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Mike Bradley, head of products at Visa Canada photographed while using his cell phone to buy coffee at the Second Cup located at the Scotia Plaza Building on King St., Toronto. (Fernando Morales/The Globe and Mail)
Mike Bradley, head of products at Visa Canada photographed while using his cell phone to buy coffee at the Second Cup located at the Scotia Plaza Building on King St., Toronto. (Fernando Morales/The Globe and Mail)

Cashless society

Paying with the wave of a cellphone Add to ...

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.

In the meantime, the industry is feverishly conceiving of, testing and developing innovative products based on the new technology.

For instance, chips could also store loyalty card information, such as Air Miles or Shoppers Drug Mart Optimum cards. And wallets could become even less cluttered if banks begin combining debit and credit cards, a development that's likely to result from Visa and MasterCard's current push into the debit space.

The credit-card giants have cornered the debit market in numerous other countries, and they say Visa- and MasterCard-branded debit cards are on the way in Canada. That has pitted them against the Interac Association, which is asking the Competition Bureau to allow it to turn into a for-profit company so that it has the research and development money necessary to go head-to-head against its new rivals.

Baseball park convenience

While the industry is looking to shrink the number of payment cards in a consumer's wallet down to one, it's also debating what form that "card" should take.

A chip can be stuck in nearly anything, and need not be relegated to a plastic card. New York Giants fans have been able to use a wristband embedded with a chip to pay for food at concessions. Using contactless technology, fans only have to wave a wrist near the chip reader to complete the transaction.

One application that's well down the testing road using contactless technology is mobile payments, allowing consumers to hold their cellphone up near the cash register, make payments with their chip and go.

MasterCard, in partnership with Citibank and Bell Mobility, has already completed a test of the technology, and Visa is in the midst of a trial in Canada involving RBC and Rogers Communications.

The biggest stumbling block to deploying mobile payment technology right now is the lack of phones that are being made with the necessary Near Field Communication, or NFC, capability, says Oliver Manahan, vice-president of advanced payments at MasterCard Canada.

"We're in fairly constant dialogue with these handset manufacturers, whether it's Motorola or RIM or Nokia or Samsung, and we know their planning process is that within the next 18 to 24 months they will have a product line that supports NFC," he said.

With chip-equipped cellphones will come another slew of developments, such as the ability to pay for public transit with a wave of a cellphone. And, as the ability to surf the Web on a phone improves, Mr. Bradley foresees other conveniences - such as buying movie tickets online, then just waving the cellphone to get into the show.

Mining consumer habits

One of the ultimate goals, as Mr. Wilson hinted in his speech, is location-based offers. It's a development that's likely to meet with much controversy, largely from privacy advocates. In theory, the system would mine data on a consumer's purchasing habits, and also track their movements based on their cellphone location. They would then be sent custom-tailored offers.

Mark O'Connell, chief executive of the Interac Association, says the inevitable outcome of the new technology will one day be a cashless society. Industry experts paint a picture of a not-so-distant day when there will be no more fumbling for coins or bills.

"If you think about taking the kids out for a fast-food lunch, you grab your cellphone and your car keys and that's all you need," says Ms. Koski.

While the possibilities seem limitless, the industry is working to determine which developments are useful to consumers, and which would likely be just passing fads.

Another trial that RBC and Visa are conducting sends consumers a text message when they make certain purchases. "In my case, it's any time I do a transaction online, I get an alert that says 'You just did an online transaction at XYZ merchant,' " Ms. Koski says. "We're trying to understand if that's of value to people, or just annoying."

"There's a lot of change going on right now," she adds. "That's the other thing we're learning - how much change can we absorb at the same time."

In a Second Cup coffee shop below Visa Canada's Toronto offices, Mr. Bradley picks up a bottle of water and waves his special trial cellphone at the reader in front of the cash register to pay. A text message pops up with a record of his purchase, by which point he's already hit the exit and is on to his next errand.

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