August 07, 2013

Mobile "pay as you go" is all about the fees

I was just getting used to the idea that I can "swipe" a credit card to make small payments, and now I find out that mobile payment systems are arriving soon.  It's not just Canadian banks that plan to create apps for mobile phones to make payments - Paypal Canada (a foreign-owned business) wants a piece of this market too.  They expect to make $20-billion from mobile payments just this year, so you know there are high fees involved.

Paypal designs all its systems to make it easy for the buyer pay online, letting the seller pay their high fees to receive the payments. They lure buyers with a "free" personal account and no fees. The seller pays fees on most transfers, and a higher fee if the buyer's Paypal account uses a credit card as their source of "payment". Credit-based payments can cost the seller 2.5% of the sale or higher. It's interesting to note the seller has no way of knowing if they will get hit with this fee when they accept payment, which is hardly fair to the seller.  If the buyer pays in U.S. funds, there are additional fees to convert to Canadian dollars (Paypal does all its accounting in U.S. funds).  If the seller is a business that will be accepting quite a few online payments, they need to open an business account, at even higher cost.  And guess who pays for all these processing fees - why you do, in higher sticker prices. (I finally decided to add $4 to payments between $60 and $80 made via Paypal because that was the average fee Paypal charged me to receive it.)

Canadians with personal online banking accounts can pay online using "Interac money transfer" with very low fees for the buyer and none for the seller.  I hope a mobile payment system can be devised by Canadian banks that take advantage of this to make store payments with similar low fees.  In the meantime, Paypal Here uses a small card reader and an app that runs on iPhones. Another payment system, Square, uses a reader which plugs into the headphone jack of a smart-phone.  Most contactless payment systems use NFC - near field communication - but only the latest Android and Blackberry phones are equipped to use it. With all these technology problems, it should be interesting to see what method wins. And how much it will cost us all.