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part three: internet of things

Visa digital wallet ad

The future of money, if you ask most people who work in the world of processing payments, is that it's increasingly going to come out of your cellphone, rather than your wallet.

In a few years (a loose measure, but a common one), cellphones equipped with secure, short-range radio transmitters will enable tap-to-pay transactions on everything from cola-vending machines to furniture-store checkouts.

That future may well arrive. But in the meantime, we still live in a world of plastic debit and credit cards, and shop in an e-commerce universe that asks us to spend a lot of time filling in forms to buy plane tickets. What happens between now and then?

Enter the digital wallet.

A "digital wallet" is a service that takes multiple ways of paying for a purchase – say, a variety of different credit cards, coupled with assorted loyalty schemes – and bundles them together into one easy-to-use product. The idea is that where you might currently rifle through a physical wallet to find the right card, a digital wallet would keep all the different cards, from all the different companies involved, in one place.

What does this work out to in practice?

Ultimately, the digital wallet will be a physical item, in the form of an app that runs on your smart phone, turning the device itself into a tap-to-pay wallet. The infrastructure to make that happen is still under construction. So in the interim, expect to see the concept take a more virtual form, as an online service that will help smooth the process of conducting e-commerce.

After years of letting companies like PayPal work the digital wallet business unfettered, industry giants like Visa are getting into the game themselves.

Michael Bradley, the head of products at Visa Canada, says that e-commerce accounts for a full 15 per cent of Visa transactions in Canada, but notes that the process can still be trying for consumers.

Online purchasers might be comfortable with buying from websites they're used to, especially if they've created accounts and the sites have saved their personal information. But starting fresh on a new website is a hassle, giving consumers a disincentive to try new services.

And then there's mobile.

"People's Internet access devices are changing, and very quickly," Mr. Bradley says. "People are starting to use those touch screens as e-commerce devices."

However, the process of filling out forms becomes laborious on a tablet, and well nigh tooth-grinding on a tiny smart phone screen.

Visa is looking to solve this problem with its forthcoming digital wallet, which it's calling, well, Digital Wallet.

Expected to launch in Canada and the United States this fall, the service will roll out what Visa calls a "click-to-pay" approach: Instead of filling in your credit card number, expiry date, billing address, phone number, and that little three-digit code on the back, just enter a username and password. (Visa will backstop against fraud, as it does with existing credit card purchases.)

Significantly, the service will work with more than Visa cards: It's meant to work with competitors' cards as well, so that, for instance, you could hypothetically visit a bookselling website, and use a quick Visa Digital Wallet transaction to put a purchase on your MasterCard, using your same name and password.

It will also work in third-partly loyalty card programs. Visa has partnered with a list of banks on the project; in Canada, these include Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia.

That's the near-term plan. Mr. Bradley says that Digital Wallet will become a platform for Visa to enter the wireless-payment market once the infrastructure is mature.

Plastic Visa cards already have built-in antennae that can communicate details to PayWave terminals that are appearing in retail locations across Canada. These terminals will be able to communicate with near-field communications (NFC)-enabled phones, as they arrive on the market – and Visa Wallet will run on those phones. (According to research by Samsung Canada, one early maker of NFC-enabled phones, as many as 20 per cent of Canadian point-of-sale terminals are already ready for NFC.)

Visa isn't the only firm going for the digital wallet space.

MasterCard is readying a competing product it calls Serve. And another 800-pound gorilla is making a similar play: Google Inc. has already released its Google Wallet app in the United States.

The premise is similar to Visa's smartphone end-game: Google Wallet is an app that sits on a NFC-enabled phones, and brings multiple payment methods together into a tap-the-terminal-to-pay solution. It works in Air Miles-style loyalty programs, automatically crediting the right accounts, and can do tricks like offer buyers instant discounts at the till at participating stores.

As of now, Google's program works with Citibank and MasterCard in the United States.

The fact that a credit card company and a search engine company are both pursuing digital wallets is a sign of both the interest in this technology – and the uncertainty of what the industry is going to look like.

Special to The Globe and Mail

This series continues next Monday. Other stories can be found on the Web Strategy section of the Report on Small Business website .

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