MOBILE PAYMENT What it is. How it works. What it means for Canadians. By EnStream LP for the House of Commons Finance Committee February 13, 2014 INTRODUCTION EnStream was established by Bell, Rogers and TELUS to develop technology to permit Canadians to make mobile payments using their phones instead of their credit and debit cards or cash. EnStream's NFC 1 -based mobile payment technology and services enable financial institutions to securely download encrypted financial credential information to their customers' smartphones over the air (OTA), enabling those customers to use their phones to make credit and debit card purchases. The technology will also allow customers to perform various other NFC- enabled transactions. EnStream s technology is rapidly becoming a standard in the market for Canada, as our customers now include most of the major Canadian mobile network operators (MNOs) as well as several of Canada s major financial institutions. EnStream is proud to be part of why Canada is a world leader in secure mobile credit and debit card payment technology, and the future is exciting. WHAT ARE MOBILE PAYMENTS? While there are different types of mobile payments, we focus on fully secure credit and debit card smartphone payment capability. Payment transactions use a smartphone equipped with an NFC antenna and payment-capable SIM card, onto which a customer s credit and debit card credentials can be securely stored. To the retailer, a payment with a phone appears like a contactless debit or credit card. For the customer, it is an even more convenient way of paying from their existing credit or debit accounts. In the future in some cases the very near future -- all manner of credentials will be securely downloaded to smartphones over the air, and used for NFC-based smartphone transactions: loyalty cards, gift cards, coupons, government-issued identity cards such as drivers licences and health cards, transit passes even hotel room keys. This paper outlines: The evolution of payments The different types of mobile payment What a wallet is and what it does What it all means for consumers, merchants, banks, other issuers and MNOs 1 NFC is for Near Field Communication, a radio-frequency identification (RFID) technology permitting close proximity communication between devices in this case a phone and a terminal. 55 UNIVERSITY AVE, SUITE 202, TORONTO, ONTARIO, CANADA M5J 2H7 tel 416.365.9000 fax 416.365.0074 www.enstream.com
2 How and why Canada is a world leader in mobile payments EVOLUTION OF PAYMENTS Magnetic strip: The payment card stores data on a magnetic strip that can easily be read or copied. (By far the majority of credit card use in the US is still magnetic strip.) EMV (Europay, MasterCard and Visa) Chip and PIN: Much more secure than magnetic strips, as the card stores encrypted data on a microprocessor chip. Data cannot be read without encryption keys, and the chip has dynamic data and cannot be copied. (Chip and PIN technology is very limited the US.) Contactless EMV: The card stores encrypted data that can be securely exchanged using NFC for authorization through contactless terminals. Today there is an upper dollar limit per transaction (with no PIN requirement), but this is a choice by banks and merchants as the technology evolves. Future development will introduce PINbased approval for higher value transactions. (Contactless card payment is almost non-existent in the US.) NOW: Credit and debit with your phone. The EMV credit and debit card credentials are securely downloaded by a financial institution to a customer s smartphone. Instead of using a plastic card, the customer taps his/her phone at the same retail terminals as accept contactless cards today. Using a phone to make payments, and other NFC transactions, is far more convenient for consumers than having multiple cards. Over the air downloading and storing of credentials eliminates the whole manufacture and distribution cycle of plastic cards. There is no need to (i) stamp the credential onto a chip that is embedded on a plastic card; or (ii) physically deliver a card that can end up in the wrong hands. And changes to credentials can be made almost instantaneously, for even greater security. For retailers, the point of sale terminal sees the same card credential, the same way, whether it is from a card or a phone the interchange fee is the same. In terms of interchange fees for merchants, the system is form-agnostic. HOW THIS MOBILE PAYMENT TECHNOLOGY IS DIFFERENT FROM OTHER MOBILE PAYMENTS Pre-paid card products such as Zoompass enable limited payment from a pre-paid stored value card, using either a contactless card for point of sale transactions or a smartphone app for on-line transactions. Starbucks has a limited closed loop payment option that uses a low-security stored value account that can be used, only at Starbucks, either with a mag strip Starbucks card or a smartphone app that presents a barcode scanned at point of sale. It is low security, but accepted because the account is prepaid and amounts are small. The Google Wallet enables only limited payment through a specific Google account which delivers transaction information to Google in exchange for targeted discount offers. Google has tried a few approaches to storing payment credentials in the phone, with limited success. The service has not been introduced in Canada. Apple has only a very limited wallet for storing credentials that can be presented on the screen of the phone, or used on line. iphones are not NFC-capable.
3 Square and Payfirma use technology that allows a mobile phone to receive payment as a Point of Sale terminal, not to use the phone to make payments. In the future, however, NFC smartphones equipped with the right SIM cards will also be able to be used as a new class of EMV contactless card reader. Peripherals that read mag strip cards, like Square, are not capable of reading secure EMV card data. Peer-to-peer payments such as M-Pesa in Kenya permit bank-less phone-based transactions as a form of cash replacement, using text messaging or wireless data to send funds from one stored value account to another. This system does not use the secure technology needed for EMV credit/debit card payments. Using the secure technology of the kind provided by EnStream means banks and other issuers can securely download their customers secure credentials onto their smartphones to allow contactless payment. Today, Visa, MasterCard, Interac and American Express all have contactless payment applications: paywave, PayPass, Flash and ExpressPay, respectively. EnStream is deploying on an open, all-comer utility-like basis, creating a cost-effective and easy-to-use standard for the market. WHAT IS A WALLET? The wallet is a term used for the application on the phone that the customer sees and uses to manage and present credentials. Full open mobile wallets are considered those that can manage and present different types of credentials from multiple issuers, including loyalty cards, gift cards, identity cards, etc. To date only single issuer bank payment applications are used in Canada, but several full-service open wallets are nearing commercial deployment, such as SureTap, being developed by certain MNOs, and UGO, which is being developed by certain banks. WHAT IT MEANS FOR CONSUMERS The majority of Canadians now carry smartphones, and the new NFC mobile payment technology provides: Greater everyday purchase convenience. Same level of card security as chip and PIN. Gift card and loyalty card convenience. Instant account credential delivery and replacement. Account balances, payment history. Customer-initiated suspension, restoration. Better security for other cards such as loyalty and gift. Some consumer groups have raised certain concerns, such as: What happens if you lose your phone? It s as if you lose your wallet or purse it s not foolproof. One benefit, however, is that over the air suspension of credentials, and their replacement with new ones on a new phone, can be immediate. What about customer profiling and use of personal data? There will be possibilities for such activity, just as there are now with other apps and other payment methods such as online. It is a concern to some, but not to others - some consumers, for
4 example, like to receive customized discount coupons based on their personal preferences and/or location. Others prefer greater privacy. Smartphones currently have some settings to minimize discovery of data, and the wallet developers are being encouraged to provide settings for similar purposes so that consumers can choose. How will the banks and MNOs disclose pertinent information to customers such as legal terms and conditions and how data might be used? Although a phone screen is smaller than that of a computer, disclosure protocols when downloading new apps and the ability to read text scrolled down on a phone screen seem to be addressing this issue reasonably well. To a consumer, this service appears to be provided by both the consumer s bank and MNO in combination. How then do consumers know who to call for customer service, redress or dispute resolution? The banks and MNOs are establishing protocols to ensure that customers get to the right customer service based on the issue that they are calling about. One benefit of using one s phone is that any such disclosure of terms, privacy options, etc. can be done immediately over the air. WHAT IT MEANS FOR MERCHANTS / RETAILERS More sales due to greater convenience for customers. More sales because of increased use of gift cards both coming into a retail store, but also increased sales of retailers own gift cards. No increase in the interchange fees. Whether a customer uses a particular credit card using chip and PIN or uses that same card s credentials on the customer s phone, the purchase appears the same to the terminal it is form-agnostic. There will be some costs to upgrade terminals but for retailers who have already upgraded to chip and PIN terminals, many are already NFC-enabled most of the terminals that already permit contactless payment (tap or wave) are ready to go for tap and wave by phone. Others may merely need a software upgrade. EnStream is very conscious of the desire for an open-standard approach to this technology. Cost savings due to quicker transactions and reduced cash handling. Enhanced customer data to help increase effectiveness of marketing, displays, etc. Greater ability to introduce customers to promotions, over the phone and in real time. WHAT IT MEANS FOR BANKS, OTHER ISSUERS AND THE MNOS Increased revenue from more credit and debit transactions. Reductions in costs associated with the whole production and distribution cycle of plastic cards manufacturing, mailing, returning, replacing, etc. Reduction in fraud for payments and identity cards such as licences, health cards. The MNOs generate revenue from the banks (and, over time, other non-financial issuers) for renting actively-managed space on the issuers customers SIM cards in their phones, and providing the technology that allows the issuers to download and
5 manage credentials. The MNOs will not generate revenue from merchants, as there is no direct relationship. It is not expected that MNOs will charge their subscribers more for this service, although the enhanced SIM cards may cost a bit more.) CANADA AS WORLD LEADER Canada is a world leader in mobile payment technology consistent with our history of early adoption of other new technology such as the Internet, debit cards, EMV, smartphones and contactless cards. Despite common misperceptions, there are very few other countries around the world that have successfully deployed this level of secure, credit and debit card mobile payment capability. Singapore, Poland, Turkey, France are examples, but even their deployments are small. Most notable is just how far behind the US is, even now with barely any chip and PIN or contactless payment capability. As of today, deployments have now been made by CIBC/Rogers, RBC/Bell, CIBC/TELUS. Several other banks will be launching in the next few months, with the major MNOs being brought onstream by all. There are also at least two major open Wallet options expected in the Canadian marketplace shortly. Canada is far ahead for a number of reasons: We have a relatively small number of both banks and mobile network operators, which allows for greater cooperation in terms of technical standards. Canadian banks and MNOs have a tradition of investment and of efficient collaboration to overcome challenges due to insufficient scale. Canada s stable and predictable regulatory environment helps participants deploy new capabilities with confidence. From the beginning of the technical development, the Canadian approach has been to make this mobile payment capability ubiquitous, recognizing that everyone will benefit from rapid and open development of the ecosystem. EnStream s technology is therefore open and available to all MNOs and to all banks and other issuers on consistent terms. This open market approach is in marked contrast to corresponding entities elsewhere (such as ISIS in the US, a Verizon, AT&T and T Mobile joint venture), which operate as closed shop monopolies/oligopolies which hinder growth. Opportunities beyond Canada: The Canadian-developed technology that is now already proving itself in the Canadian market is scalable and exportable globally the delivery of credentials to SIM cards in NFC-enabled smartphones is supported by a global standard (known as Global Platform, or GP ) and is supported by the GSM Association. Worldwide acceptance of contactless credentials has been endorsed by the major payment card associations with, as noted above, global deployment of the Visa, MasterCard, Interac and American Express contactless payment applications, paywave, PayPass, Flash and ExpressPay respectively. EnStream is proud to be part of this Canadian success story, and looks forward to the opportunity to carry our flag abroad.