MONTREAL - Using smartphones to pay for small purchases took another step forward Monday with Canada's financial institutions announcing guidelines for mobile payments that work with technology already in place.
The guidelines were developed by the major banks and credit unions, although observers say that consumers routinely using smartphones to tap and pay for items like sandwiches, bread, milk and gas is still a few years off.
"We are not throwing our wallets away in the next 36 months," said telecom analyst Duncan Stewart of Deloitte Canada.
"But you have to line up all of the ducks now," Stewart said from Toronto.
The Canadian Bankers Association said the voluntary guidelines are designed to work with the same security standards used by chip-enabled credit and debit cards and existing wireless point-of-sale terminals at retailers.
"This benefits merchants and consumers by building on an existing system, and leveraging the same high security standards used by today’s chip-enabled credit and debit cards," the association said in a statement.
Deloitte's Stewart said only about 10 per cent of new smartphones have the ability to make mobile payments and three to four per cent of North American merchants have terminals that are able to read the financial information on the enabled phones.
Telecom analyst Iain Grant of the SeaBoard Group says smartphones first need to be equipped with what's called Near Field Communication, a technology that allows consumers to tap or swipe their phones against terminals to pay for goods.
Grant said that in five years all smartphones are expected to be equipped with this chip technology.
"The only question is how do you manage the transition until (then)," said Grant, SeaBoard's managing director.
Grant said he isn't convinced that merchants will be enthusiastic about mobile payments if it costs them more money.
"If there's no compelling need to invest any additional money then you will have your brand new spanking phone with its new capability and nowhere to use it."
Visa Canada said merchants who use its Visa payWave contactless payment service won't pay additional fees for mobile payments.
"We think it's a fantastic step forward to have these common standards within a specific geography and it's really going to help," said Derek Colfer, business leader of global mobile product innovation at Visa Canada.
It will accelerate smartphone use, Colfer said, adding that over time making mobile payments on enabled smartphones will become as common as using the devices to take pictures.
About 45 per cent of Canada's wireless subscribers use smartphones and that's expected to go up to 56 per cent by the end of this year, the Convergence Consulting Group has said.
Colfer said mobile payments will be for "everyday" items.
"We're not going to be tomorrow, or any year from now, using a mobile device to buy a car," Colfer said from Toronto. "They're for price points under $50 for most merchants and at gas stations, it's for $100 or more."
EnStream, a joint venture between Rogers (TSX:RCI.B), Bell (TSX:BCE) and Telus (TSX:T) to further the use of mobile transactions, expects Canadians to start tapping and paying for purchases in 2013.
"As the handsets grow and the traffic grows, we'll deploy the infrastructure," said Almis Ledas, Enstream's chief operating officer.
"The (contactless) readers will get out there, the apps will get out there and it will spread."
Ledas said Rogers and Bell have already done trials testing Near Field Communication technology on smartphones.
Last fall BMO announced its PayPass Mobile Tag for its MasterCard users, which allows them to make purchases that are $50 and under by placing a Near Field Communication enabled sticker on the back of their smartphone.