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Why hasn’t paying with your smartphone caught on?

Why hasn’t paying with your smartphone caught on?
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Though electronic payments have caught up to cash in Canada thanks to online shopping and debit cards, the e-wallet that lets customers pay by waving their smartphones at the checkout has struggled to find a sweet spot with consumers.

While some studies say usage is poised to pick up as consumers become more familiar with the array of mobile wallets from banks, third-party providers such as Apple and big retailers, the options so far haven’t led to a dramatic run up in e-wallet use since the Google Wallet (now Google Pay) debuted in 2011.

Despite the fact payment-ready smartphones are everywhere, digital wallet users in Canada were in the low single-digits in the first half of 2017.  (Dreamstime)

Adoption of the technology has been slow among North American and European consumers, who appear to balk at paying for a coffee with a device loaded with their credit card data and other sensitive information.

“There is a concern that mobile and contactless payments are less secure,” said Michael Hsu, vice-president with Ipsos market research, referring to transactions with payment-app-enabled virtual wallets, as well as debit and credit chip cards that allow contactless transactions using radio wave, near field communication (NFC) technology.

Research also shows that many consumers find it inconvenient to pass their phones over readers instead of just swiping or tapping a chip card, or even paying with cash.

Hsu said Ipsos data shows that while more Canadians are willing to try new forms of mobile payment in the future, only 7 per cent of a survey group said they had made a mobile payment using NFC in 2017, from 5 per cent the year before.

He said the concern over the exposure of information and potential identity theft is pronounced enough that it may keep cashless payments from growing much beyond the current rate of roughly half of all small retail transactions, at least in the near term.

Providers say security concerns are unwarranted due to extra layers of encryption and tokenization (where card numbers are replaced with temporary “tokens”) that protect all electronic transactions and mask debit-credit card information during purchases.

Mobile pay vendors note that wallets and contactless tap-to-pay cards have low transaction limits, with larger or repeat purchases typically generating a request to enter a personal identification number.

Wallet, debit and credit transactions are also protected by the bank’s fraud guarantees and are further buttressed if transactions occur over a secured Wi-Fi network.

Nevertheless, surveys report a fear among consumers that cyber thieves can use radio-wave-swiping technology to scoop credit card data from e-wallets out of thin air — an anxiety that has created a market for low-cost shields to protect the devices.

Consumer concerns remain even as most mobile payments are accepted at merchants that have contactless terminals for purchases of up to $100 — and as contactless payment that includes chip card and digital wallet transactions has grown to account for nearly half of all weekly retail commerce in Canada, according to payment processor Moneris.

Transaction values for mobile e-commerce payments on platforms from providers such as Uber and Amazon are climbing fast, but merchant and consumer engagement with e-wallet systems has at best ebbed and flowed.

In fact, despite the ubiquitous nature of payment-ready smartphones with NFC-enabled SIM cards pre-installed, digital wallet users in Canada were in the low single-digits in the first half of 2017. The ranks of early adopters are dominated by younger consumers, according to the most recent Ipsos Personal Cardholder Study.

A Visa survey of 1,000 Canadians this year, moreover, found that only 35 per cent of respondents consider virtual wallets very secure, and only a small minority of consumers regularly use new forms of payment like mobile apps (9 per cent), digital wallets (6 per cent), peer-to-peer apps (4 per cent) or wearables-based pay (3 per cent).

Findings from the survey indicate that Canadian consumers trust familiar chip-card payment methods and may be slower to adopt emerging forms.

“These emerging forms of payments use the same dynamic security as contact chip cards, so while Canadians may see them as less secure than traditional methods at this time, as we have seen with contactless cards, we expect to see that perception change as consumers become more familiar with these new payment technologies,” said Gord Jamieson, head of risk at Visa Canada.

Sukhmani Dev, vice-president of product management, digital solutions at Mastercard in Canada, said tokenization is enhancing security for digital payments, which he said are rapidly growing in Canada in areas including mobile, contactless and e-commerce.

In the U.S., meanwhile, a survey published in June by risk management firm Kount Inc., along with The Fraud Practice LLC shows fewer U.S. merchants accepting Apple Pay and Google as worries about fraud increase with the rise of payments using NFC readers, chip cards and virtual wallets.

Apple Pay Cash, a peer-to-peer payment service, has millions of customers across the U.S., less than eight months following its launch, CEO Tim Cook said during the earnings conference call. He added that Apple Pay is now in 24 markets worldwide, including Canada, with more than 4,900 bank partners.

Coffee retailer Starbucks, meanwhile, processes more than 8 million weekly mobile payments, which account for 16 per cent of all transactions. Google Pay has reached 100 million downloads on Google’s app store, while Google Pay has incentivized usage by offering $10 to both the referrer and the referred, says a report by blogsite Android Police.

In Canada, consumers have enthusiastically embraced chip cards, with the uptake faster than in the U.S. due to Canada’s relatively advanced contactless infrastructure. Canadians also tend to place greater trust in the country’s big six banks compared with consumers in the U.S. where banks number in the thousands, Hsu said.

Toronto-based Moneris in a report in July said nearly half of all transactions in the second quarter were completed through a contactless payment option, primarily involving chip cards and point of sale readers — the highest share since contactless payments emerged in the late 1990s.

Year over year contactless dollar volume increased 33.9 per cent, and the number of contactless transactions grew 31.8 per cent.

Moneris chief marketing officer Jeff Guthrie said wallet providers do not disclose subscription numbers for competitive reasons. But he suggested that the technology is emerging as an adjunct to chip cards and could provide a gateway to new purchase systems that deploy artificial intelligence such as biometrics to boost consumer confidence and security.
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