An Update on Mobile Wallet Trends in Canada

Navigator Edition: April 2014
By: Dave Woynerowski

Canada is on its way to becoming one of the world’s first national-scale proving grounds for mobile payments adoption. MasterCard ranked Canada second behind Singapore in its Mobile Readiness Index, as the penetration of NFC-enabled smartphones in Canada is expected to rise from ~16% as of 2012 to 80% in 2016.1 Based on the recommendations of the Task Force for the Payments System Review as mandated by the Minister of Finance, the major financial institutions (FIs) in Canada developed the NFC Mobile Payments Reference Model, with the objective of creating a set of standards that facilitates the cooperation among MNOs and payment networks necessary to support NFC, heavily leverage existing network and processing infrastructure, and accelerate speed to market. Smartphone manufacturers such as Samsung and HTC continue to upgrade newly released handsets with NFC capabilities. However, there is still uncertainty regarding form factor: traditional NFC-backed mobile wallets using a secure element are most prevalent, while Visa and MasterCard have recently endorsed cloud-based NFC through Host Card Emulation (HCE), which was included by Google in its Android 4.4 devices. Other technologies are potential disruptors to an NFC-led industry standard, including PayPal’s Bluetooth Low Energy-enabled Beacon in the U.S., and any potential closed-loop payment system from Apple.

Multiple parties are racing to develop industry-leading solutions, grown out of partnerships among FIs, retailers, and MNOs. Following the government-endorsed blueprint, MNOs have generally partnered with FIs to provide the mobile devices with access to the secure element (“SE”) (which provides security for mobile transactions by storing payment credentials) to facilitate NFC mobile payments. CIBC is the most advanced in pursuing this strategy, offering SE-enabled NFC payment apps through two separate MNOs – first Rogers then Telus on CIBC-branded consumer payment card accounts. However, Rogers may threaten this model with its newly-acquired banking license, through which it will directly compete with banks as both a credit card issuer and MNO.

While collaboration among MNOs and banks / retailers is the dominant trend, RBC became the first Canadian bank to opt for an HCE / SE hybrid when it launched its SecureCloudTM cloud-based NFC solution in January of this year. The RBC wallet is designed with an open architecture that RBC claims will ultimately allow inclusion of payment and loyalty cards issued by other financial institutions and retailers. For the time being, RBC’s wallet relies on the Bell Mobility SIM card to store tokens (RBC described it as 95% HCE), but appears poised to ultimately become fully HCE-based, and thus MNO-and form factor-agnostic, as HCE penetration of the handset market grows. In contrast to solutions that require use of specific combinations of MNOs, banks and NFC-capable handsets, these open solutions, if fully optimized, should benefit from an expanded addressable market, potentially making them more viable long-term than closed-system wallets.

Another leading FI, Toronto-Dominion (TD), has partnered with a leading grocer, Loblaw’s and its financial services subsidiary, PC Financial, in creating the Ugo mobile wallet, due to launch this spring. Initially, TD Visa cards, PC Financial MasterCards and PC® points (loyalty) cards will be the exclusive payment and loyalty cards with access to the wallet, but the companies have plans to expand access to debit, gift card and other retail loyalty programs over time. The open nature of the Ugo wallet and focus on gift and retail loyalty programs appear to suggest a “one-stop-shopping” positioning strategy. Time will tell which technology solution TD and Loblaw’s choose to host payment credentials.

Ironically, the most widely used mobile payment solution in North America is the Starbucks mobile app, which is based on barcode technology. Starbucks recently reported that 14% of company-operated store transactions in the U.S. and Canada are made on a mobile device. In December 2013, Starbucks’ Canadian arch-rival, Tim Horton’s, launched an HCE-enabled mobile payment app available on Blackberry 10 smartphones (soon to be available on Android 4.4 devices), and also launched a pilot for a barcode payment app similar to the Starbucks rewards reloadable prepaid card. Presumably, the multi-pronged approach will broaden the reach of its TimmyMeTM loyalty program by addressing their U.S. locations and Apple / older Android smartphone users.

Figure 1: Models Embraced by Key Canadian Stakeholders


1 Per NFC Times, RBC’s SecureCloud combines a cloud-based payment service with stored cryptographic tokens of a secure element. ComScore also reported that U.S. NFC smartphone penetration was 10% as of Sept. 2012.
Source: First Annapolis Consulting research and analysis.

When observing Canada for leading indicators of how mobile payments may develop in the U.S., it is important to acknowledge important differences between the markets:

  1. The Canadian government has taken a greater interest in encouraging a centralized approach to setting standards, which has largely favored the payment system establishment, and in particular the largest banks and the leading payment networks.
  2. Banking competition is more concentrated in Canada, where the top five FIs hold approximately 65% of personal banking deposits, whereas the top ten U.S. FIs hold 64% of deposits.2 With more deep-pocketed bank competitors in the U.S., we are likely to observe a greater diversity of investments and solutions offered prior to convergence.
  3. The point-of-sale (“POS”) and mobile handset market in Canada is more advanced in adopting NFC. Over 25% of all Canadian POS terminals are contactless-enabled, whereas the largest U.S. merchants have an NFC-enabled terminal penetration of only around 10%.3 As previously mentioned, NFC-enabled mobile devices are more prevalent in Canada, where NFC penetration in 2012 was estimated to be over 50% higher than in the U.S., where Apple has a greater share of smartphone users.1 The conversion to EMV-capable cards and terminals is nearly complete in Canada – whereas it is just beginning in the U.S. – and many Canadian merchants have added NFC-contactless functionality alongside their investment in EMV-enabled terminals. Many speculate that NFC’s best chance in the U.S. is to similarly ride the coming EMV wave.

These differences have created more opportunity in the U.S. for banks, MNOs, retailers, technology companies and networks to jockey for share of the consumer’s behavioral data, loyalty, and ultimately commerce in an effort to redefine the payments landscape. While some of the same dynamics may emerge in Canada, for now it appears that Canada will be one of the first major markets to achieve national-scale deployment of a predominant mobile payment technology and operating model. Only time will tell whether Canada’s approach to mobile payments will serve as a blueprint or another data point for the evolution of mobile payments in larger economies like the U.S. and the E.U., but the world would be well-advised to pay close attention.

1 Canadian smartphone penetration as of Sept. 2012 was 15.6% of smartphone penetration according to ComScore; expected to rise to 80% by 2016, according to a TSI report in 2012.
2 Canadian estimate from Canadian bank filings and Statistics Canada data as of Q3 2013; U.S. estimate from SNL Financial, showing deposits held by top ten bank holding companies as of year-end 2013.
3 Canadian contactless penetration as cited by RBC’s Head of Emerging Payments, Jeremy Bornstein, in an interview with Plastic Mobile in April 2014. U.S. penetration from Boston Fed Mobile Payments Industry Workgroup Meeting in June 2013.

For more information, please contact David Woynerowski, Partner, specializing in Credit Card Issuing,

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