Digital Wallets are on their Way. Should Canadians Embrace Them?
The smell of flames is in the air as Canada's leading banks rush to be the first out of the gate to market a digital wallet. "We're almost there; it's close. It's going to be out in the next 3 or 4 weeks," RBC's Dave McKay told Reuters recently.
This announcement comes just months after CIBC and Rogers announced their partnership to create a digital wallet that uses Near Field Communication (NFC) technology.
As the competition among the big five banks heats up, Canadian consumers are warming to the idea.
Despite the fact that Canada is a world leader in digital wallet technology, there aren't that many phones that are equipped to run the technology (the list is growing, though). Add to this, the concerns over the security of transactions ranging from difficulties securing payment data on smartphones to the question of whether security credentials should be stored in the cloud or on a mobile device.
Companies like iCache have worked around such issues by introducing the iPhone compatible Geode, which uses biometrics. And, above all, the most compelling reason why skeptics haven't pledged allegiance to the digital wallet is because of the love of cold hard cash.
Nevertheless, this is one rare occasion where as a country we are not keeping up with the Joneses. According to comScore's 2010 Year in Review 10% (9.8 million) of Japanese mobile subscribers paid for purchases with their digital wallets in December of 2010.
In South Korea, the Korean Communications Commission recently stated that all new smartphones must be equipped with Near-Field Communications capability. "KT Corp, which is Korea's largest telecommunications company, expects that 20 million smartphones will be in the hands of consumers by the end of this year, that equates to about 60% of the adult population in Korea," says Michelle Evans, consumer finance analyst at Euromonitor. And, to date, there are approximately 40 million mobile money users in Africa.
So why should Canadians be keen?
Now that Square has descended on the Canadian market, mobile payments, in some people's eyes have become a little more attractive. Square functions by using a small piece of hardware that connects to a headphone jack and allows a smartphone or tablet to collect and process credit card data. With the hardware, customers can set up a credit card payment system without purchasing any additional devices. Some merchants disapprove of their 2.75% fee because they find it to be much higher than the fees that they currently pay with traditional merchant services providers.
Square argues that their hardware and software is actually cheaper after hidden fees and operating costs that current merchant services providers charge are factored into the equation. In any event, Square's software allows businesses to monitor inventory and create a virtual cash register through the use of an iPad app. In addition, the Square Wallet app, lets users find deals within their area and make cashless transactions.
Already, many smartphone owners are baffled by how they have managed to exist without a smartphone. Imagine what life will be like when digital wallets become the norm? It will be like having a genie in your pocket. The technology could allow consumers to maximize the number of loyalty points they collect by suggesting the best loyalty cards to use on a given date, or perhaps your digital wallet will alert you about the best coupons to use when you're considering a purchase.
Moreover, digital wallets can help retailers refine their customer profiles by providing them with valuable insights about the taste of their customers, thus allowing them to make better targeted offers.
Lastly, all this innovation will force banks and credit card companies to become more competitive, and hopefully, offer better value to their customer base. Ultimately, once we see more and more of our friends, family and co-workers adopting the digital wallet the heat among Canadian consumers will catch on, too.
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