MasterCard’s Global Mobile Payments Readiness Index rated Canada second in terms of readiness for mobile payments, surpassed only by Singapore. Ellie Chambers visits Ontario and talks to some of the people shaping the payments industry there to find out just what sets the country apart in terms of mobile payments

Canada has a financial sector and payments market like no other in the world. It has been ranked by the World Economic Forum as having the soundest banking system every year since 2008. It also emerged from the financial crisis largely unscathed, partly through the leadership of the now governor of the Bank of England, Canadian Mark Carney.

On top of their stable banking system, Canadians have in recent years proved to be great innovators. Statistics from trusted service manager EnStream suggest that 20,000, or 5.7% of the world’s 350,000 NFC-enabled merchants are located in Canada.
Almis Ledas, COO of EnStream, said: "Canada’s geography forces Canadians to use technology to link people across great distances.

"Canadians have always been early adopters of telecom services and data services."

The environment

Cameron Sinclair, assistant deputy minister of the Ontario Ministry of Economic Development, Trade and Employment (MEDTE), explains that the culture of co-operation in Canada’s financial sector goes a long way to explaining its readiness for mobile payments.

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He says: "We have a high level of collaboration and dialogue between our telcos, our banks, our credit card companies and developers, which is necessary to build a successful mobile payment sector."

Sinclair goes on to add that the pace of innovation in Canada, and Ontario in particular, is accelerated by the critical mass of ICT companies in the area.

"When it comes to our access to a skilled workforce, we have a lot of skilled people in a number of sectors, one of them being the ICT sector. We have the third biggest centre in North America for ICT focused in particularly the Toronto area," he says.

"Our culture of innovation is an ongoing priority for us in Ontario. We take a very proactive approach to working with businesses and organisations across all sectors to support innovation."

His colleague David Wai, senior sector advisor to the ministry, adds: "Ontario is really the heart of Canada’s economy. 50% of the GDP of Canada’s Financial Services is in Toronto and Ontario.

"All the financial institutions that have Canadian headquarters are typically in Toronto. All the large foreign nationals have landed here and all the Canadian entities have a major presence here."

The infrastructure

Currently, NFC seems set to emerge as the dominant method of mobile payment in Canada. NFC mobile payment systems such as SureTap and MasterCard’s MasterPass work in exactly the same way as contactless cards, by putting credit card information in an encrypted package on the phone’s SIM. This means that to the terminal, there is no difference between the phone and a card.

The fact that the phone and card are interchangeable means that mobile payment innovators can leverage the already widespread distribution of NFC enabled POS terminals.

With Canada moving to EMV over the last few years, banks have begun issuing EMV-compliant contactless credit cards to their customers. An estimated 31.2% of the payment terminals in Canada are contactless card readers, and many Canadians are already using contactless cards.

Todd Roberts, senior vice president at CIBC, explains how the infrastructure has affected the progress of mobile payments. He says: "We at CIBC deployed SureTap before Isis, in the US, had even gotten off the ground. The issue was they don’t actually have anywhere near the infrastructure deployed that we have in Canada.

"If you look at the penetration of NFC devices, if you look at the standardisation of how our system works, when you look at the ubiquity of what’s available in Canada versus other markets, we are far more ready.

"When you look at our infrastructure and what we’ve built collaboratively between the banks, the credit unions and the telcos, we have an ecosystem which frankly is pretty harmonious."

This network of mobile-ready payment terminals is, in a large part, the key to merchants’ willingness to accept mobile payments. Although they may have initially resisted the move to EMV and to contactless, with the infrastructure already in place, Canadian merchants have everything to gain from accepting NFC mobile payments.

Brenda Clark, vice president of payment initiatives at CIBC, agrees with Todd that infrastructure is key to getting mobile payments off the ground. She says: "We felt it was important to bring out a mobile payment solution that had wide merchant acceptance, so leveraging the Visa and MasterCard contactless terminals makes a lot of sense.

"There are about 250,000 merchant terminals in Canada, which is more than a third of the point of sale locations enabled for Visa or MasterCard contactless cards."

"Merchants will want to accept this form of mobile payments – not only do they already have the terminals, there is no training need for their frontline staff and there are no processing differences.

"We heard our merchants say to us: ‘we changed our terminals for chip and for contactless’, so to bring another change we wanted to leverage what was already there. And there’s no additional transaction cost either."

The players

As one of the big five banks, CIBC has had a key role in pushing forward innovation in Canada. The bank joined forces with Rogers to produce mobile payment app, SureTap, in the first deal between a Canadian telco and bank for virtual card distribution.

David Robinson, vice president of emerging business at Rogers, says: "It ultimately comes down to people, Rogers and CIBC are both innovators. Rogers and CIBC are both innovators. Ted Rogers was a huge innovator and so that is naturally in our DNA around here, and it’s also naturally in CIBC’s DNA.

"They were the ones that brought automated teller machines to Canada back in 1969, and as a result of that Canada has the most automated bank machines per capita of any country in the world. So it’s a bit of a natural fit that CIBC and Rogers pushed this product to the market."

The standardisation and ubiquity of the virtual card distribution network created between Rogers and CIBC was possible only because they co-operated with so many players.

Robinson says: "The creation of the digital card distribution network with CIBC had a lot of technology behind it that was very new. So new that it was like going through the valley of death to make this work. It was very hard. We spent about nine months, 24 hours a day working on this.

"When I say ‘we’ I mean Blackberry, Gemalto, Rogers and CIBC. It was just an unbelievable lift because it had never been done before. I mean, it had been done in trials, but it had not been set up in such a way that any bank and any carrier could connect through standard methodologies."

The consumers

For a market to drive innovation, it is essential that the consumer as well as the banks and merchants accept new forms of payments. A mobile payment method can be innovative, it can involve no changes to infrastructure, it can be widely accepted by merchants, but it is the consumer that ultimately drives its usage.

Luckily for the Canadian banks, telcos and merchants, the Canadian consumer appears to embrace innovation. Canadian consumers have the advantage of being equipped with the tools and knowledge to adopt mobile payments. Canada has a very mature card market, with 64% of expenditure on cards in 2012.

Jeff Guthrie, chief sales and marketing officer at Moneris, says: "Canadians and Canada leads the market in card usage. More of our expenditure goes on cards than any other country in the world.

"We continue to see growth in this and people say to us: ‘how can you grow from that? How can you see growth from the top? What’s going to drive that growth?’ Consumers are driving that growth by driving more of their everyday spend onto cards; credit cards and debit cards. It’s more convenient, it’s easier to keep track of things."

This sophistication in terms of card usage means that the Canadian consumer is more willing to accept the contactless card, in effect the bridging step between chip and pin and NFC mobile payments. Canadians have started to adopt the contactless card ahead of their European and American equivalents.

Will Giles, senior vice president of product management and emerging payments at MasterCard Canada, says: "11% of our face-to-face transactions were tapped last month. So that’s a pretty good starting point. We know we need to continue growing that footprint but we’re getting tens of millions of transactions initiated each month through PayPass."

Canadian take up of smartphones is also growing rapidly, providing the essential element for mobile payments. Although smartphone penetration is still low, at 45%, numbers of smartphone users have gone from 7.6m in 2010 to 13.4m in 2013 and are expected to reach 14.8m by next year.

Amongst those who do own smartphones, monthly data usage per subscriber is over 600MB, higher than in the UK or US. 62% of smartphones in Canada are also NFC enabled, behind Spain and the UK but ahead of the US, France and Italy.

Guthrie says: "One of the other key things that is emerging is that we all have smartphones in our pockets and smartphones, as we all know, are changing the way we do business because they allow us to transact any time, any where, any way.

"We are starting to see a shift to mobile commerce. Canadians love their smartphones. We continue to have smartphone adoption at very high rate and what we see is that as people carry these devices around they move from taking a plastic card out to taking their phone out."

The real reason?

Guthrie has his own theory on why Canada is more mobile payment-ready than the UK, US or Europe. He thinks that the Canadian climate is what has led to payment innovation in recent years.

He says: "One of the things that Canadians love is contactless and debit cards. We love to do debit transactions and we love to do contactless transactions. Why? Well one of the factors is that Canadians are the largest users of drive-through restaurants.

"58% of all quick service meals in the country people get in their cars and that’s increasing year on year. Why? Well it’s nice sunny September now, but in January it’s cold as hell! You don’t want to get out of your car to get your burger."

"It’s very hard to transfer coins between your car window and the drive-through window, so Canadians are always looking for a convenient way to pay and contactless and mobile payments drive that convenience. Canadians love to pay on the go."