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The Canadian launch of Apple Pay bypasses traditional banks and instead limits itself to American Express cardholders, who represent just 8.2 per cent of the Canadian market.Chris Ratcliffe/Bloomberg

American Express cardholders in Canada will have access to Apple Pay starting Tuesday, marking a significant milestone in the rollout of mobile payment services in this country but also raising the level of competition between Apple Inc. and Canada's big banks.

Apple announced the Canadian expansion of Apple Pay in October after launches in the U.S. and Britain.

The Canadian launch is radically different though: It bypasses traditional banks and instead limits itself to American Express Co. cardholders, who represent just 8.2 per cent of the Canadian market, according to the Nilson Report. The launch is also limited to merchants that currently accept AmEx cards.

This relatively narrow market share raises questions about how effective the launch is going to be and how the big banks will respond. Mobile payment services allow consumers to make purchases with their smartphones at merchant terminals equipped with technology known as near field communication, or NFC, eliminating the need to use cash or credit cards.

While the services are still new and relatively untested by consumers, many observers believe that they could change traditional payments as they become widely accepted.

Robert Sedran, an analyst at CIBC World Markets, said in a recent note to clients that mobile payments were "the most topical potential disruptor" – not only do they change the way consumers pay, they can also alter the relationship customers have with their financial institutions.

Indeed, the biggest concern among the banks is that their brands will be pushed down in favour of technology companies, such as Apple and Google Inc.

Canada's Big Five banks already offer mobile payment services for Android and BlackBerry smartphones, but they have not struck a deal with Apple that would allow their customers to make purchases with their iPhones.

Sources believe that in partnering with AmEx, Apple will avoid time-consuming negotiations with numerous financial institutions and credit-card networks – and no doubt give Apple some clout on sticky issues such as how much the banks should pay Apple in terms of fees.

Although the number of AmEx cardholders in Canada is relatively small compared with bank-issued MasterCard and Visa cards, the availability of Apple Pay in Canada may be enough to drive significant demand for the service. Indeed, any mention of Apple Pay can drive bank customers to ask why the service isn't available to them, making Tuesday's launch a potential marketing wedge for Apple.

"I think we're bringing something really cool and something that people have been waiting for for a long time," said Suat Alaybeyoglu, vice president of consumer acquisition and management, proprietary card services, at Amex Bank of Canada.

Canada's big banks, though, have time on their side: While Apple Pay garners considerable attention as a convenient way to pay for items, mobile payments has not yet taken off in Canada or most other countries.

A recent survey by the consultancy Accenture found that 23 per cent of adult millennials are using their smartphones to make purchases, versus 18 per cent for other age groups.

While that's promising, it doesn't yet point to any sort of ubiquitous use among consumers, which is why most of the big banks don't even advertise their mobile payment services.

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