Payments Business Magazine JanFeb 2019

Ja n/Feb 2019

The Merchant’s Guide to Transactions, Cards & e-Commerce

Industry Disruptors ❱ Four disruptive payments trends to watch

❱ Financial inclusion with voice banking

❱ Making payments acceptance simpler PM 4 0 0 5 0 8 0 3

TableKey of Contents theme

January/February 2019 Volume 10 Number 1 Editor-in-Chief Steve Lloyd steve@paymentsbusiness.ca

Industry Disruptors 4 Four disruptive payments trends

Editor Brendan Read brendan@paymentsbusiness.ca Publisher Mark Henry mark@paymentsbusiness.ca Contributors Vincent Alimi; Edgar Barbosa; Alex Barrotti; Nicolas Beique; Patrick Bermingham; Henrique Godinho; Blair Jeffery; Patrick Léonard; David Morrison; Jason Mugford; Thomas Rex; Justin Schweisberger; André Stoorvogel Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca Photographer Gary Tannyan

4

Payments Modernization 13 The case for adopting ISO 20022 B2B

President Steve Lloyd steve@paymentsbusiness.ca For subscription, circulation & change of address information, contact subscriptions@paymentsbusiness.ca Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to: Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 f: 905.201.6601 info@paymentsbusiness.ca www.paymentsbusiness.ca Subscriptions available for $40.00 year or $60.00 two years. ©2018 Lloydmedia Inc. All rights reserved.

The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada.

Reprint permission requests to use materials published in Payments Business should be directed to the publisher.

Made possible with the support of the Ontario Media Development Corporation

to watch 6 Cashless payments: there’s an app for that 7 Financial inclusion with voice banking 8 Making payment acceptance simpler 10 There’s a new token in town 11 Unifying mobile and payments cards

14 Streamlining supply chain payments 15 Stopping revenue leakage 16 16 STP for SMBs

Restaurants/foodservice 18 Pleasing restaurants’ payments palates

18 ATMs/Abms

20 Cash is dead - Long live cash!

20 Credit Unions 22 Selecting the best processors Next issue…

Mar/Apr Mobile payments • POS • Online retail • Points & Rewards January/February 2019

PAYMENTSBUSINESS

3

Four disruptive payments trends to watch

4

PAYMENTSBUSINESS

January/February 2019

Industry Disruptors

By Jason Mugford

T

he global payments industry is due for an overhaul. Last year was a record year for investment in the global FinTech sector. More capital was raised in the first half of 2018 than the record total in 20171 and the pace of change will continue to accelerate in 2019. You can thank the revolution happening right now in the payments industry to the innovative minds of agile disruptors, the heightened scrutiny of regulators and the evolving expectations of corporate customers.

The competitive landscape of the payments industry is a good omen of things to come. Financial institutions (FIs), payments processors, acquirers and merchants all stand to benefit from disruption.

Here are the four disruptive trends that will benefit the payments industry.

1. Out in the open: the new world of open APIs. The United Kingdom (U.K.) and Europe are leading the charge when it comes to open banking. The recent banking reforms in the U.K. encourage competitiveness in the sector by levelling the playing field. In Europe the second Payment Services Directive (PSD2) came into effect January 13, 2018 and the countdown is on for FIs to comply with external testing for PSD2 by March 14, 2019.

The buck does not stop there with the Regulatory Technical Standards (RTS) coming into effect in September 2019 under PSD2, where all European banks must comply by putting in place open application programming interfaces (APIs) or updating their existing ones. FIs must allow their customers access to their banking data and give them the choice to decide who can access their data through open APIs, which is platform agnostic technology that allows software companies to have access to information from one another.

APIs are not new, but they have generally been closed integrations between two partners with limited availability given to third parties. The FI segment in general will have better assurances of whom they are dealing with as a result of open banking. Service providers can reduce risk by being able to better assess credit and fraud risk, open credit to customers that warrant it and provide further products and services based on the information that open banking and blockchain make available.

2. The shift towards real-time payments and blockchain. Speed, transparency and accuracy are the key pain points experienced by businesses when transacting overseas. The experience of a seamless global payment transaction is still not a common one for many corporate clients frustrated with FIs. Global B2B (business to business) payments have some of the thinnest margins for service providers at 0.1 per cent despite accounting for $125 trillion in revenue, which is much higher than C2B (consumer to business) payments, according to reported SWIFT and McKinsey research2.

Real-time payments (RTP) is a financial transaction system able to send funds quicker for both businesses and consumers, and it will eventually become the standard for payments delivery.

RTP can send funds immediately to the recipient and provides instant confirmation to the sender. Faster payments allow January/February 2019

payors to better manage their cash flow. There still remains a major gap since the payor is asked to pre-fund their account for such a service, so they are paying upfront for a payment that happens in the future. To alleviate this gap, blockchain will play a significant role as a solution to revolutionize payments.

One of the goals put forth by the Federal Reserve Bank’s Faster Payments task force is to have near-instantaneous transactions where any organization, with a U.S. bank account should be able to use RTP by 2020. For third-party vendors, innovation without compliance is only half the story as banks are looking for partners that they can safely trust to deliver payments.

3. A silver bullet: the possibilities of RegTech. Regulatory Technology (RegTech) is a vast universe populated by technology companies working to automate anything from risk management and transaction monitoring to compliance and regulatory reporting. Deloitte reports 276 RegTech companies currently using big data analytics and real-time reporting to help businesses in the payments industry meet the demands of both domestic and international regulations3.

From a technology perspective, there are exciting things happening in the regulatory sector. Know your customer (KYC) is usually the hardest part of the customer experience to improve.

But the increasing availability of open APIs and the greater access to information through RegTech providers means there are less painful ways to efficiently access the necessary information required to onboard a customer and reduce risk.

4. The upper hand: payments apps reign in a nation of smartphone users. In the era of the smartphone, payments apps are a natural progression to the order of things. Consumers have access to their banking online and open APIs will only increase the popularity and capabilities of payments apps and digital wallets, ultimately redefining how all of us experience mobile banking.

Accenture reports more consumers plan to use mobile wallets in 2020 and that nearly a quarter of consumers would give up their mobile banking apps for digital wallets that holds their payments information in one place 4. There is appetite for new mobile payments; however, requirements between B2B and B2C mobile apps differ.

The focus for disruptors will be honing in on specific functions to improve efficiency.

Technological changes are rapidly occurring, and the opportunities to access information and services that have traditionally been limited bode well for not only the customers but also for the providers that service them.

Jason Mugford is the president and chief executive officer at AscendantFX, (www.ascendantFX.com) a technology-based payments solutions provider.

1 FinTech Global, “2018 is already a record year for global FinTech investment”, blog, July 11, 2018.

2 “Cross-Border Payments Need More Than Bank-FinTech Collaboration”, PYMTS.com, December 14, 2018.

3 Deloitte, “RegTech Universe”, Deloitte.com, January 15, 2019.

4 Accenture, “Driving the future of payment 10 mega trends”, report, 2017.

PAYMENTSBUSINESS

5

Industry disruptors

Cashless payments: there’s an app for that

By David Morrison

F

aithful churchgoers in the Jarna-Vardinge parish in Sweden no longer toss coins and bills into the collection basket. Rather than reach into their pockets for money, church attendees are apt to pull out their iPhones to make donations. Sweden, whose citizens have difficulty obtaining cash from institutions such as banks these days, is frequently lauded as the country that’s leading the way towards a completely cashless society. The country is scheduled to be totally cashless by 20231.

But the trend is evident elsewhere around the world. In 2017 the number of cash transactions in the United Kingdom dropped by a staggering 15 per cent2. Economists in Australia predict that cash will make up only two per cent of all payments in that country by 20223.

Going cashless has been happening here at home as well, echoed

by Payment Canada’s Canadian Payment Methods and Trends: 2018. Said the report: “Canadians are choosing to tap their cards or phones at the POS (point of sale) in lieu of using cash, and increasingly in lieu of chip-and-PIN, with 55 per cent growth for both contactless volume and value since 2016.” The report also found that cash use for “lower value lifestyle purchases like buses, taxis and coffee is down by nearly 20 per cent since 2012.”4 Just like the Swedes, Canadians are experiencing the realities of a cashless society in myriad ways on a daily basis. Just ask the office workers in the tony Yonge and Bloor neighbourhood of downtown Toronto who buy their take-out salads at a popular eatery called Flock. That establishment went cashless in late 2017, requiring hungry diners to put away their cash and tap their cards instead.

Cashless challenges The growth of the cashless society has not been free of challenges.

There’s been a great deal of media coverage about hospitality workers becoming one of the casualties of the cashless era. Like how do you tip a valet at your hotel? How does a keynote speaker at a convention tip the coat check attendant? Or, how does one avoid the embarrassment of not having ready cash on hand when asked to make a donation on the spot?

Who among us—especially in the last couple of years—hasn’t stood, riddled with embarrassment, when realizing we don’t have cash to stuff into a birthday envelope or chip in for a colleague’s retirement gift?

make on-the-spot micro payments easily and quickly that’s ushered in the new forms of payment. Platforms such as FOOi, a mobile application that facilitates peer-to-peer (P2P) and peer-to-business (P2B) financial transactions, are disrupting the forms of payment available to consumers. In the case of FOOi, which is essentially a digital wallet that allows users to “share money in the moment,” users aren’t required to share a lot of personal information.

The development of FOOi was originally spurred by the need to tip hospitality workers when one doesn’t have cash. FOOi’s capability to offer “cashless tipping” ensures they and others will continue to get their gratuities: which constitutes a significant portion of their incomes. The FOOi app now allows for P2P transfers, the ability to make charitable donations and P2B payments. To make a payment, the user finds the recipient’s account on the app, types in the amount they wish to pay that person and hits “Give.”

Innovators are indeed disrupting the way consumers make payments in Canada: with an array of benefits. Consider the numerous challenges posed by the use of ready cash in traditional payment scenarios. Not only can money be lost and/or misplaced, handling cash is also costly and time-consuming.

Consider the workers at Flock restaurant in downtown Toronto who no longer have to calculate change and handle paper money and coins, amongst other duties. It’s all done by the payees with a few taps. (Think back to the part-time retail job you had in university which required you to count and recount cash in the till at the end of your shift).

The consumer also avoids lengthy waits in lineups for cash to be counted and sorted. Plus, there’s the added benefit of having digital records of all payment transactions, regardless of how small.

A Canadian radio announcer recently mused on a welcome job loss in the cashless era: “Will pickpockets looking for ready cash even exist in the cashless society where we won’t have $20 and $50 bills sticking out of our pockets in crowded malls and on trains?”

Consumers and innovators are still realizing the benefits of cashless payments that don’t involve debit or credit cards or require users to fill out cumbersome forms and share personal details. Take gift cards, for instance. While statistics vary from country to country, one source estimates that about $1 billion dollars worth of gift cards (for clothes, music, groceries and sundry other consumer goods categories) go unredeemed each year5.

Sometimes it’s a $100 clothing gift card that gets filed away and forgotten about. Or you’ve presented someone with a gift card for wine: and they don’t drink alcohol. That unused or unredeemed gift

Sharing money in the moment It has been this growing need—and ultimate demand—for ways to 6

PAYMENTSBUSINESS

Continued on page 12 January/February 2019

Industry Disruptors

Financial inclusion with voice banking

By Henrique Godinho

W

hen Amazon’s Alexa made its Canadian debut in November 2017, experts were quick to speculate about what voiceactivated technology could bring to the banking industry.

What emerged was early experimentation towards the integration of voice applications into general banking operations, like verbally disseminating branch hours, locations and other general information to customers through technology. Undeniably, this marked significant progress towards a more innovative, technology-driven banking industry. However, the sophistication of voice applications at the time lacked the robust security and authentication features that would arrive in Canada the following year.

Canada’s first-ever authenticated voice banking system launched on August 14, 2018: a cutting-edge technology pioneered and launched

by Central 1, to address the prevalence of technology in our everyday lives, and the changing face of today’s credit union member.

Combining machine learning, artificial intelligence (AI) and the technological genius of popular virtual assistant Amazon Alexa, the revolutionary voice banking system provides Canadian financial institution and credit union members with a transformative digital solution. One that adds convenience, connectivity and security to their daily banking activities.

Central 1’s mobile banking and payments team followed best practices in design thinking, customer experience and Lean principles when developing the technology. Development was done in conjunction with Point One Digital, a leading design agency from San Francisco, Calif. that was instrumental in developing the conversational user interface design strategy.

By simply using their voices, customers are able to conduct a multitude of transactions with ease, including making payments, sending money to vendors and transferring money between accounts, among others. High-level authentication features have also been purposefully integrated into the product in an effort to combat any opportunities for security breaches or fraud, including OAuth, the industry standard for Internet authentication and authorization.

Financial accessibility However, an added purpose lies behind Central 1’s new digital tool.

Beyond making daily financial transactions more streamlined for customers, the hope is that the voice banking system will operate to improve financial inclusivity and access to financial education for Canadians across the country.

Challenges of financial inclusivity and accessibility are felt by many January/February 2019

Canadians today. Geographical boundaries and physical limitations —such as motor skills challenges or visual impairment—are proven factors that can hinder an individual’s access to the banking services they require to be active members of the community. Bill C-81, the Accessible Canada Act, now being considered by Parliament, aims to remove barriers to Canadians. With the emergence of Central 1’s voice banking system, therein lies tangible proof of the power of innovative experiences to address those very challenges.

With remote capabilities and hands-free functionalities intact, no Canadian will be bound by their physical location so long as they have a device and Internet connection. In the same vein, the ability to use simple voice commands to enact banking transactions will empower those individuals that are confined by physical restraints.

Financial literacy and education Unique to Central 1’s voice-activated banking system is its conversational interface, which mimics human dialogue to provide assistance to customers in the same way that a customer service representative would at a branch. While the technology on its own is not new, the potential for two-way interaction, as it stands in conjunction with a digital banking tool, is the first of its kind in Canada.

The interactive nature of the platform lends itself to credit union members as an opportunity for increased financial education and literacy. Customers with questions regarding any aspect of their financial lives—be it related to their financial institution’s services, or more specifically about their personal finances—can simply use their voices to prompt answers from Alexa. For instance, customers can ask for investment planning advice and will be provided with financial tips and recommendations they need. Customers are no longer expected, let alone required, to make physical visits or pick up the phones to interact with their local credit union. Financial institutions can then fulfill their customers’ need for convenience and efficiency in the services they use.

Central 1’s purposefully designed voice banking system is a rarity in Canada and marks the disruptive power of FinTech innovation in the banking industry. Through a digital solution that offers a balance between convenience and security, the system is revolutionizing the way credit union members bank.

The very nature of the system as a digital tool also has implications for what the socioeconomic makeup of credit union members will look like going forward. With Millennials and Generation Xers being the primary adopters of digital technologies, the new voice Continued on page 12 PAYMENTSBUSINESS

7

Industry disruptors

Making payments acceptance simpler

By Vincent Alimi

O

ver the past several years, the emergence of new payment systems has made it considerably easier and faster for businesses and consumers to send and receive payments. Digital banking tools have made it possible to transfer funds online or through mobile banking apps directly to people you know, significantly improving the overall payment experience.

Looking forward, the increasing demand for quick, convenient and low-cost payment acceptance platforms, as well as the trend toward providing a unified mobile experience, will narrow the gaps between physical, digital, personal and commercial payments as we advance towards a cashless society.

Privacy, security for cash-in-hand transactions There remains, however, one unserved segment of the payment landscape: cash-in-hand transactions.

Consisting of both payments to micro-merchants and peer-to-peer (P2P) transactions, cash-in-hand payments can include anything from service providers—like yoga teachers, gardeners and tutors getting paid—to people selling belongings at garage sales or on Craigslist.

They can also include payments outside of buyer-seller transactions: for example, collecting donations for charities or paying back debts to friends and family.

The potential is there for digitizing these transactions. Though declining albeit at a slower rate than in the past in Canada, cash continues to be the most widely used payment means according to Payments Canada, but by a slight margin1.

P2P payment solutions like Venmo, Zelle and Interac e-Transfer are popular ways to send money to family and friends. However, the downside with these methods is that they require contacts’ e-mail addresses and/or mobile phone numbers to transfer funds. As a result, they don’t meet all of consumers’ payment needs, specifically where security is concerned. For some people, sacrificing a small part of their privacy and contact details may seem like an acceptable concession given the convenience offered by P2P payment services.

8

PAYMENTSBUSINESS

But what happens when they need to send money to a stranger (stranger to stranger or S2S) or collect payment from a customer without sharing personal information?

A simpler and secure answer In response, Mobeewave has created a patented mobile-only “tapon-phone” solution enabling contactless payment acceptance on smart devices such as cell phones and mobile wallets. The company’s technology provides an in-person solution that addresses the challenge of S2S payments. While the closed-loop approach of other payment networks demands that both the payers and payees are connected on the same social networks, use the same service or exchange contact details, only the individuals receiving payments needs to have the technology with Mobeewave’s innovative platform.

With Mobeewave, anyone can become a merchant and any phone can become a terminal without any additional hardware or cost.

This technology is revolutionizing the way small businesses operate as it allows merchants to collect payments from their customers with just a tap of the payees’ credit cards or mobile wallets against their smartphones. This proprietary technology presents great opportunities for merchants to meet the growing expectations of consumers with regards to ease of payment in today’s new mobile age. For example, contract workers and freelancers—those in the “gig economy”—depend on diversifying revenue streams and seek payment systems as agile as their work requires them to be, with more speed, efficiency and flexibility. Having access to a payment acceptance tool that puts money in a person’s pocket almost immediately allows workers in the gig economy greater financial January/February 2019

Industry Disruptors control and enables them to thrive in the digital marketplace.

Mobeewave’s solution was developed to allow financial institutions and network providers to offer clients a convenient, secure and affordable method for digitizing cash transactions, enabling them to reach otherwise unserved micro-, small- and medium-sized businesses. As a result, the aforementioned vendors are able to open up new verticals and increase revenue streams through value-added services. Ultimately, Mobeewave’s solution allows banks to become a payments platform provider, thus expanding their role within the payments ecosystem.

How does it work?

Mobeewave’s patented solution enables secure acceptance of payments of less than US$100. It harnesses smartphones’ near field communication (NFC) capabilities and secure elements. For these reasons Mobeewave is more secure than other mobile offerings, which do not use the NFC and secure aspects of smartphones. It is a faster way to be paid as the money goes directly into the merchants’ bank accounts in real time.

In line with payment industry security standards, Mobeewave is licensed either as a white-label solution or as a software development kit (SDK) to financial institutions and network providers around the world. With no terminal costs and the added convenience of

not having to license or purchase external hardware, it is a less cumbersome alternative to traditional point-of-sale (POS) and mPOS systems. With its patented technology, Mobeewave aims to shift the payment industry from one based on hardware to a pure software plane.

With deployments in Canada, along with Australia, India, Poland and the United Arab Emirates (UAE), Mobeewave has worked with financial institutions such as the National Bank of Canada and the Commonwealth Bank of Australia. It has also formed partnerships with payment companies such as Mastercard, Visa and Global Payments, as well as technology manufacturers like Samsung.

Mobeewave’s technology is available through National Bank’s Easy Pay App and is compatible with Visa and Mastercard credit cards, Visa PayWave, Mastercard PayPass, Samsung Pay, Apple Pay and all other HCE (host card emulation) mobile wallets.

Vincent Alimi is chief growth officer, Mobeewave (www.mobeewave.com). He has been working in the area of payment and financial technology for more than 15 years.

Responsible for growth and innovation at Mobeewave, he is a specialist in mobile ecosystems, mobile architecture, EMV, payment systems, mPOS architecture and ecosystems and embedded applications, as well as contact, contactless and mobile payment.

1 Michael Tompkins and Viktoria Galociova, “Canadian Payment Methods and Trends: 2018”, Payments Canada, report, December 10, 2018.

Payments Business (www.paymentsbusiness.ca), published by Lloydmedia, keeps track of these trends and provides thought leadership from industry experts.

How payments are made and managed payments is undergoing an exciting evolution. Examples include: • Contactless cards and mobile wallets • Internet of Things • Real-time payment rails • Blockchain and cryptocurrencies • ATM, cash and cheque modernization

For advertising and media partnerships contact

Mark Henry, Publisher mark@paymentsbusiness.ca 905-201-6600 x223 For news and contributed articles contact

But security and fraud risks also are rapidly evolving.

There are new techniques, tools, standards and regulations to facilitate fast, intuitive, transparent and secure transactions and processing.

Brendan Read, Editor brendan@paymentsbusiness.ca 905-201-6600, x227

Payments Business is a Lloydmedia, Inc publication.

Lloydmedia also publishes DM Magazine, Contact Management magazine and Canadian Equipment Finance magazine.

January/February 2019

PAYMENTSBUSINESS

9

Industry disruptors

There’s a new token in town

By André Stoorvogel

T

he way we pay is changing. Consumers are now using their PCs, smartphones, wearables, cars and even refrigerators to buy goods and services.

The size and value of the Canadian card-not-present (CNP) market is therefore increasing as payment use cases across digital commerce (e-commerce, m-commerce, Internet of Things) emerge and mature.

The cost of convenience This growth in adoption driven by convenience, however, has come with a marked rise in fraud.

CNP fraud continues to surge worldwide and is set to hit USD $7.2 billion by 20201. Recent research from Visa has found that CNP fraud accounted for 78 per cent of all fraud perpetrated on Canadian accounts. The report also highlighted that 74 per cent of fraud losses at Canadian merchants are perpetrated in the CNP channel2.

Merchants must therefore contend with a growing threat of compromised card-on-file databases and fraudulently-used credentials.

More security = more false transaction declines To combat this rise in CNP fraud, merchants and payment service providers (PSPs) can deploy various technologies and techniques such as 3-D Secure, validation services, historical data, real-time monitoring and analytics and manual screening.

While all of these are valuable, and fraud prevention methods and advances are undoubtedly being made to make these security techniques more intelligent and improve risk decisioning, it is apparent that there is work still to be done. Unnecessary false transaction declines are outstripping the amount of actual fraud 13 times over in the U.S.3, meaning retailers are losing a total of $8.6 billion per year due to false declines compared to the $6.5 billion of fraud they are actually preventing4.

Merchants, which are in a constant battle against cart abandonment, must find an optimal balance between fraud prevention and their abilities to effectively serve and sell to customers to ensure that additional security measures do not lead to less revenue.

Introducing card-on-file network tokenization The answer comes in the form of EMV network tokenization. It describes the process whereby card networks such as Mastercard or Visa replace a primary account number (PAN) with a unique payment token that is restricted in its usage, for example, to a specific device, merchant, transaction type or channel. It decreases the sensitivity of the underlying payment credential.

With card-on-file network tokenization, the merchant only stores payment tokens in their database rather than the actual card 10

PAYMENTSBUSINESS

numbers. This technique delivers various security benefits to the digital commerce ecosystem by reducing the risks and mitigating the impacts of malware, phishing attacks and data breaches. Better fraud prevention will have a tangible impact on both consumers and merchants. At the same time, it permits faster transactions with fewer security-related “hiccups” when cards are accidentally declined.

Different tokenization types Employing tokenization to reduce fraud is not a new concept in e-commerce. Until now, however, it has been mostly limited to PCI tokenization, which only tokenizes card data in the databases. In contrast, network tokenization deploys tokenized data throughout the transaction, meaning that the exposure of the original PAN is reduced to a minimum, making fraud much less likely.

Network tokenization has the potential to lower false transaction declines, as the merchant or PSP can rely on fraud scoring data from the card network that are associated with the issued tokens. This can potentially provide greater accuracy on the validity of transactions than internal fraud management tools.

A further unique benefit of network tokenization is that it enables consumer payment details to be instantly refreshed when a card is lost, stolen or expires. This removes the need for a consumer to login to an online shopping account to update their details or to miss out on a subscription due to redundant card credentials. It also means higher transaction approvals and increased revenues.

Finally, network tokenization is an opportunity for PSPs to differentiate and generate new revenues in Canada’s extremely competitive payments landscape by bringing forward new services to support e-commerce and m-commerce tokenization.

Value for all Crucially, network tokenization offers much more than simply enhancing security. It can significantly increase convenience for consumers and create efficiencies for merchants.

In Canada, where cash use is relatively low and card and mobile use are very high, this brings huge value to the digital payments space, so we can expect to see growing momentum for the technology in the coming months and years.

André Stoorvogel is director, product marketing, payments at Rambus (www.rambus.com). Rambus’ Token Gateway for E-Commerce solution is one of the first to be qualified under the “Visa Ready” programme. This enables token requestors like online merchants, payment service providers and acquirers globally to quickly and securely connect to multiple network tokenization services such as the Visa Token Service to tokenize card-on-file e-commerce transactions.

1 RSA, “3-D Secure: The Force for CNP Fraud Prevention Awakens”, report, January 2016.

2 Visa, “The Future of Payment Security in Canada”, report, October 14, 2017.

3 Al Pascual, Kyle Marchini and Aleia Van Dyke, “Overcoming False Positives: Saving the Sale and the Customer Relationship”, white paper, Javelin Research, September 21, 2015.

4 Evan Bakker, “THE FALSE DECLINES REPORT: The $8.6 billion problem undermining e-commerce merchants' fraud prevention strategies,” Business Insider UK, July 29, 2016.

January/February 2019

Industry Disruptors

Unifying mobile and payments cards

By Thomas Rex

C

anada has embraced the mobile revolution.

With smartphone penetration at 72.1 per cent (the global average is just 32 per cent)1, it’s also one of the few countries globally to accept the three major “OEM Pay” platforms: Android Pay, Apple Pay and Samsung Pay. Offering convenience, “cool” and a range of value-added services in consumers’ hands, it’s unsurprising that many Canadian banks are adopting a mobile-first strategy2.

This trend has seen some claim that the card is dead—or at least, dying—but banks should take care not to narrow their fields of vision too far. Customers like flexibility and options in their financial lives.

Despite the growth of mobile payments, cards continue to dominate Canada’s payments landscape3 and contactless card payments have seen rapid adoption, making the country one of the leading markets for them.

But the humble payment card must not stand still. Instead it must evolve to meet the demand for the same seamless and, importantly, secure contactless user experience that mobile provides. This is why mobile and cards must work together.

Contactless card concerns Canadians prioritize speed and efficiency when it comes to payments 4. Contactless cards can match the speed and convenience of mobile, but a crucial piece of the puzzle has been missing, namely strong authentication to minimize fraud.

Signatures are insecure, PINs are limited and consequently, and understandably, many consumers are still hesitant about using contactless. A recent study found that 55 per cent of Canadians not utilizing the contactless feature on their cards said they were not comfortable tapping”5.

Biometrics offers a way forward. Consumers are already familiar with biometric authentication from the mobile world as a means of adding security without compromising usability. Indeed, 85 per cent of Canadians are very interested in biometrics to verify identities to make payments6. Far from killing cards, the use of biometrics in mobile payments has paved the way for a logical evolution of the contactless card.

Introducing the biometric payment card Biometric technology is the key to combatting these security concerns without compromising on the user experience (UX). Biometric smart payment cards would have ultra-thin fingerprint sensors; users can simply place their fingers on them when they tap, which January/February 2019

authenticates transactions in under a second. As all biometric data is stored securely in the cards’ secure elements, all sensitive biometric data remains encrypted in possession of the users and cannot be accessed should the cards be lost or stolen.

In short, consumers can have all the speed and convenience of contactless payments with the added confidence and security of biometrics.

Cards and mobile: a win-win Many banks and retailers are seeing mobile as central to their strategy to improve customer experience and satisfaction. But crucially, they need not to overlook cards now that biometrics can unify the authentication experience.

Unlike with mobile pay platforms and wallets, biometric smart card users can enjoy the same seamless UX at any contactless terminal, regardless of the country, point of sale (POS) infrastructure, smartphone model or battery level. As the cards’ fingerprint sensors are powered by the payment terminals, just like contactless cards, there are no batteries to recharge or upgrades to make to the existing terminal infrastructure.

Payment schemes ensure cards entering the system will work securely and in-line with international and domestic requirements, including EMV and ISO standards. As such, a biometric payment card issued by a bank in one country can be used to make payments safely in another. Banks will be able to know who is paying and consumers can have confidence that their money is safe.

With improved security, banks are also given the confidence to scrap the payment caps, thereby offering even more flexibility and freedom for “tap and go” payments. This will in turn increase both spend and throughput for retailers, as well as bringing increased loyalty and trust to banks through fraud reduction. Everyone’s a winner.

There’s no “one size fits all” If the evolution of payments has taught us anything, it’s that trust and convenience drive adoption. However, the fact remains that there is no “winner” when it comes to payments. Consumers demand options and flexibility, choosing different methods of payment depending on the type of purchase. Banks must meet this need.

Mobile payments and adjacent services will undoubtedly form a big part of Canadian banking strategies but neglecting the payment card would be short sighted. By taking the Canadians’ love of contactless and adding the security of biometrics, the biometric smart card can offer the perfect partner to work in tandem with mobile.

And just think of how these technologies could combine in the PAYMENTSBUSINESS

11

Industry disruptors future. What if the location services within your banking app were used to confirm that your smartphone was within 10 metres of a shop where your card was used?

Biometric smartcards are the natural next step for the Canadian market. They add trust to contactless without compromising experience while giving banks the confidence to scrap that niggling payment cap. What’s more, when combined with mobile, it creates a consistent, trusted customer UX to payments.

This balance of choice with familiarity, security and convenience, is met perfectly by biometrics. Secure payments, at your fingertips.

Watch this space, Canada!

Thomas Rex is senior vice president of smart cards for Fingerprint Cards AB (www.fingerprints.com). He has 30 years’ experience in the telecoms and mobile industries. Fingerprint Cards’ solutions are found in hundreds of millions of devices and applications and are used billions of times every day.

1 Newzoo, “Global Mobile Market Report”, report, September 11, 2018.

2 TSYS, “2018 Canadian Consumer Payment Study”, study, November 27, 2018.

3 Michael Tompkins and Viktoria Galociova, “Canadian Payment Methods and Trends: 2018”, Payments Canada, report, December 10, 2018.

4 “Canadian Payment Methods and Trends”, Ibid.

5 “2018 Canadian Consumer Payment Study”, Ibid.

6 Mike Lloyd, “Most Canadians interested in biometrics replacing passwords: survey”, News 1130, January 10, 2018.

Cashless payments: there’s an app for that Continued from page 6

money could become a thing of the past with the newer forms of digital payments.

Rather than presenting someone with a brand-specific gift card on their birthday, university graduation or wedding day, simply transferring a sum of money to their FOOi account presents a seamless, hassle-free and instant alternative. Chances are that the recipient will actually use the well-intended gift of money that you’ve transferred into their digital wallet.

There has been some concern that the poor and “unbanked” (those who, for various reasons, aren’t able to establish credit and debit cards) will have a difficult time in the impending cashless society.

Trend-watchers cite the inability of certain members of society to afford iPhones and other digital devices as a challenge. But it should be noted that cashless payments forms, such as FOOi, can actually help the unbanked who can’t qualify for credit cards. Once they’re set up on such digital payment systems—which doesn’t require a lengthy approval process—they’re free to join the cashless society just like everyone else.

Stay tuned as disruptors in the payments industry give traditional financial institutions a run for their money: in a good way.

David Morrison has been immersed in the financial services industry in Canada for the last three decades. As principal of Morrison Financial, (www.morrisonfinancial.com) a company he founded in 1987, the Toronto-based executive has 30 years of experience in private capital markets. His observations of the evolving cashless society and changing trends in P2P and P2B banking prompted him to launch, with business executive David Cynamon, FOOi, a digital payments application for mobile that enables Canadians to make instant P2P and P2B payments.

THE NEW $10 BILL Now in circulation

1 “Going Cashless: What Can We Learn from Sweden’s Experience?”, Knowledge@Wharton, interview, August 31, 2018.

2 Oliver Wade, “Cashless payments overtake cash transactions”, MoneyAge, January 9, 2019.

3 Westpac Banking Corporation, “Australian smartphone users predict the nation will be cash free by 2022”, press release, September 21, 2015.

4 Michael Tompkins and Viktoria Galociova, “Canadian Payment Methods and Trends: 2018”, Payments Canada, report, December 10, 2018.

5 Kari Paul, “$1 billion in gift cards go unused every year—here’s how to avoid that”, MarketWatch, January 1, 2018.

Financial inclusion with voice banking Continued from page 7

bankofcanada.ca/vertical10 #vertical10 12

PAYMENTSBUSINESS

banking system caters to their desire for immediacy and digitalfriendly services. It also begs the question: will the industry see an uptick in credit union members stemming from those particular demographics?

More generally, the system is inherently inclusive of a broader user base, which drives home the importance of design thinking in product design, and the impact of technology in spearheading social inclusion and bringing remote communities together.

Henrique Godinho is vice president, digital platforms, Central 1 (www.central1.com).

January/February 2019

Payments Modernization

The case for adopting ISO 20022

By Edgar Barbosa

more efficient cash management and forecasting processes.

B

usinesses that are looking to keep up with the information demands of this transformative age need to evolve their payments capabilities.

The ability to capture and consume greater volumes of more detailed data can provide companies with the leverage they need to create differentiation in the market.

ISO 20022 is the global standard governing payment messaging structures and is considered an essential component to a modern payments infrastructure. It introduces a greater range of required and optional data fields to enhance remittance information and allows for transmission of user defined fields including links.

ISO 20022 provides the necessary standards to create a common messaging format and also allows for adaptation to meet specific requirements for Canada.

So far, ISO 20022 has been adopted in more than 30 countries around the world. Countries with regulation mandating the use of the standard have embraced it faster than others.

In Canada, Payments Canada's payments modernization initiative includes the implementation of ISO 20022 as the foundation for payment messaging across all modernized payments systems.

Payments Canada intends to leave as little open to interpretation as possible in order to drive a consistent adoption of the standard.

The first instance of the rollout is expected to be the inclusion of the messaging standard in the launch of the real-time rail, expected to go live in 2020.

The benefits of implementing this global standard are substantial.

For example, the requirement for specific mandatory defined data fields could help increase interoperability both domestically and internationally. The incorporation of optional user-defined fields can help increase the level of automation and value-add offerings that businesses can bring to market. There are also material efficiency gains that Canadian businesses can unlock by implementing ISO 20022. Here are several of them.

Productivity improvement. The availability of greater and more detailed remittance information can help simplify business processes to improve productivity. For example, it can reduce the need for timeconsuming payment investigations and time spent capturing detailed bank account information from customers and suppliers. The increase in automation would also enable a re-alignment of skills to meet the new demands of technology changes and increased customer expectations. Finally, augmented data and visibility can allow companies to better manage their liquidity requirements, enabling January/February 2019

Interoperability across geographies. Improved payment standards alignment across jurisdictions can increase the efficiency of international payments. As remittance information becomes standardized, the need for requisite processes for international payments diminishes, reducing the dependency on high-cost intermediaries. It also has the potential to benefit companies with a multinational presence by expediting international payments that today are subject to long delays.

Enhanced analytics capabilities. Richer remittance data can facilitate the use of payments-related data to contextualize and personalize customer interactions, enhancing customer loyalty and satisfaction. It may also allow companies to identify competitive advantages from business partnerships to better meet customer needs. A potential use case would be including a link to an employee’s paystub within the payroll remittance, allowing viewing of detailed payroll information when an employee checks their personal account balance.

Mitigation of operational risk. As companies consume, store and process larger amounts of payments data, they gain greater visibility into their supply chains. This can help identify concentration risk or vendors that may be under hardship. It may also open the door to better matching cash outlays to needs faster, helping optimize the company’s investments.

Canadian companies are at different stages in their payments modernization journey. Some haven’t begun planning for this transformation, while others have significantly developed their payments capabilities. Many companies with global footprints have already established projects to enable implementation of ISO 20022 in their payment processes. As companies ramp up their efforts in this area, there are some key points to consider: • The interpretation of the standard needs to be consistent.

Lessons learned from implementations in other jurisdictions highlight that there is both a dependency and a requirement to align with partner financial institutions in order to understand their interpretation of the ISO 20022 standard. Some companies with operations in Europe indicate that variability in bank file formats persists, despite the adoption of ISO 20022; Continued on page 17 PAYMENTSBUSINESS

13

B2B

Streamlining supply chain payments

By Patrick Bermingham

A

surprising number of organizations across Canada still rely on traditional payments methods and paper invoicing to pay their suppliers. As recently as 2017, cheques were the most commonly used payment method for both enterprise-scale corporations and SMBs (small to medium businesses), with 70 per cent of SMBs writing cheques to pay business expenses that year1.

While this approach has some advantages, the stretching of standard payment terms—particularly in embattled sectors like construction—is causing suppliers considerable pain. In Canada, the average invoice-to-cash turnaround time is approximately 54 days2.

At first glance, this looks like the odds are stacked against suppliers.

In truth, however, the traditional model doesn’t really benefit buyers either. The high volume of human and capital resources required to set up and maintain administration-heavy supply chain finance processes means buyers often struggle to onboard new suppliers.

This “process overhead” can be so cumbersome that many buyers become resistant to change, opting instead to limit their supplier choices to a small number of partners, meaning they end up doing business with only a tiny fraction of the overall market.

Thankfully, digital payments integration and the popularization of B2B card payments in the supply chain is enabling dramatic change.

Here, buyers, acquirers and suppliers can all plug into independent stakeholder-agnostic payments platforms that offer simplicity and efficiency as fundamentals, by handling the invoicing, payment and reconciliation “heavy lifting” on their behalf.

Card payments and processing Card payments enable large parts of the payments process to be automated and streamlined, reducing administrative headaches for procurement teams and suppliers alike. For example, Level 3 purchasing cards utilize bespoke electronic card management information systems. These systems receive invoices electronically, cost-allocate and then reconcile them, all without human input.

This creates significant process efficiencies by freeing up internal resources at either end. The most recent data available from North America (Canada and the U.S. shows that in 2014, only 24 per cent of all invoices were sent electronically. Furthermore, this is only expected to grow to 38 per cent by 20243. Partially due to a lack of government action in the two countries, this predicted adoption rate is notably slower than Europe’s: where several countries are currently in the process of mandating e-invoicing.

Best of breed B2B payment processing platforms also provide 14

PAYMENTSBUSINESS

detailed e-mail remittances and portals accessible to buyers and suppliers 24/7. These portals include information about past and incoming payments and calculators that allow stakeholders to input their data to show the cost of payments and savings offered, thus removing any uncertainty and complexity from the equation.

Onboarding Stakeholder-agnostic payments platforms circumvent the process overhead for buyers by providing fully managed end-to-end supplier onboarding services, including bespoke microsites with detailed instructions and tailored correspondence for buyers to share with their suppliers. This ensures that merchants can be onboarded quickly.

It also creates an established business network of connected buyers and suppliers, further simplifying card issuance and acceptance and giving buyers access to a wide range of qualified merchants.

In this way the digital transformation of supply chain payments is creating new value, fundamentally changing the way buyers and merchants find, evaluate and interface with one another.

Establishing partner-of-choice status Suppliers that are connected to a well populated platform can also position themselves favourably to buyers. What was once merely transactional has now become a tool to enable the harmonization of commercial engagement, which is in turn enabling stronger and deeper partnerships.

Payments integration is playing an increasingly influential role in supplier selection, evidenced by the sharp rise in tender documents that enquire about supplier acceptance of card payments, and even whether they accept Level 3 purchasing cards specifically. Suppliers that can answer in the affirmative can position themselves more favourably in tenders with any buying client operating a card program.

Joining an established business network is also beneficial for suppliers as it opens them up to other buyers and issuers in the network. Plus, as card acceptors, they automatically become part of the network of the card schemes they partner with (Visa or Mastercard, for example). Since the card schemes publish lists of accepting suppliers, buyers use these to identify suppliers on the same network as them, thereby increasing merchant visibility amongst their target customers and driving business growth.

Faster, integrated payments Ultimately, digital payment integration technologies go beyond Continued on page 17 January/February 2019

B2B

Stopping revenue leakage

By Justin Schweisberger

C

anada’s ongoing transition to a new payments infrastructure that provides full remittance data for electronic transactions will be a huge boon for businesses, accelerating the migration from cheques, reducing manual reconciliation and streamlining the supply chain and collections.

All of which is great news for CFOs and payment executives at B2B companies, because it means they can turn their attention to another area where new efficiencies are ripe for the picking: revenue leakage.

Revenue leakage is money that’s lost when businesses fail to capitalize on the full value of their current, contracted commercial relationships. Every quarter, B2B companies lose up to five per cent of their revenue due to errors and process gaps that prevent account managers from accessing important information like renewal events, potential price increases and customer contract obligations1. In large organizations, the losses can easily run into the tens of millions of dollars every year.

Nearly all B2B companies experience some amount of revenue leakage. The chief cause of the income drain is an inability to see and act on the right information at the right time.

B2B relationships are often highly negotiated, with numerous customer-specific requirements encased in the dense legalese of contracts, where they are hard to extract or automate. Customer data is scattered across a jumble of systems including contract repositories, customer relationship management (CRM) platforms and quote-to-cash tools. As a result, it’s difficult to get unified pictures of the relationships. At many businesses, a history of multiple acquisitions and ever-expanding product lines add to the complexity, thereby increasing the chance of revenue gaps and the size of the potential loss.

The good news: a well-targeted revenue project can deliver results quickly. And because this is money that’s already in the system or on your radar it has little associated cost of goods and services: and can deliver a disproportionate impact to the bottom line.

Where to find revenue leaks At my company, Pramata, we’ve identified seven areas where revenue leaks are most likely to occur, based on more than a decade of helping companies maximize the value of their customer relationships.

1. Renewal management. Contract renewals are the perfect moment to expand the relationships and renegotiate unfavourable terms. But understanding the attributes of customers that are most likely to renew and those at risk often means sorting through years of historical documentation. Even simple but crucial data points, such as contract renewal dates, can be difficult to determine January/February 2019

without a hunt through multiple systems and documents. Result: excess churn.

2. Contracted pricing variables. Contracts often include provisions that allow the vendor to raise prices, for example based on increases in the Consumer Price Index over multi-year agreements.

But tracking and managing these mechanisms consistently is a challenge. Sales teams may not even know they exist. Discounts can be problematic too; companies may miss their expiration dates and fail to deactivate them on time. Result: missed revenue growth.

3. Sales process productivity. The information that sales teams need to hone their pitches is located in multiple places and not readily accessible. It’s often out-of-date, inaccurate or incomplete.

Sales reps spend too long pulling the intelligence together and, in the meantime, find themselves outflanked by competitors. Result: fewer deals processed.

4. Entitlement and billing reconciliation. Companies aren’t always sure which products customers have purchased or what permissions and authorizations they’re entitled to. For subscriptions or services, they strain to compare actual usage to contract. Result: overcharged or undercharged customers.

5. Service obligations. Negotiated service inclusions and exclusions vary so widely that it’s hard to know what should or shouldn’t be billed. Warranties, specific maintenance commitments for products you’re sunsetting, even special invoicing obligations… it’s a long list, and most B2Bs struggle to manage it. Result: unnecessary service penalties.

6. Expansion opportunities. It’s hard to identify white-space opportunities when you’re not sure what customers already own.

Upsell and cross-sell opportunities evaporate when companies lack insight into customers’ previous buying patterns. Result: suboptimal expansion offers.

7. Deferred revenue. Right-of-return agreements complicate revenue recognition. Payment terms are too variable and often too long. Result: delayed revenue.

Fixing revenue holes in three steps Every business is different but knowing where revenue leaks are most likely to happen gives you a head start on freeing up trapped customer value. I recommend these tried-and-true steps for your revenue recovery initiative: Step 1. Find the gaps. Identify the revenue leakage zones that most likely apply to your business. If you’re a pharmaceuticals distributor, for example, you may have complex rebate structures and minimum purchase commitments that affect billing, so take a close look at contracted pricing variables. Mature high-tech firms often confront Continued on page 17 PAYMENTSBUSINESS

15

B2b

STP for SMBs

By Blair Jeffery

What is STP? So, what exactly is STP? STP is a method used within the payment ecosystem to speed up the processing times of the key components of remittance and settlement. Its objective is to streamline payments, so that once a transaction is initiated, all activities associated with the payment processing are automated from start-to-finish without manual intervention.

STP, then, allows buyers and billers to electronically share information for quicker, more secure and effective transaction processing. When businesses adopt STP solutions, errors are reduced as accounts receivable employees are freed up from manually entering information and verifying whether a transaction has fully processed.

According to the Association for Financial Professionals, 47 per cent of organizations currently use STP to manage some of their payments and 44 per cent use STP to manage some receivables1.

These are typically large businesses for whom sophisticated end-toend payment cycle management solutions that automate manual tasks have been developed by third parties. In some cases, the businesses themselves have the resources and scale to develop their own solutions, such as proprietary payment portals.

Realizing v-card potential Virtual cards (v-cards) offer a number of benefits that have led to their increased adoption by SMBs. In addition to the speed of payment, virtual cards greatly reduce the risk of fraud and identity theft through their one-time use and by protecting the customer’s personal and financial details. The resulting increase in v-card has necessitated more sophisticated solutions, such as STP, which allows billers to eliminate the manual tasks associated with reconciling cheque payments since all payment and invoice details are received electronically.

16

PAYMENTSBUSINESS

Vecteezy.com

T

he growing acceptance of virtual cards, sometimes referred to as v-cards, by small to mid-sized businesses (SMBs) is increasing exponentially as billers embrace the improved security and convenience of this digital payment method over paper cheques.

But for most SMBs, including business to business (B2B) companies, the manual work of processing and reconciling the payments remains a challenge. While there are automated reconciliation and straight-through processing (STP) solutions for large businesses, SMBs continue to be underserved due to their smaller and less frequent invoices.

Things appear to be changing, however, as FinTechs realize the commercial value of serving this massive market of potential customers.

However, to realize the full potential of STP using v-cards the payment industry must continue to broaden the reach of its networks so that more SMBs are capable of accepting v-card payments. Breaking down traditional v-card acceptance barriers— like delivering payments via the SMBs’ preferred delivery methods, such as web, IVR, phone agents, e-mail and secure fax—are key to increasing SMB acceptance rates.

In order to serve SMBs, and capture the opportunities, FinTechs must be creative and flexible in their approach to developing new tools and systems for this market. They must provide solutions that address these businesses’ key challenges, such as simplified user interfaces, minimized authentication processes and the ability to facilitate the downloading of remittance information to commercially available products like QuickBooks and Xero.

Modernizing with STP is win-win FinTechs collaborating to develop STP solutions for SMBs is a tide that lifts all boats. Not only will suppliers benefit from the efficiency and cost savings of automation, but other players in the ecosystem who deliver payments will also benefit through an increase in electronically delivered payments, generating revenue and improved service for their clients.

Other players in the payment ecosystem can profit from improved adoption of STP solutions by SMBs. Accounts payable solutions providers, processors and corporate payables departments at mid- to large banks can often have as much as 70-plus per cent of payments that cannot be delivered via v-cards. This is due to billers’ inabilities to accommodate the manual reconciliation of other relevant information, leaving them to rely on the same old costly and archaic delivery methods. By improving STP processes for SMBs, these players will greatly expand their reach of serviceable suppliers, resulting in higher revenues and better service for the clients they serve.

Blair Jeffery is chief operating officer for Noventis, Inc. (www.noventispayments.com).

Blair has over 18 years of payments industry experience with a strong focus on B2B payments.

1 Association for Financial Professionals, “2016 AFP Electronic Payments Survey”, report, September 2016.

January/February 2019

B2B

The case for adopting ISO 20022 Continued from page 13

• Global companies may have different regional priorities for ISO 20022 implementation. Global companies often need to rank their project spend across geographies to meet budgetary goals. They often prioritize projects stemming from regulatory change. For many companies in Canada, building the case for change for ISO 20022 adoption will require them to compete for global funding; • Benefit realization may be constrained by the pace of adoption. While cheque usage continues to decrease in Canada a large proportion of businesses still require cheque payments.

This is largely due to the detailed remittance information that accompanies cheques required by the recipients’ processes. The ability to transfer more remittance information can accelerate migration to electronic payments. This may require re-work of internal processes to accommodate new data and will continue to depend on the adoption of the standard across the company’s value chain; and • Cost of processing incremental data needs to be factored into the case for change. Organizations may need to update their infrastructure to accommodate the increased volume of data and to take advantage of the richer information provided through the ISO 20022 format. That may include retrofitting legacy technology stacks to produce the data required to enable ISO 20022 messaging. It may also include the need to undertake data governance and storage revisions.

Despite the complexity of implementation, businesses in Canada have an opportunity to unlock significant benefits through adoption of ISO 20022, regardless of how much they have been able to advance their payments capabilities in recent years. Productivity improvements from greater automation and the ability to better manage operational risk can positively impact the bottom line. But the journey to realize those benefits needs to be well understood.

Each organization will face unique challenges in enabling their technology stack to leverage and monetize the large amount of payments data that can be exchanged in an ISO 20022 enabled infrastructure. The effort is well worth it.

Edgar Barbosa is payments leader at EY Canada. For more information on financial services trends, visit www.ey.com/ca/financialservices.

Streamlining supply chain payments

to businesses. All parties benefit from the added value accessed through the smart application of flexible technologies that bring buyers, suppliers, issuers and acquirers closer together.

And, perhaps most importantly, no one needs ever write another invoice again.

Patrick Bermingham is CEO at Adflex (www.adflex.co.uk). He has over 20 years’ experience in the payments industry, overseeing the growth and development of Adflex as a premier B2B payments service provider. Prior to Adflex, Patrick was specialized in enterprise resource planning (ERP) system design and development primary targeting mail order and national distribution sectors.

1 Michael Tompkins and Viktoria Galociova, “Canadian Payment Methods and Trends: 2018”, Payments Canada, report, December 10, 2018.

2 Atradius Collections, “Payment Practices Barometer Americas 2018”, June 2018.

3 Federal Reserve Bank of Minneapolis, “U.S. Adoption of Electronic Invoicing: Challenges and Opportunities”, report, June 30, 2016.

Stopping revenue leakage Continued from page 15

challenges around entitlements, for example in monitoring user licenses and software licenses.

If no one particular area stands out consider renewal management for contracts coming up in, say, the next quarter. This leakage zone offers the opportunity for a holistic review of the customer relationships; it’s often one of the quickest routes to revenue recovery.

Step 2. Choose your customer focus. Not all customer relationships are created equal and some will provide more fertile ground for revenue initiatives than others. Look for those relationships that can produce the most rapid revenue gains. Perhaps your top 20 most heavily negotiated contracts provide plenty of examples of the leakage zones you identified in Step 1. Or perhaps a broader band of mid-level accounts are constricted by product or pricing structures that are hard to manage. You’re looking for a quick win that shows the tangible financial value from eliminating a source of revenue leakage.

Step 3. Repeat and sustain. With a quick win under your belt, it’s time to look around for other leaks to fix. You’ll want to create a long-term strategy to ensure that preventing and eliminating revenue leakage becomes embedded in your organization’s DNA. With a carefully targeted, repeatable revenue recovery programme, finance leaders can ensure that revenue delivery becomes every bit as efficient as the payments pipeline. And that can only improve B2B organizations’ customer relationships as well as their financial performance.

Continued from page 14

improving efficiencies and reducing costs: they create opportunity.

Payments Canada has taken steps to modernize the national payment infrastructure by working to provide a real-time rail backend by 2020. However, there are many more opportunities open January/February 2019

Justin Schweisberger is the chief product officer at Pramata (www.pramata.com), which helps B2B enterprises digitize their commercial relationships to eliminate revenue leakage. Prior to joining, he managed merger and acquisition (M&A) activities for the Husch Blackwell law firm.

1 Steve Van der Steen and Ludwig Bollaerts, “A powerful and effective answer to revenue leakage?”, EY, 2017.

PAYMENTSBUSINESS

17

Restaurants foodservice

Pleasing restaurants’ payments palates

By Alex Barrotti

H

istorically, the restaurant industry has been slow to adopt technology. The paper pad and pencil have been the standard for hundreds of years in restaurants and are still used by many smaller food establishments.

However, with the advent of tabletbased point of sale (POS) solutions that offer low upfront cost hardware and monthly subscriptions, restaurants of all sizes are finding it possible to embrace the advantages technology can offer. This includes payment processing. Even roadside food vendors, tiny food shacks and food trucks now find it essential to provide their patrons with the multiple payment options, besides cash, that only payment processors can offer.

The explosion of online ordering and delivery apps—with no clear market leader or consolidation yet in sight—are other technological advancements that restaurant operators are finding that provide an edge in highly competitive markets.

Yes, all restaurateurs don’t 100 per cent buy into the maxim: “If you are not on Yelp or Grub Hub, your customers will go someplace else.”

But most restaurants that are not currently active with an online ordering marketplace are at least exploring their options to make sure they do not get left behind competitors that do have a presence.

At the same time, besides their core business of serving great food in an inviting environment, 18

PAYMENTSBUSINESS

January/February 2019

Restaurants foodservice

restaurant owners are challenged to navigate technology. They are finding that entering orders and payments from multiple marketplaces can be time-consuming and error-ridden without the right tools in place. Owners are also having to learn how and when to be engaged on which social platforms and ways to create loyalty rather than accepting business from one-off customers who only buy the best deals and which mobile wallets or payment types to accept.

While each of these technologies can increase market reach and operation efficiencies, each has fees that chip away at the bottom line and can cut margins to unprofitable levels when implemented with a shotgun approach. But determining the best mix of these tools can be daunting even for the largest operations and experienced technologists, never mind the smaller operations with fewer personnel and capital resources.

In good part due to these complexities, industry-targeted mobile or tablet-based POS solutions have emerged as the hub of restaurant operations and payment processing. They are designed to mirror the way restaurants actually operate, integrating ordering, payment processing, deliveries, online marketplaces, loyalty and operations into a single efficient access point that is easy to manage by restaurant operators. These tools can fit the budget and functionality needed by virtually any size restaurant, from start-ups, small cafes, roadside shacks and food trucks to established multi-unit operations that are upgrading. They can also generate reports of the multiple costs affecting profitability that help the restaurant operator make better business decisions.

Determining the best mix of these tools can be daunting even for the largest operations and experienced technologists.

The industry’s payments processing order One of the most important commitments restaurant owners realize very rapidly that must be made is the types of payments they will offer customers and the best way to process them. It may surprise some, but at TouchBistro we often get calls from new restaurant owners who want to be up and running on their POS in just a few days. About half of the nearly 500 restaurants that start using TouchBistro each month do not already have a payment processor and ask for recommendations.

During onboarding, we standardly ask the restaurant operators what is important to them in a payment processor. The top asks are: • Instant approval to accept payments; • Transparent and competitive fees; • Accept all forms of payment (the more technically-savvy ask about near field communications (NFC) and mobile wallets; January/February 2019

• Security, namely EMV/PCI compliant (when they understand what this means); • Reasonably priced payment devices that can be used mobile or stationary; and • Able to accept payment information from the POS or online marketplaces directly without having to rekey the price into the payment device and have it fully integrated into their accounting system.

The small print that allows payment processors to increase the rates... results in serious discontent amongst restaurateurs.

We have found restaurant operators are extremely displeased when they realize the “free” payment processing equipment they were given ends up costing considerably more from back-end fees over the term of the contract they locked into than the hardware would have cost if they purchased it up front.

Understandably the lowest rate is desired by most restaurant owners. The flat rate pricing model, while inviting due to its simplicity to food establishments that are new to payment processing, inevitably becomes less popular as the restaurant operators realize this model is generally the most expensive. The hidden fees, complicated calculations and statements and misleading advertised lowest qualified discount rate all leave restaurant owners disgruntled with Interchange differential and tiered pricing models - and searching for alternatives.

The small print that allows payment processors to increase the rates during the term of the contract at any given time, needless to say, results in serious discontent amongst restaurateurs who are generally already working on very tight margins.

Working with restaurants Payment processors, just like online marketplaces, will need to be sensitive to these issues as restaurant owners become more knowledgeable about what is available from vendors and how the offerings affect their bottom lines. Some consolidation and attrition of these companies that serve the restaurant segment are unavoidable long term. Those left standing will be the ones that understand the nuances of the food service industry and are committed to partnering with hard working restaurateurs to help them flourish.

Alex Barrotti is CEO and founder, TouchBistro (www.touchbistro.com). He is a successful serial entrepreneur who has emerged as a visionary in the advanced technologies that help retail and hospitality businesses expand. As of today, TouchBistro has helped over 15,000 restaurants in more than 100 countries to increase sales, improve the customer experience and make better business decisions.

PAYMENTSBUSINESS

19

Atms/abms

Cash is dead: long live cash!

By Patrick Léonard

T

echnology exerts an oversized impact on our world, and in the last 20 years every sector has been disrupted. Processes that have been altered to embrace change now face a cycle of constant upheaval in an effort to keep pace with the latest tech trends, which are adopted quickly and abandoned just as fast as the newest apps and tech take hold.

Few industries have embraced these changes as quickly and successfully as the personal finance sector. Credit unions and their big banking competitors have collectively invested billions of dollars over the past two decades to take advantage of the process improvements and significant cost savings to be gained from the digital revolution.

But there have been casualties. And one of them is the almighty dollar.

Canadians are world-renowned for their willingness to adopt new technology, so much so that several of our major city centres have become hotbeds for innovation and technology.

And with the evolution of the financial technology (FinTech) sector, Canadians have proven themselves eager to tap, swipe or click their 20

PAYMENTSBUSINESS

way through purchases.

Didn’t you know fishing for a bill in your pocket to pay for a pack of gum is just so…analogue?

That’s a compelling narrative for the progressive FinTech sector, but it’s far from the whole story. And the story of cash use in Canada is far from its final chapter.

Cash facts According to a 2012 report from the Bank of Canada, The Changing Landscape for Retail Payments in Canada and the Implications for the Demand for Cash, cash accounted for more than 80 per cent of the volume and about half of the value of all point-of-sale (POS) transactions in Canada in the 1990s. In 2011, these shares dropped to below 50 per cent in volume and less than 20% in value.

By the time 2017 rolled around, cash use had stabilized. In the Bank of Canada’s August 2017 review, cash use rebounded back to 51 per cent of the volume of POS transactions. And while it still represented the smallest value share at 24 per cent of the value of all POS transactions, it was clear cash money had found its groove again. The data suggested consumers preferred to use cash for small-value transactions.

January/February 2019

ATMs/abms Compared with data from 2009, cash holdings on hand increased of Bank of America’s locations in the U.S. The deal saw GardaWorld from an average $70 to $84. The measurement jumped again in take on 1,000 Bank of America vault employees; it now runs more 2017 to $105. These increases were focused around those with than 250 secure cash processing operations in North America2.

When a company of this size and stature is looking to significantly middle-class incomes and concentrated largely in the Atlantic region boost rather than reduce its exposure to cash, it’s a good sign that and Ontario, generally in the 55–75 age group1.

But that’s not all. Despite the number of withdrawals decreasing, cash use will remain strong. But for Gonthier, there are other reasons the amount withdrawn remained relatively unchanged, while the he thinks cash will withstand the test of time. average value of cash holdings increased. This indicates a reduction “We must never forget that there are millions of Canadians that in the turnover of paper money, but by no means is it disappearing. live from paycheck to paycheck and will likely never be able to get Dan Kelly, president and CEO of the Canadian Federation of credit cards,” said Gonthier. “These people have little money in their Independent Business, agreed with this assessment. bank account. Without cash you’re actually making life harder for “Cash is an important part of the lower-income Canadians.”

Canadian retail service sector and I believe It’s not just the working poor or that will continue for a long time. As long underprivileged who depend on the cash as consumers choose to use it, merchants in their pocket for monthly budgeting.

On average, Canadians held will be keen to accept it,” said Kelly. He The wave of Millennials currently trying $105 in cash in 2017. added that many small businesses in the to enter the workforce by stringing retail and hospitality sectors prefer it, together multiple temporary “gigs” have Breakdown by region: “because it lowers their overall cost of a similar need for cash on hand to keep payments, especially relative to credit their budget tight. Lastly, there are many • Atlantic region: $79 cards.” communities of new Canadians who come Kelly pointed out that many merchants from countries with cultural attachments • Quebec: $98 among his organization’s membership to cash use. Members of these cultures prefer a cash sale. “They have the money eschew many of the high-tech POS • Ontario: $99 in hand, they know the money is there and choices and opt for cash transactions at there’s the confidence and flexibility of every opportunity.

• Prairies: $91 having cash on hand,” he said. He added People in these circumstances exist in no that cash lends confidence because it’s a small number. According to a 2016 report • B.C.: $165 secure transaction that ensures privacy from ACORN Canada, a national advocacy and is relatively low cost when compared group for low and moderate-income to other forms of payment.

Canadians, about one million Canadians Source: 2017 Methods of Payment survey, Bank of Canada “Of all the various form factors and are “unbanked,” having no relationship flavours of payment that are out there, the with a mainstream financial institution merchant universe really follows the consumer in terms of payment such as a credit union or bank. On top of that, ACORN says 15 per method, rather than lead [the consumer],” said Kelly. “We are many cent—close to five million Canadians—are underbanked3. These people may have an account, but have a very limited relationship years away from phasing out cash.” with mainstream financial institutions, making access to cash money Counting on cash a necessity of life.

Its not just small business that keeps the cash flowing. There are some For any credit union or big banking branch planning its cash large international companies looking at cash money—moving it as management strategy for the next few years, it’s easy to see how well as counting it—as a growing segment in the services sector. the narrative of cash money being phased out can influence your Based in Montreal, Que., GardaWorld is a privately-owned planning. But considering all the segments of our population that global security company that focuses on security services and cash depend on it, the small businesses that count on it, and the major solutions. corporations betting on it, expect cash money to remain in circulation “As far as GardaWorld is concerned, it's a growing business,“ said for a long time to come.

Stephane Gonthier, CEO of cash services at GardaWorld. “I actually Patrick Léonard is the General Manager for Cummins Allison Canada. Contact him at see this business growing in the coming years at a double-digit pleonard@cumminsallison.ca. annual growth rate.”

GardaWorld’s global cash services business processes about US$8 1 Ben Fung, Kim P. Huynh and Gerald Stuber, “The Use of Cash in Canada”, Bank of Canada Review, spring 2015. billion in cash each day, and has been on an acquisition and investment 2 Nathalie de Champlain, “GardaWorld signs cash vault outsourcing partnership with one of surge, buying up the cash processing operations of competitors and the US’ leading banks”, press release, December 18, 2013.

3 ACORN Canada, “It’s Expensive to be Poor: How Canadian Banks Failing Low-income even some of the world’s biggest banks. In 2014, it signed a 12-year, Communities”, backgrounder, May 2016.

US$1.4 billion deal to manage the cash and cheque processing for 32

Cash in your pocket:

January/February 2019

PAYMENTSBUSINESS

21

Credit unions

Selecting the best processors

By Nicolas Beique

C

redit unions build their customer base and strengthen customer retention around their unique (non-profit, member owned, operated and focused) business structures and offerings. When their business customers ask them about which suppliers they should get payment processing services from, it’s important that the credit unions have the appropriate partnerships in place to meet their customers’ expectations.

Here are several factors that credit unions should examine when evaluating processors.

1. Revenue share. The first concern that a credit union may have when selecting a payment processor might be what the revenue share is going to look like. After all, having a favourable revenue share with their processor will allow the credit union to give more back to their customers.

However, revenue share should be just one of the factors that are considered.

Even if the revenue share agreement with the payment processor seems favourable, if they are not delivering on processing rates and fees, customer service and functionality (as discussed next), the credit union may find that the referrals they send to the processor do not result in long lasting relationships. Seeing as revenue earned is directly related to the length of the relationship, it does not matter how generous the revenue share is if the payment processor is unable to sign up and retain merchants.

2. Strategic value alignment. A partnership with a payment processor should help the institution build long-lasting relationships with its clients and improve retention by providing another avenue for meeting their financial needs. However, the partnership will only result in increased retention if it is strategically aligned and both the credit union and the payment processor share the same values.

Credit unions have invested significant time and resources to build organizations 22

PAYMENTSBUSINESS

that are focused on loyalty, honesty and friendliness. If the payment provider they partner with does not mirror these core values, then the credit union’s customers will be set up for a disappointing experience. A poor experience with the payment processor may not only damage how the customer sees the payment provider but also how they view the credit union who referred them.

3. Fees and pricing. When a credit union looks to find a payment processor that will uphold the values their business is built around, they should note the top attributes that attracted customers to their business in the first place and match them to a payment processor who has the same emphasis on delivering similar value. An easy place to start is with fees and rates. Credit unions can attract members because of their lower fees and low account minimums and higher interest rates for savings products.

Customers enjoy banking at credit unions because they feel like their money is going further. When a credit union is evaluating the best payment processor for their business, it’s important to consider the processing rates and any applicable fees that the processor may charge their members. Selecting a payment processor that offers transparent pricing, does not charge unnecessary additional fees and which provides flexible low-cost options for hardware and software helps ensure that the credit union’s customers will not be spending more than necessary on their payment processing.

4. Strong customer service. Because credit union customers have a say in the organization’s decisions and credit unions themselves are not worried about making profits, they typically have more local and smaller customer bases, and can take more of a customer-focused approach compared to the larger publicly traded financial institutions. Customers likely choose to bank with a credit union because

they prefer this personalized approach to doing business and they appreciate being able to deal with a real person at their local branch when they have questions.

This expectation of helpful and friendly customer service, is another attribute for which credit unions should evaluate their payment processors. Check how a processor offers customer service before starting a partnership. Can customers reach out online? Over the phone? How about in-person? Or maybe a combination of these methods to get assistance? Read industry and customer reviews to see what people say about their experiences with the processor. Get to know your potential processor to make sure they’re offering service in line with your expectations, and those of your customers.

5. Functionality. Finally, consider the functionality and software that a payment processor can offer a credit union and how they approach innovation. Just because a customer is looking for low rates and great customer service doesn’t mean they want the bare minimum in of functionality. Choosing a payment processor that offers more than their customers are expecting gives the credit union the opportunity to surprise and delight them by referring them to a partner which is going to help empower their business.

By focusing on finding payment processors who have values aligned with that of their own business, credit unions can increase their customer satisfaction and retention while maintaining a consistently positive customer experience. Choosing the right processing partner will allow credit unions to deliver a worthy customer experience at the same time as increasing deposit frequency and growing revenue that can ultimately be returned to their members.

Nicolas Beique is founder and CEO, Helcim (www.helcim.com).

January/February 2019

Reach marketers & financial executives Our magazines are must-reads for key executives in core corporate competencies.

Can you help our readers: • Create a strong financial structure and healthy economic ecosystem to ensure capital and cash flow keep their engines running?

• Determine who their customers should be, how they can reach them most effectively, and how they can turn data-driven marketing into profitable sales?

• Build efficient and effective financial systems to enhance payments and billings between their companies and their customers and vendors?

• Convert all the data and information they collect from every contact point into tangible benefits that increase revenue and reduce costs?

• Equip their companies with the tools, technology, systems and hardware needed to manage their operations, to create new services or products, and deliver them to their market?

• Manage their customers with smoothly functioning support departments that are properly staffed and equipped to solve problems, foster loyalty and retain customers?

• Make any or every step in that chain better, faster, cheaper, and more profitable?

We can help you tap into the ecosystem at the points that will drive your campaigns.

To advertise or get more information and media kits:

Mark Henry 905-201-6600 ext 223 | 1-800-668-1838 | mark@dmn.ca Visit our websites:

DM Magazine, www.dmn.ca Contact Management magazine, www.contactmanagement.ca

Payments Business magazine, www.paymentsbusiness.ca Canadian Equipment Finance magazine, www.canadianequipmentfinance.com

Advance Your Branch Your members are changing. Is your branch keeping up?

Cummins Allison has helped credit unions make advancements in their branch by leveraging technologies that help them work more efficiently. Our solutions move low-value deposit and cash handling transactions away from your tellers, reducing operating costs and improving staff performance.

Reliable equipment and superior service are key to increasing productivity and cutting costs. Serve your members better by making their branch experience as efficient, immersive and meaningful as possible.

DON’T GET LEFT BEHIND. Advance your branch to differentiate member experiences and drive efficiencies.

Download a copy of Advance Your Branch Survival Guide at:

cumminsallison.ca/advance