Mobile wallets hold promise and peril

Unholy bank-wireless carrier alliance holds both promise and peril

Will shoppers trade credit and debit cards for smartphones? If the Canadian Bankers Association has its way, within a few years we'll all be swapping plastic for iPhones and BlackBerrys when we pay for our purchases in-store.

The CBA this week released guidelines designed to standardize the various technologies necessary to make high-tech checkout a reality. The guidelines, described as voluntary, secure, and open, will turn smartphones into mobile wallets and allow consumers to pay by tapping a point-of-sale terminal. They represent either opportunity or peril depending on who's asking. For banks and wireless carriers constantly on the lookout for new service models and revenue streams, they're all opportunity. For consumers wary of yet another layer of fees and elevated privacy risks, they're something of a dark cloud.

While shoppers in Europe and Asia routinely use their mobiles for purchases, Canada lags due to a lack of industry-wide standards. There's been little incentive to-date to transition away from plastic because, grumbling over bank fees notwithstanding, current payment methods remain relatively affordable. A lack of industry-wide standards further hampers penetration. Smartphones available here are only just beginning to be equipped with near field communication (NFC) chips that support secure, wireless point-of-sale transactions.

By releasing recommendations now, the CBA hopes to influence the various stakeholders — including carriers, financial institutions, hardware vendors and service providers — long before virtually every smartphone sold is NFC-capable. That's expected by 2014 or 2015, after which point the CBA envisions relatively robust takeup.

Despite the promise of a high-tech retail payment transplant, the following potential speed bumps stand in the way of broad-based adoption:


It isn't clear where the funding for this new technology infrastructure will come from. In announcing a mobile wallet partnership with Rogers Communications a day after the CBA released its guidelines, the Canadian Imperial Bank of Commerce said it wouldn't charge customers or businesses extra for the privilege of loading credit card information onto smartphones. The bank did acknowledge, however, that it was paying Rogers for the right to use memory in carrier-provided devices to store financial data.

Despite the no-customer-fee assurances, the Canadian Federation of Independent Business remains wary.

"While we are pleased that the industry is actively reaching out to small business and welcome the new guidelines for mobile payments, we remain worried that another fee-palooza will soon hit merchants," said legislative affairs SVP Dan Kelly in a statement.

The alliance of wireless carriers and banks could give monopoly-wary consumers pause, as well. Each industry is already hardly a paragon of customer service virtue: Partnerships on this scale could raise consumer advocates' hackles still further.

Regulatory oversight

A spokesperson for federal Finance Minister Jim Flaherty says the government intends to strike a special advisory committee to study — and ultimately oversee — the nascent mobile payment market. Mary Ann Dewey-Plante says the committee will include representation from both the public and private sector, and will "meet regularly with the government to discuss emerging payments system issues."

With carrier-bank partnerships falling under the Industry and Finance portfolios, respectively, it's not much of a stretch to envision a son-of-CRTC regulatory bureaucracy that crosses departmental and industry lines. Given he already-heavy regulatory presence in telecommunications and financial services, additional overhead won't help agility or national competitiveness.


It's bad enough when a criminal hacks a credit card. Between using compromised plastic to springboard into identity theft and wreak havoc on financial services systems, hackers have exposed plastic as woefully inadequate in today's mobile commerce-driven economy.

But smartphones, no matter how secure the banks and carriers claim they are, will inevitably become the new targets of choice once enough Canadians are using them to manage their purchasing. A criminal who hacks into a mobile device gets far more than access to one account. Repairing the damage from a smartphone breach is infinitely more complex than recovering from a compromised credit or debit card. Either the industry raises its security game significantly or gun shy consumers will stick with tried-and-true plastic.


Equipping retail environments to support industry-standard smartphone-based tap-to-pay systems is far more involved than simply installing an NFC-enabled touchpad and calling it a day. The front- and back-end technical requirements are complex, and they cross a broad range of stakeholders, all of whom continue to jockey for position in this potentially lucrative new high ground. Anyone who thinks this puzzle will be assembled without years of debate and strife is sadly deluded.

With final technology standards yet to be worked out, the first wave of services will take at least two years, likely longer, to go live. In the meantime, consumers and businesses are left wondering if, despite promises to the contrary, they'll be left paying for a solution they never asked for. The CBA's task in selling mobile payment's value proposition to Canadians promises to be monumental.

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own.