CIBC, Rogers first off the mark in digital wallet race

Canadian Imperial Bank of Commerce (CM-T) has become the first bank to strike a deal with a major wireless carrier to allow customers to carry a digital wallet on their mobile phone, announcing an agreement with Rogers Communications Inc. (RCI.B-T)

In what is expected to be a race among banks, who are rushing to partner with wireless companies to roll out the new technology, CIBC and Rogers announced the pact Tuesday morning in Toronto.

The new system will allow customers of CIBC who carry Rogers smartphones to pay for goods at merchants by using their mobile phone, instead of pulling out their credit cards or reaching for their wallet or purse.

Data for CIBC’s MasterCard and Visa charge cards can be loaded onto the phones, which will send a signal to a small receiver near the cash register at participating retailers. Small payments will be processed within seconds, while larger payments of about $50 or more will require the customer to enter their personal security code.

Though no exact date for the launch was given, the technology will be in place in a matter of months and could reshape how consumers buy goods in the future, said David Williamson, CIBC’s senior executive vice-president of retail and business banking.

The system uses the same type of technology as so-called “contactless credit cards,” where consumers simply wave their card in front of a reader at the checkout, rather than swiping it.

“Beginning later this year, customers will be able to use this payment capability at merchants across Canada where contactless credit card payments are accepted,” CIBC and Rogers said in a joint statement.

The move is part of a revamp of Canada’s digital payments system, which is seen to be lagging behind the U.S., Asia and parts of Europe. Though CIBC and Rogers are the first companies to offer the mobile payments, which could one day replace the need to carry credit cards and debit cards, other banks and telecom companies are expected to follow with similar offerings in the coming year.

The announcement comes just one day after the Canadian banking sector published new standards that pave the way for such electronic payments. They include guidelines for the secure handling of customer data during mobile transactions.

Beyond credit cards and debit cards, it is envisioned that eventually consumers will also load their drivers licence information and loyalty cards onto their phones as well, reducing the need to carry a wallet.

“Canadians are embracing new technologies at an accelerated pace and we know they’re interested in using their smartphone for mobile payments,” Rob Bruce, president of communications at Rogers, said in a statement. “Today’s announcement with CIBC represents an important first step toward a whole new world of mobile transactions.”

It is expected Royal Bank of Canada will introduce a similar offering soon. Meanwhile other wireless carriers are also rushing to get into the business to compete with Rogers. Bell Canada and Telus Corp. are expected to roll out technology in the near future, and possibly other, smaller wireless carriers.

To handle mobile payments, the phones store credit card information and debit card information on the SIM cards inside the phones, which are the small digital chips that give the device its identity. With data added to them, the cards have the ability to double as digital wallets.

“The new payment capability will leverage the secure SIM card inside a mobile device for payments, meaning clients can manage their credit card credentials on a secure platform,” CIBC and Rogers said in the statement.

The telecom companies charge banks a fee for putting their data on SIM cards, opening up a new stream of revenue for the wireless carriers.

However, CIBC said the service will come at “no extra cost” to consumers. The bank is the largest issuer of credit cards in Canada, including Visa and MasterCard. Eventually, CIBC expects to offer payments through debit cards as well, though that function won’t be offered immediately when the service launches.

The system uses technology known as Near Field Communication, or NFC, which is increasingly being installed in new phones and makes it possible for the device to communicate with a receiver that is in close proximity. Since consumers usually replace their phones every 18 to 20 months on average, it is expected the majority of Canadians will have NFC-enabled smartphones by 2014.

CIBC has been aggressive in rolling out new technology in the past few years, introducing the first mobile banking app in 2010, followed by the first iPad-specific app this year. The new technology will be available first on Blackberry devices, Rogers and CIBC said, followed by other types of phones after the launch.

Rogers has also been eager to move into mobile payments. In a separate move last year, Rogers applied for a banking licence to become a credit card issuer, with an eye to offering payments through its own brand of cards on its phones. If the licence is granted Rogers would become the first wireless carrier to pursue that line of business.

The partnership between Rogers and CIBC is the result of months of negotiations between the two companies to offer the service, which is seen as the future of how Canadians will pay for goods, ranging from bus fare and coffee to larger purchases such as groceries and clothing.

Merchant groups are approaching the new technology with caution, fearing the new payments system could lead to higher fees for stores. Dan Kelly of the Canadian Federation of Independent Business said he is worried about costs being passed along to small businesses. However, the Canadian Bankers Association said Monday as it released the new guidelines that the technology wouldn’t result in more costs for consumers or merchants.