In Liberty Village, millennials test-drive a cashless future
Startup fine-tunes digital currency to compete with Apple Pay
Liberty Villagers have been leaving their wallets in their condos when they buy tools from the hardware store, stop in for sushi or purchase bouquets from the florist as part of a local currency experiment that could be a breeding ground for a cashless future.
The Toronto enclave, which resembles a university campus, has been a “working lab” for MintChip, the digital currency developed by the Royal Canadian Mint and acquired by startup nanoPay.
Outside the startup’s office in a converted industrial building in the neighbourhood, a disproportionately large number of young professionals are crowded into a few blocks of condo towers and townhomes.
“It’s millennial heaven here,” said Simon Keogh, chief marketing officer of nanoPay. “It’s a perfect place to test things if you’re trying to understand how millennials are going to be using your products.”
The Toronto-based startup is among hundreds of payment-focused financial technology players trying to compete with the likes of Apple Pay, a mobile wallet by the technology giant that launched in Canada this year. Technology-enabled players, big and small, are eyeing opportunities to disrupt traditional banking in a market expected to grow to $141 billion by 2019, up from less than $5 billion in 2014, according to some reports.
Although Apple has yet to release Canadian data on the use of its mobile wallet, there are signs it’s not being rapidly adopted in the U.S., where it’s been available since 2014. AMarch survey by Crone Consulting found that only 6 per cent of mobile users eligible for Apple Pay in the U.S. actually used the wallet. Tech research firm Timetric found Apple Pay accounts for just 0.2 per cent of total in-store transactions south of the border.
The major problem for the nascent industry? Convincing consumers a mobile wallet is better than a physical one.
“For me and you to use something in a big way, it needs to be ubiquitous,” said Rob Cameron, chief product and marketing officer at payment processor Moneris.
“There need to be enough businesses that you can use something in the market that you normally operate in, such that it just becomes the daily way you do something.”
Apple Pay’s entry into the Canadian market has probably jump-started adoption rates and Cameron believes Samsung and Google will introduce their own wallets in Canada by the end of the year, which will further entrench the technology.
NanoPay faces greater challenges than its bigger rivals because it doesn’t have the same brand recognition. It also requires users to take an extra step and transfer Canadian dollars from their bank accounts into the MintChip currency at a par exchange rate.
Startups such as MintChip are opting to provide an alternative to all three of the established payment types — cash, credit and debit — on the premise that consumers will be willing to take that extra step in exchange for a reward, said Bob Vokes, managing director of financial services for Canada at digital consultancy Accenture.
Tying in loyalty and incentive programs is key to persuading customers to go through the added step of converting their cash to “cryptocurrency” such as MintChip — a “paybefore solution” (as opposed to “pay now” solutions such as debit or “pay later” such as credit cards).
Starbucks’ payment app is a highly successful example of getting customers to load up a digital wallet in exchange for loyalty points — probably the major reason behind its success, Vokes said.
MintChip’s approach is particularly interesting, if not entirely new, he added, because it’s communitybased.
“It’s a way to draw people in their communities tighter, using a payments mechanism,” he said. “But over time, in order for these systems to truly work, you do need some scale.”
Keogh believes the critical mass will follow because the technology offers benefits to both merchants — such as cheaper payment processing — and consumers, including rewards programs.
But before it can compete on a national scale, it has to perfect its product quickly to keep pace with the rapid industry change.
This is why it chose to start with Liberty Village — a community that has become a microcosm of Canadian commerce, with multiple restaurants and nearly every type of shop — and scale up from there.
The neighbourhood has proved an ideal hub for other tech startups seeking to test out their products. Uber chose the high-density community as one of the test routes for its now-defunct UberHop fixed- route carpool experiment.
NanoPay selected a cross-section of 13 local retailers to test and improve the platform — including a pub, a florist and a cake shop. The “working lab” allows it to iron out kinks before a national launch some time next year.
For example, after receiving feedback at the MintChip-enabled Brazen Head pub, the company updated its app with the ability to add a tip or split a bill.
Launching a new currency is particularly challenging, Keogh said, because the company must focus on appealing to two sets of user bases.
“When it comes to adopting different forms of payment, there is in many cases a sort of chicken and the egg. You need consumers to adopt it and you need merchants to be able to accept it.”
The platform requires customers and merchants to download apps that speak to one another when a customer scans a QR code on a device with the app downloaded.
This year, they will also be able to use in-store terminals after the company signed a deal with Canada’s largest payments processor.
Consumers can also make free peer-to-peer transfers, for instance, to pay rent or allowance. Peer-topeer transfers currently outpace merchant use 10-to-1 after “hundreds of thousands” of users across the country downloaded the app, Keogh said.
During the trial phase, the company is coaxing customers to download the app by offering 20-per-cent cash back in MintChips.
Smaller merchants will be able to offer similar rewards programs through MintChip’s platform that they wouldn’t otherwise have the scale or money to roll out. Merchants also avoid fees paid to banks, payment processors or credit card companies because transfers go from one user’s cloud-based storage vault to the other.
NanoPay is still figuring out the exact revenue model, but Keogh said it will involve a monthly rate as well as a per-transaction fee that is “a fraction of what they are paying today” for credit and debit transactions.
Since its June 21 launch, MintChip users have added nearly $200,000 to their accounts and the company has processed nearly 10,000 transactions, Keogh said, though he declined to say how many people regularly use it.
Still, Liberty Village merchants say payment with MintChip is relatively rare. At Home Hardware, about five customers paid with MintChip in the past week, while about 5 per cent of purchases at the local Freshii quickservice restaurant are made with the digital currency.
But the possibility of a cashless future is gaining traction.
Cash purchases will make up just10 per cent of money spent in Canada by 2030, compared with 35 per cent of transactions in 2014, payment processor Moneris Solutions Corp. projects.
For mobile payments to take off, providers will have to make the case that using a phone to pay is that much more rewarding and convenient than tapping a card.
“Any of these innovative solutions like MintChip are testing if there are other approaches to accelerate moving to cashless,” Moneris’s Cameron said.
“It really comes down to have you made the consumer’s life better in some way.”
“You need consumers to adopt it and you need merchants to be able to accept it.” SIMON KEOGH NANOPAY