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BCBusiness.Ca July 2014 BCBusiness 43 W ith 88 per cent of British Columbi- ans now owning a sma r t phone, according to a recent Insights West survey, the prolif- eration of Internet-connected mobile devices has already changed the way most British Columbians commu- nicate. Now the same technology is transforming how we pay and get paid for goods and services. In the Mas- terCard Mobile Payment Readiness Index, which ranks 34 national mar- kets in order of readiness for mobile payment adoption (including mobile point-of-sale, peer-to-peer payments and mobile wallets), Canada places second, behind only Singapore. Lead- ing the way are businesses like Michael Paul's, which are rapidly adopting mobile point-of-sale ( POS) technology. In the past, to accept credit cards, businesses needed expensive special- ized hardware and software, as well as a wired phone line. Mobile devices eliminate the need for a wired connec- tion and dramatically reduce the cost of both the hardware and software. Square, a hot California-based startup, is the service that Community Pizzeria uses. Founded by Twitter creator Jack Dorsey, Square is favoured by small businesses for its low start-up costs (both the app and the stamp-sized card reader that plugs into the device's headphone jack are free) and simple pricing (2.75 per cent per transaction), with no minimums or additional fees. It's on track to process US$30 billion in payments this year. Vancouver-based competitor Payfirma uses similar tech- nology, but offers lower per-transac- tion rates (1.99 per cent, plus 25 cents per transaction) with a $10 monthly fee for smartphone systems. Mobile businesses such as Nurse Next Door and 1-800-Got-Junk that process pay- ments larger than the cost of lunch are Payfirma's bread and butter. In the past two years, tens of thou- sands of British Columbians used a credit card with a mobile POS sys- tem for the first time, and for many of them it was their first transac- tion completed using a smartphone. Mobile POS systems are rapidly being adopted because they solve a series of obvious problems. For retailers, the tech- nology enables salespeople to easily and cheaply accept credit cards anywhere, which means never losing another sale because the customer doesn't have cash. For consumers, it means never going hungry because your local mobile pizza purveyor doesn't take plastic. Another reason mobile POS is lead- ing the trend toward smartphone-based transactions is that many consumers are already conditioned to pay with their credit cards in all sorts of ways. Whether we use a MasterCard with a traditional pin pad, tap it on a PayPass-enabled gas pump or swipe it in a Payfirma reader, we trust that MasterCard will cover any fraudulent charges. But when it's up to us to adopt a new payment technology, not the merchant, we're worried that we'll inadvertently make ourselves vulner- able. Paul says he almost never loses a sale because a customer doesn't trust his Square system. In his current East Van- couver location, he hasn't noticed much hesitation at all. "People actually think it's fun to sign with their finger," he says. But as with everything in the food truck busi- ness, location matters. "It depends on the area," he explains. "We did all last sum- mer in West Vancouver, and some of the older people didn't really like it. They just say, 'I'm going to go get cash.'" Survey data confirms Paul's observa- tion that older people are less comfort- able with mobile POS systems, but not by a very wide margin. Insights West reports that 79 per cent of British Colum- bians over the age of 55 say that they are concerned about the security of finan- cial transactions processed using a card reader connected to a retailer's smart- phone. Among those under 35 years old, 73 per cent said they were concerned. Payfirma CEO Michael Gokturk believes that trust comes with time: "Ten or 15 years ago, people were very apprehen- sive about using their credit cards on the Internet, and now it has become com- monplace." While 55 per cent of British Columbians are still concerned about using their credit cards online on a lap- top or desktop computer, 70 per cent are concerned about the same transaction with the same website when made on a smartphone. "The mobile device is still somewhat a black box in terms of security features and who can actually hack it," Gokturk says. Following closely behind tech- nologies enabling retailers to accept payments using their mobile devices are those that will soon let con- sumers leave their plastic cards at home: smartphone apps that store information from credit cards, loyalty cards and ulti- mately everything else in their physical wallets. For many Canadians, prepaid loy- alty cards have been an introduction to the idea. On a recent conference call with analysts, Starbucks CEO Howard Schultz revealed that payments made using the Starbucks card mobile app now account for 14 per cent of the coffee giant's take in the U.S. and Canada. If you're more of a Tim Hortons type, you're in luck— Canada's top caffeine supplier launched its own TimmyMe app in May. In B.C., according to Insights West, two-thirds of those aged 18 to 34 have made a purchase with their smartphone in the past three months, and coffee shop apps were the most common payment method. Paying for parking is another transac- tion that British Columbians have started using an app for in large numbers. What the early leaders in mobile payments have in common is that they're predominantly small-transactions merchants, where an app can easily replace petty cash. Canadians can already replace the pre- paid loyalty cards in our physical wallets, like Starbucks's, with apps in our digital wallets—and many have. What's next is to replace our physical credit cards, a far more complex transition. In the U.S., Google's solution, called Google Wallet, has in the past two years, tens of thousands of British Columbians used a credit card with a mobile POs system for the first time, and for many of them it was their first transaction completed using a smartphone p040-047-MobilePayments_july.indd 43 2014-05-29 3:54 PM