumers to digitally consolidate their credit and debit cards from any financial institution, and use them to make purchases online and through their cellphones at cash registers.
It is being called the biggest change to the way consumers pay for goods in Canada in decades, and for the banks moving quickly into this space, the strategy is about keeping ownership of the vast and potentially lucrative stores of data that are involved in transactions.
Royal Bank of Canada is expected to be first into the market in October, when it launches a digital wallet for mobile phones that will use RBC cards at first, but will eventually expand to welcome all brands of debit and credit cards. A few months later, the bank will launch a digital wallet for online purchases in partnership with Visa that holds all varieties of cards, regardless of brand.
The majority of the banking sector is expected to follow suit in the next year or so, with each financial institution relying on the concept of "aliases," where a password lets consumers access their payment cards, but protects personal information from being passed to the merchant. The alias method is similar to how online services such as PayPal work.
"We haven't offered that as a banking system until now," said David McKay, head of Canadian banking at RBC, the country's largest bank. "Just like your physical wallet has all your cards, our wallet has to have all your cards. We can't just say only RBC products [are permitted], because the consumer doesn't want to have five wallets if they have five service providers. They want one wallet."
The move comes after a federal task force recently released a blueprint for revamping the country's payments system for the digital age. A few months ago, CIBC announced it would begin offering electronic payments through Rogers mobile phones by loading credit card data from MasterCard and Visa onto a chip inside the device.
The virtual wallet strategy for all cards takes that strategy a step further. The strategy for banks in the years ahead will go beyond competing for bank customers. The data contained in every purchase, indicating demographics and consumer preferences, is potentially of massive value.
"You want to be that one wallet," Mr. McKay said, "because you want to see all the transactions. And the information value of all the transactions outweighs the proprietary desire to have your product always being used."
Retailers can use the information contained in transactions, stripped of details that violate privacy laws, to tailor offerings or promotions to consumers. And the banks figure they can build a new business from that new world. Location data on phones can help neighbourhood stores connect with customers in the area, while transaction data online can give insight into consumer habits and tastes.
Consumers will be able to turn this feature on and off, Mr. McKay said, but will have access to offers, promotions and sales that would make it attractive. It is a potentially lucrative new business for the banks – making money off the data collected from each payment made via credit or debit cards, and the access the bank has to the consumer.
"If you're a fast food company like McDonald's ... we'll likely know where your client base is. So if you're looking for a certain demographic, we could ping them [on their phone] potentially at 11:30 in the morning to say today, two-for-one hamburgers, and put that offer in there."
"Or more specifically if you want to target a specific store, we can ping anyone in a radius of that store, to say there is an offer in the next two hours."
The service pushes the banking sector into a new territory of data and marketing. It's an area that Google Inc., Apple Inc. and PayPal Inc. are all delving deeper into as the electronic payment world unfolds. Google and Apple have both created early forms of digital wallets, while PayPal – a pioneer of creating accounts that are protected by aliases – has struck a deal with Home Depot Inc. to share generic data on transactions.
"If a consumer walks into Home Depot today and pays with cash. Home Depot has no idea who that customer is, how many times they've been in the store and what they've actually purchased," said Darrell MacMullin, managing director at PayPal Canada. "If a consumer now checks in when they walk in the store, and we know they've been searching for power drills or it's their first time in the store, there's a lot of information we can be providing Home Depot to help them. For us that's where we think there is a role that a digital wallet can add a whole other layer of intelligence for both merchants and consumers."
Banks may partner with technology firms to push the strategy further. These talks are already under way in Canada. "It is one massive speed-dating exercise right now," Mr. McKay said. "I've never seen anything like it in my career. Everybody is talking to everybody because nobody knows what the winning combination is yet, so everybody's keeping their options open."