Like many consumers, Ottawa hotel executive Moira McNaney says that she prefers to carry only small amounts of cash. She also tries to limit her use of credit cards because of the high interest rates charged on outstanding balances. Last year, the 29-year-old McNaney finally discovered an alternative form of paying for her shopping—a local pilot project that allows consumers to pay for their purchases without using credit cards, cheques or cash. Now, when McNaney goes shopping at participating stores, she merely hands her bank card to the merchant and punches her confidential personal identification number—the same number she uses to withdraw cash from automated banking machines— into a computer located near the store’s cash register. The money needed to pay for her purchase is then automatically deducted from McNaney’s bank account and deposited into the account of the retailer—at about the cost of a daily newspaper. Says McNaney: ‘T use it in the liquor store, grocery stores and boutiques. I use it all the time I’m out. I just love it.”
Consumers in other parts of the country will soon have an opportunity to judge the directpayment system for themselves. Interac, a Toronto-based organization that represents most of Canada’s financial institutions, last week announced that it plans to extend the Ottawa pilot project to consumers in British Columbia and Quebec next September, and to shoppers throughout the rest of Canada over the following two years. But some retailers caution that the system will bolster bank profits at the expense of consumers and retailers, all of whom must pay fees to use the service. Such fees will likely range up to about 25 cenfs for each transaction, with additional charges to retailers for the use of computer terminals and telephone lines. Critics also charge that the direct-payment system could be used by banks to gather sensitive information on consumers and their spending habits. “I think there’s a privacy issue here,” says Harry Campbell, a Canadian Tire store manager in downtown Ottawa who has decided not to take part in the direct-payment system. “They can get an awful lot of information with this thing.”
Despite such reservations, Interac president Derek Fry insists that the system is both popular with consumers and a boon for retailers. Nearly 100,000 of the 490,000 bank-card holders in the Ottawa region have used it regularly since Interac launched the project in October, 1990. And the number of retailers who participate in the network has doubled to 2,100 this month from about 1,000 a year ago. Those businesses range from fast-food restaurants to grocers, liquor stores and hairstylists.
Consumers benefit from the network, Fry says, because it is “as confidential as cash, and quicker than cheques.” Retailers, he adds, gain the advantages of “same-day deposit of funds, less handling of cash, no time wasted taking customer identification and no more cheques that bounce.” In fact, without adequate funds in a customer’s account, transactions will be declined by the system.
For their part, consumer advocates are largely supportive of the new service. Says Doreen Guthrie, a project director for the Consumers Association of Canada: “An additional payment option is a good thing, provided that it is in addition to, and not a replacement for, cheques, credit cards or cash.”
Some retailers in the Ottawa area have high praise for the new service. Declares Timothy Hodgson, manager of Fishin’ Buddies, a fishing-tackle store in west-end Ottawa: “It is worth its weight in platinum.” Adds Hodgson: “It is faster than any other card that I have used and it is very convenient—especially for end-of-day balancing.” For his part, Ottawa jeweller Bill Thompson says: “With this system, we do not have to spend any time on the phone checking card balances. It is working very well.”
Still, others contend that banks and trust companies will reap the most benefit from the service. By 1994, nearly all of Canada’s 13.5 million bank-card holders will be able to use the system. While the charge to consumers will be less than current service fees for writing cheques, retailers will face the cost of renting a terminal—as much as $40 a month—and a telephone line for data transmission. Says Mel Fruitman, vice-president of the Retail Council of Canada: “As far as we can see, the main beneficiaries are the financial institutions.”
Fry acknowledges that the banks, which have been the targets of widespread criticism in recent years because of rising service fees, are not pursuing the project “out of the goodness of our hearts.” But he adds that Interac members have spent hundreds of millions of dollars on the Ottawa pilot project and that the fees for using the service are reasonable given the banks’ costs. Fry also says that concerns about invasion of privacy are unfounded. The personal identification number—which consumers enter themselves on a hand-held numeric keypad—as well as all other information about customers, is regarded as private and is supposed to be kept confidential by financial institutions, he says.
Direct-payment service is already available in France, Belgium and parts of the United States, such as California, where it has proven to be popular. But in spite of its growing success, few analysts expect that it will lead directly to a cash-free society. Says the retail council’s Fruitman: “We may ultimately see cheques disappear. But cash? Not likely.” That prediction should reassure the many Canadians who still value the crisp feel of cold, hard cash.
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