Yahoo Finance Digital wallets pose consumer protection problems
Plans to replace conventional credit and debit cards with tap-to-pay smartphone-based technology sound almost too good to be true.
The so-called digital or virtual wallet is potentially more convenient than carrying around a pocketful of cards. It could, in theory, anyway, be significantly more secure than the easily hacked plastic that predates online shopping and remains the most vulnerable link in the electronic payment chain.
The new technology could also open up an almost limitless array of customization options for retailers. By culling browsing, GPS and other data from customers' smartphones as they research purchases and then head to the mall to browse and buy, retailers can focus their marketing efforts down to an individual level. If you've been hanging around the local fast food joint and looking up calorie counts for every item on their menu, expect to start getting dollar-off coupons for their Whopper with cheese the next time you walk through their front door.
Everyone wants in
And it won't stop at restaurants. A growing cast of players is already jockeying for position to build out digital wallet infrastructure across the bricks and mortar and online retail space:
The Royal Bank of Canada plans to introduce a digital wallet solution in October. The bank is partnering with Visa to eventually allow consumers to pay with cards from any provider.
CIBC is preparing to load MasterCard and Visa data onto the SIM cards in Rogers customers' smartphones, allowing secure tap-and-go purchasing. The bank, which plans to launch the service later this year, says it continues to look for additional partners, as well.
Rogers, Bell and Telus are partnering on the EnStream mobile wallet initiative, slated for launch before year-end.
Google is rolling out its Google Wallet in the U.S. and says it intends to bring it to Canada.
PayPal has introduced apps for iPhone, Android users, and is pushing its PayPal Here solution to allow secure in-store transactions.
What's not to like about this brave new world of retailing? Plenty. And concerns around the shift from conventional to digital wallets start and end with the data. As banks, credit card companies, retailers, and even software companies and wireless carriers fall all over themselves to be the first to market with digital wallet solutions, starry-eyed consumers forget that there's a price to be paid for that Jetsons-like pay-by-smartphone experience.
It's called privacy, and as these profit-seeking players jockey for position, they're not as focused on benevolently providing the greatest customer experience as they are on learning everything they can about us, then finding some way to leverage or sell the data they gather in the process.
The gold rush toward digital wallets is being driven by a shift in the technology we now — or soon will — carry in our pockets. According to research firm IDC, almost half of Canadians — 44 per cent - now carry a smartphone instead of a basic feature phone, and three-quarters of us have already tried buying something with our smartphones.
The smartphones themselves are getting smarter, with most current or upcoming models sporting near field communications (NFC) chips that allow secure, close-range transactions. Canadians seem ready to make the switch: a PayPal/Leger Marketing survey shows 71 per cent of us are comfortable with making cashless purchases, up from 27 per cent in 2011.
As the hardware and related operating systems become more mature, the business case for adoption becomes easier to justify. Cash-hungry wireless carriers see this new data stream as a lucrative new revenue source.
Who makes the rules?
But without appropriate controls over who owns the data, what they can do with it once they've captured it, and how consumers are ultimately charged for the privilege of paying digitally, the door is open for providers to arbitrarily set the rules. The Payment System Task Force, which was set up by federal finance minister Jim Flaherty in 2010 and delivered its final report in March, called on the Canadian government to accelerate the shift from paper-based payment and processing to a more modern environment that includes:
A secure mobile payment ecosystem developed in partnership with the private sector.
Leadership in developing digital identification and authentication systems to protect consumers' privacy.
Establishment of oversight bodies, including a governing body, as well as a public agency to monitor industry behaviours and facilitate updates to existing infrastructure.
This all looks great on paper, but for now they're simply recommendations. As the industry rolls out solutions in the months to come, consumers will be on their own as they try to figure out who knows how much about them, and where all that information is going. And that information will only grow with time: Rogers, whose roadmap is based on selling virtual space on its customers' SIM cards, envisions loading health cards, drivers' licenses, gift and loyalty cards, even transit passes.
With policy once again lagging the market, the landscape is ripe for abuse. Don't throw that plastic away just yet.
Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. carmilevy@yahoo.ca
