Incentives in Mobile Payments

It’s become a bit of a running joke on the podcast I do that we have a lot to say about mobile payments, and specifically the arrival (or non-arrival) of Apple Pay in Canada. The mobile payments episode was episode 2, and we still have more to say about it during our follow up segment almost every other episode.

But there’s a reason we’re so excited for Apple Pay to come to Canada, and that’s because the current system isn’t very good. I think I’ve had to get my debit card changed twice in the last year, because every four months, it starts spewing out chip errors every time I go to use it at a merchant. Last time I got mine changed was shortly after I started my new job back in December, and I’m already starting to get chip errors on that card. It’s infuriating, especially since I maybe use my card three or four times a month tops.

American merchants have recently started migrating to chip-and-PIN because they’ve been heavily incentivized to do so, but response hasn’t been very good from consumers. As far as consumers are concerned, chip-and-PIN is a downgrade because it is a slower process which they find it to be less reliable. Security doesn’t win you any points, because while consumers will be quick to bitch and moan when they’re a victim of credit card fraud, they won’t send a jar of cookies to their credit card network for not being a victim of credit card fraud.

It’s interesting to look at the incentives in play with regards to mobile payment systems. Anyone who’s used mobile payments in Japan (specifically with Suica and compatible IC cards) has probably felt the desire for North America to just import that system wholesale, as it’s proven to be incredibly reliable in the 15 years it’s been running in the greater Tokyo area. Arguably the reason it is so quick and reliable is because the entire system was developed for transit first, and retrofitted to support generic payments afterwards. You want things to go as quickly and reliably as possible to avoid bottlenecks during rush hour, so there was zero tolerance for errors or latency. The Japan Railway & Transport Review states that for a Suica user to not have to pause while crossing a ticket gate, all processing must take place in 0.1 seconds.

0.1 seconds makes debit card payments over chip-and-PIN terminals look completely barbaric in comparison. Even using something like MasterCard’s Paypass or Visa’s payWave to tap and pay isn’t as fast, and unfortunately, every single attempt I have made to pay with those has failed, even on terminals at which people have demonstrated it working. I’m starting to think I must be cursed.

This kind of incentive to get speed, reliability, and ease of use way up is something Western attempts to mobile payments desperately need to catch up to the Tokyo of 2001. While not exactly the same, part of what’s so exciting about Apple Pay being developed by a tech company as opposed to a financial firm is that they have a fresh perspective on the problem, and one that isn’t clouded by the incentives and motivations of the payment networks.

I have doubts that Apple Pay will ever be as good as Suica, but as long as it’s better than chip-and-PIN, it’ll be good enough progress for now.