Aug 26 , 2010

Rapid rollout of contactless seen in Canada

By Robin Arnfield, News Editor

Canada is experiencing a very fast rollout of contactless debit and credit cards, as Interac, Visa and MasterCard scramble to be first to market, says Technology Strategies International (TSI). According to the Oakville, Ontario-based market research firm’s report 'Canadian Payments Forecast – 2010,' credit card-based contactless payments will experience a three-digit percentage growth and encroach on areas currently dominated by cash and debit cards over the next five years.

Growth in contactless debit card issuing is being driven by the Canadian government’s Code of Conduct for the Debit and Credit Card Industry in Canada (, which bans more than one competing debit application from residing on the same card, says Christie Christelis, TSI’s president. “So Interac, Visa Canada and MasterCard Canada are all trying to be first in the market to get contactless debit cards out there.”

Christelis says that the number of contactless credit card transactions will grow from a negligible number at present to 288 million in 2013, representing 8 percent of all Canadian credit card transactions in that year. The value of Canadian contactless credit card payments in 2013 will be C$3.9 billion, representing 1 percent of the value of forecast Canadian credit card payments in 2013.

“We are seeing a top-down approach to the rollout of contactless point-of-sale terminals,” Christelis says. “Big retailers with multi-lane installations are rolling out as they realize the business case for contactless, and they will eventually be followed by smaller retailers. Of course, you likely won’t see auto dealerships accepting contactless cards, but there are sectors, such as gas stations and Tim Horton’s, that will do so.”

TSI’s report says that in the mobile payments space, it will be cellphones equipped with near-field communications (NFC) technology that will dominate. “With NFC, you have a payment card application embedded in a cellphone, so it is essentially the same as a contactless card transaction,” Christelis says. “With contactless cards, there is an existing infrastructure to provide the merchant with a transaction acceptance confirmation. However, in the case of other mobile payment models, such as SMS (short message service) text message payments from a mobile prepaid account, it is more difficult to provide the merchant with transaction confirmation. This is because there is no direct link between the consumer’s mobile device and the merchant’s point-of-sale terminal, as there is in the case of NFC cellphones and contactless cards.”

Christelis says that alternative – or non-credit card - payments will account for a third of all Canadian online payments by 2014. “Alternative payment methods include Visa- or Maestro-branded debit cards, andr the Interac Online platform,” he says. “But I don’t see any demand in Canada for services such as eBillMe, or Bill Me Later, both of which offer internet payments debiting from a user’s bank account. This type of service is popular in the U.S., where people have a much higher tendency to pay by cheque for purchases than consumers in Canada.”

Complications of the Code of Conduct

Christelis says it is important to understand the role the Code of Conduct will play in the development of the Canadian payments industry. Policy element 6 of the Code says that: “Competing applications from different networks shall not be offered on the same debit card. However, complementary applications from different networks may exist on the same debit card.”

A number of different debit applications may exist on the same debit card, such as those used for domestic point-of-sale, international point-of-sale, Internet, telephone and ABM transactions. However, a debit card may only contain a single application for each type of transaction.

“This means that you can have an ATM application on the card, for example, which co-resides with a domestic debit application, or even an international debit application that co-resides with a domestic debit application,” Christelis says. “But you can’t have two directly competing applications – for example for domestic debit - on the same card. Given that contactless debit and contact debit for domestic retail point-of-sale use would compete - assuming the acquiring infrastructure is in place – it would not be allowed by the Code.”

The race by the payment networks and issuers is to make sure that they offer a suite of functionality that consumers want to use, Christelis says. “The worst scenario for Interac is for issuers to start issuing stand-alone scheme debit cards that have contact and contactless functionality and then start wooing their cardholders to scheme debit, i.e. away from Interac.”

However, there have already been some grey areas that have emerged since the Code came into effect. “For example, a debit application on a cellphone is particularly contentious at present,” Christelis says. “If the cellphone has a wallet on it in which you can store competing debit applications - much as a physical wallet where you can have an Interac debit card and a Visa debit card - does that violate Policy element 6 of the Code? If it does, that would mean that you would have to have separate phones to use Interac, Visa and MasterCard debit in Canada. The current view of the Financial Consumer Agency of Canada is that co-residing debit applications on the phone would violate Policy Element 6. However, I suspect that this will fall by the wayside once the Payment Systems Review Task Force has finished with its deliberations by the end of 2011.”





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