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New guidelines, expected to be made public as early as Monday, will open the door for partnerships between financial institutions and telecommunications companies to embed credit card and debit card information inside smartphones.Thinkstock/iStockphoto

Canada's banking industry is preparing a sweeping set of new guidelines that will change the way Canadians pay for goods at retailers across the country.

The new guidelines, which are expected to be made public as early as Monday, will open the door for partnerships between financial institutions and telecommunications companies to embed credit card and debit card information inside smartphones.

Those standards were agreed upon by the country's largest banks late on Friday at a meeting of the Canadian Bankers Association, and will set out rules for "how banks will operate in this new world," a source close to the situation told The Globe and Mail.

At stake is the ability for consumers to eventually store various payment credentials on their mobile phones, and use those devices, rather than plastic cards, to pay at cash registers – thereby eliminating the need to pull out wallets or fumble through purses.

Some of the country's largest banks are expected to announce partnerships soon with wireless communications companies to introduce mobile payments. It marks the start of a race to replace the traditional wallet with cashless digital payments through smartphones offering different payment options chosen by the consumer.

For retailers, the new technology is a step toward updating Canada's outdated payments system, which is seen to be lagging behind countries in Europe and Asia, where mobile payments by phone are more common. It is also a way for the telecommunications companies to carve out revenue from handling retail payments, a segment that would normally be dominated by banks and credit card companies. It is a potentially lucrative new revenue stream for the phone companies, representing untold millions of dollars.

It is expected several telecommunications companies will move into the space, but the most likely first entrant is Rogers Communications Inc. The company's chief executive officer, Nadir Mohamed, recently said Rogers has plans to unveil a mobile payment service.

From Rogers' perspective, the idea is to have thesmartphone's SIM card double as a mobile wallet that holds everything from virtual credit and debit cards, driver's licences, transit passes and loyalty points. As owners of the SIM card inside the phone, Rogers can potentially charge "rent" to store that information.

Rogers and rival BCE Inc. have already run mobile payment trials using what is known as Near Field Communication. NFC is a technology that enables mobile payments through the wireless exchange of information between a smartphone and a merchant's payment terminal.

Handset manufacturers are increasingly implanting NFC antennas inside smartphones, which will eventually allow those devices to be waved in front of sensor-equipped cash registers. Since most consumers upgrade their cellphones every 18 to 20 months, it is estimated that the majority of Canadians will have NFC-enabled smartphones by 2014.

Separately, Rogers has applied for a banking licence to become a credit card issuer. If that licence is granted, it would become the first Canadian cable and telecom company to pursue that profitable line of business.

Meanwhile, banks have been eagerly trying to expand into new forms of mobile payments. Royal Bank of Canada and Canadian Imperial Bank of Commerce have said they intend to expand in mobile payments on phones, and CIBC has been aggressive in developing new mobile apps for banking. However, rivals have been gearing up with similar offers to shake up the market.

In September, Bank of Montreal introduced what it called "tap and go" payments, where consumers place a sticker containing a chip with their credit card information on the back of their cell phones. By waving the phone near a special receiver at the cash registers of some retailers, the consumer can automatically pay for purchases under $50.

The system uses the mobile PayPass system that has been in place for years at gas stations and retailers such as coffee shops, requiring no signature or personal identification number (PIN).

The banks have spent months working on the new guidelines, which are voluntary. This new world of payments also raises interesting questions about security, since a person may worry if they lose their payment-equipped phone. But it is expected a PIN could be used to validate large phone-based payments. Consumers who lose their phone would be advised to cancel their credit cards as a safety precaution.

The standards devised by the industry come as the federal government is in the process of setting rules for the rapidly unfolding world of mobile and digital payments. A spokeswoman for Finance Minister Jim Flaherty said the government is taking steps to oversee the new system.

"In the near future, we will announce a special advisory committee made up of representatives of the public and private sector to meet regularly with the government to discuss emerging payments system issues," spokeswoman Mary Ann Dewey-Plante said.

Daniel Kelly, senior vice-president of legislative affairs for the Canadian Federation of Independent Business, said small businesses are concerned that mobile payments will usher in higher fees for merchants who accept credit cards.

Merchants are already smarting from the costly fees associated with accepting premium credit cards. "Any change that happens in the credit-card business seems carry with it a bunch of new fees, and so our great trepidation about this is [that]the move to mobile will give another big opportunity for a fee grab," Mr. Kelly said.

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