Payments Business Magazine Mar/April 2017 by Lloydmedia Inc

mar/Apr 2017

The Merchant’s Guide to Transactions, Cards & eCommerce

International payments How blockchain, customer preferences and ever-increasing connectivity are changing everything ❱ Hardware report: POS & mPOS

Gary Tannyan

❱ Pay channel report: Cards ❱ Canadian payment industry updates

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TableKey of Contents theme

March/April 2017 Volume 8 Number 2 Editor-in-Chief Steve Lloyd steve@paymentsbusiness.ca Managing Editor Sarah O’Connor sarah@paymentsbusiness.ca Publisher Mark Henry mark@paymentsbusiness.ca Contributors Derek Colfer; Anders la Cour; David Eason; David Feller; Cheryl Gurz; Peter Kalen; Oren Levy; Peter Patterson; Marc-Andre Pigeon; Jan Pilbauer; Jennifer Tramontana; Cathy Vigrass Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca Photographer Gary Tannyan President Steve Lloyd steve@paymentsbusiness.ca For subscription, circulation and 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. ©2017 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

International payments 4 10 How blockchain will revolutionize international payments

Navigating the cross-border e-payments maze

Adapting to a shrinking global landscape How foreign exchange and payments businesses need to adjust to the changing global banking landscape

Hardware Report: POS & mPOS 14 17 13 In 2017, commerce happens everywhere

Now is the time for point-of-sale financing

Bringing commerce to the IoT And what it means for Canadians

Pay Channel Report: CARDS 20 22 24 Are PayPal and Visa going to (finally) kill the cheque?

Consumers in control

How Mogo aims to help reduce consumer overspending

Industry Updates 26 30 Budget 2017 commentary from the Canadian Credit Union Association

Reinventing the payments infrastructure march/April 2017

Introducing ISO 20022

Canadians move toward alternative payments

2017 Industry Events

Suzan Denoncourt of Ingenico recognized as one of the top 25 women in payments

Setting our sights high Industry News

A woman of influence

PAYMENTSBUSINESS

International payments

How blockchain will revolutionize international payments By Peter Patterson

e live in an era where banking must be global. With the rise in technology, more people and organizations are able to live, work and operate across the world and without borders. For banks, this means they need to offer clients access to easy, efficient and secure international transactions. The challenge with todayâ&#x20AC;&#x2122;s international payments systems is that it is weighed down with multiple processes and parties, and involves significant maintenance and operational procedures that significantly slow down the payment process. Imagine your daughter is studying oversees and requires immediate financial assistance. To come to her aid, youâ&#x20AC;&#x2122;ll need to send money from your bank to hers. Presently, this money will not go directly to her bank. Instead, it goes through several banks along the way that validate the trust

PAYMENTSBUSINESS

March/April 2017

march/April 2017

Gary Tannyan

Peter Patterson is the national leader for blockchain at IBM Canada.

PAYMENTSBUSINESS

International payments between your individual financial institutions. This adds cost to the transaction, it increases the time it takes for her to receive the funds and it adds risk to the banks involved. How can we build trust into transactions to deliver a faster, cost efficient and secure international payments system? Financial institutions are now realizing the need to improve how payments are sent and received across borders. With innovative technologies like blockchain, adverse factors that typically delay these transactions—such as government regulations, multiple intermediaries, cyber attacks and identity fraud—are removed, allowing institutions around the world the ability to exchange funds freely, directly and instantaneously. Blockchain is based on a robust system of trust, transparency and security. It is a permanent record of transactions that are grouped into a chain of blocks. It streamlines business processes and provides a collaborative environment that is openly governed. There are no separate copies of information for various groups to access. Instead, each participant within the network shares one set of the same information. This information is securely synchronized. If a new transaction occurs, each participant is updated immediately and simultaneously with a newly shared record. Transactions in a blockchain cannot be changed, deleted or altered, so all participants involved who have permission to see the information will be able to do so.

Adopting blockchain We’re seeing financial institutions increasingly turn to blockchain networks to speed up access to information and remove barriers that once caused inefficiencies and inhibited value creation. In fact, according to the recent IBM Institute for Business Value’s executive report, Leading the pack in blockchain banking: • Out of the 200 banks in 16 countries surveyed, 69 per cent of early blockchain adopters—known as trailblazers—and 67 per cent of other banks believe the technology can greatly reduce the time, cost and risk of many transactions; • Fifteen per cent of banks in the study expect to have blockchains in commercial production in 2017; and • Seven in 10 early adopters of blockchain view the technology as a way to form new business models and tap into new markets. Trailblazing banks are betting that their early efforts to establish business standards today will position them as leaders for tomorrow. These banks are making blockchain a priority. They are using the technology to help break down barriers and create new business models that allow them to reach new markets. What’s more, this group intends to use blockchain to improve the legitimacy and accuracy of information, enabling them to make better decisions. Though all banks in the study expect blockchain to “eradicate frictions across the board,” it is the early adopters who will have the ability to influence just how the technology does this. They will have the advantage of setting new business standards that prompt how others should follow. Let’s look at Visa. Last Fall, the company demonstrated their march/April 2017

interest in blockchain’s promise to deliver lower cost cross-border transactions, announcing not one but two blockchain projects. The first of these projects is being billed as a “blockchain-based settlement system” for interbank payment and settlement. Serving the European market, the service would include embedded regional compliance that will test the impact of blockchain on credit risk, transaction times and security. The second project will focus on high value international payments from its corporate clients. As an early blockchain adopter, Visa will have the means to pave a new path for cross-border transactions and help establish new payment business models for the future.

Trailblazing banks are betting that their early efforts to establish business standards today will position them as leaders for tomorrow. The future of blockchain is bright There is no doubt that blockchain has the potential to greatly transform global payments. It is because of its ability accelerate transactions, shorten settlement periods and significantly reduce the risk of fraud that blockchain is quickly becoming the leading technology trend in 2017. That said, there are some hurdles the technology must overcome as it evolves. Depending on the scope of work and the number of participants involved in a transaction, more time may be required for bi-lateral or multi-lateral collaboration, coordination and agreement on specific elements of the blockchain solution. Scalability and standardization of the technology are also a work in progress. Luckily, there is a large community of startups and established technology vendors who are committed to seeing the technology succeed and continue to develop the technology. Banks and other industry groups are encouraged to develop the technology to provide the groundwork in understanding it. As blockchain matures, financial institutions can take advantage of the benefits the technology offers. Blockchain is bringing forth new opportunities and greater efficiencies that will revolutionize the way we send and receive international payments. With its ability to drive out inhibitors across borders, build trust in a scattered system and provide end-to-end traceability of transactions, blockchain will break down barriers to allow for the creation of new business models and accessibility of new global markets. Banking, transparency, trust and security are the norm and having a robust foundation for issuing transactions is a must. Peter Patterson is the national leader for blockchain at IBM Canada.

PAYMENTSBUSINESS

International payments

Navigating the cross-border e-payments maze in 2017 By Oren Levy

t may sound counter intuitive, but if you want to succeed in international payments you need to be local. Successful crossborder e-commerce depends on your ability to provide a comfortable and familiar payment experience to potential customers at every location. But what should this process include? As no buyer likes unpleasant surprises, transparency is a crucial factor. You can generate trust and long-lasting loyalty by automatically converting charges into local currencies, calculating taxes and duties, and factoring them into an accurate final price. Another way to help your potential customers feel secure is to offer regionally preferred payment methods. Here’s a guide to how customers prefer to pay in some of the markets you might be targeting. If you’re considering expanding your reach into any of these regions, you should familiarize yourself with these payment methods and learn how you can easily integrate them into your cross-border offering.

Understanding international payment mentalities Successful cross-border e-commerce depends on your ability to understand payment mentalities in different localities. While credit cards may be the preferred method of payment in the U.S., this does not mean that the same rule applies in other areas worldwide. In fact, many countries worldwide prefer local alternative payment methods. Here are several examples:

EUROPE Most European countries have alternative payment methods based on local preference. In the Netherlands, iDEAL is a popular payment method in online stores. When checking out, the customer authorizes an on file payment instruction. Once payment is authorized, the amount due is debited from the customer’s account and transferred to the merchant’s bank account. In France, many customers prefer a local credit card scheme called Carte-Blue. This credit card actually accounts for 85 per cent of all e-commerce transactions, with PayPal serving as additional player. In Finland and Sweden, real-time bank transactions account for up to 35 per cent of the market share. Each bank offers its own realtime banking solution. In Finland, 10 bank brands provide this type of solution, while in Sweden, four banks provide similar services. 8

PAYMENTSBUSINESS

Klarna is a major payment method offered to more than 15,000 e-stores in Sweden, Norway, Finland, Denmark, Germany, the Netherlands and Austria. Klarna’s core service is to assume stores' claims for payments and handle customer payments, thus eliminating security risks for the seller and buyer. About 20 per cent of all e-commercial sales in Sweden go through Klarna. In the UK, almost half of all online transactions are paid by credit card, but debit cards account for some 35 per cent of e-commerce payment. PayPal is the country’s third most popular online payment method.

RUSSIA In the Russian Federation, due to a deep-seated distrust toward the banking system, buyers prefer to use mobile wallets like QIWI for payments. This payment method is similar to a debit card, enabling client self-service and payment via QIWI terminals. Yandex is another widely used payment service that offers online stores a universal payment solution for accepting online payments. The platform enables merchants to accept the most popular payment methods in Russia and other CIS countries: bank cards, credit cards, Yandex.Money and WebMoney e-wallets. Currently, over 65,000 online stores accept Yandex.Money and about 22 per cent of Russians regularly use it to make payments.

CHINA Alipay dominates online payments in China, claiming 60 per cent of the market share. This platform has launched a mobile wallet application, offering online-to-offline payments. Another popular payment form is cash on delivery. UnionPay credit cards also play a central payment role for merchants entering the Chinese market. A highly successful payment paradigm in China is WeChat, a messaging platform which has monetized itself successfully by offering P2P payments. While it started out as a simple messaging app for sending texts, this single integrated “app within an app” now enables users to pay bills, order groceries, shop online and much more.

LATIN AMERICA In Latin America, local and regional online payment sites still hold the most trust. DineroMail and MercadoPago specialize in the Latin American market. The greatest cause of online abandonment in Mexico, Peru, Argentina and Colombia is mistrust and a fear of security risks. March/April 2017

International payments As a rule, Brazilians have fairly low credit card limits, so almost half of online purchases are made via credit card purchases in installments. Boleto Bancário is another popular payment method in Brazil with a payment process comparable to wire transfer and cash payment methods. After receiving a prefilled Boleto Bancário bank slip, users can either pay online with cash at any bank branch or via authorized processors such as supermarkets or a regular banking point.

Emerging markets Emerging markets are changing traditional payment structures due to the prevalent use of mobile phones for payments. In developing countries, where banking infrastructure often does not exist or in regions where consumers lack trust in the government and banks, mobile payments offer a secure and immediate tool for payments that will undoubtedly continue to thrive.

AFRICA Few Africans have bank accounts or credit cards. Today, mobile payment methods give millions of people access to the formal financial system. It is evident that this type of branchless banking is now being used as a separate payment channel strategy that forgoes traditional bank branches. The largest and most widespread mobile payment service in Africa

is M-Pesa, a mobile phone-based money transfer, financing and microfinancing service. M-Pesa allows users to deposit, withdraw, transfer money and pay for goods and services.

INDIA India features various types of mobile payment services such as Paytm, ikaz, Mobi Kwik, Oxigen and several others. The reason for the proliferation of these providers is that while in Western countries, desktop PCs and laptops were the first web-enabled devices, in India nearly 60 per cent of users accessed the Internet for the first time via their mobile phones. Internet bank payments are the preferred choice in India, but prepaid cards and cash payments are also widely used.

Keeping ahead of payment dynamics As part of the dynamic FinTech sector, new payment offerings are constantly rising and evolving all over the world. The key to pleasing customers at different locations is to keep your finger on the payment pulse and provide the most popular payment options to each audience. But be sure to monitor your offerings regularly because the only constant in payments is change and you really don’t want to be left behind. Oren Levy is CEO of Zooz.

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SCORE solutions identify the delinquent accounts most likely to cure or pay – Ask us how? SCORE designs and supplies collections and recovery scores that show you where the money is! SCORE helps lenders to optimize collection agency performance on pre and post charge-oﬀ accounts SCORE brokers bad debt sales (over $10.0 Billion in face value brokered to date) SCORE Consulting Services have assisted lenders in operational organization and best practices SCORE works with clients who need to outsource their analytics and scorecard development and conducts 3rd party score validations (for facilitating OSFI requirements) This includes both Portfolio evaluations and stress testing Outsourced services- SCORE is a trusted partner providing outsourced services in collection agency management in a postcharge oﬀ environment and for bankrupt, credit counselling, and deceased accounts. SCORE is also available to consult on issues that arise at any stage of the collections and recovery process.

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march/April 2017

PAYMENTSBUSINESS

International payments

Adapting to a shrinking global banking landscape How foreign exchange and payments businesses need to adjust to the changing global banking landscape

PAYMENTSBUSINESS

March/April 2017

International payments

By Anders la Cour

The shrinking global banking landscape

he global transaction banking industry is experiencing one of the biggest shakeups it has seen in decades. Non-bank tech disruptors like bitcoin and the blockchain, the eastward shift in global economic power, low-interest earnings in developed markets, the emergence of challenger banks and regulatory pressure to reduce risk and inefficiency in payment-clearing infrastructure are all contributing to what is a seismic shift in how the sector operates and what customers expect. Undoubtedly the continuing development of the FinTech sector—providing alternatives to traditional service providers—is contributing to the shake-up. But there are other factors that are having a strong influence on how global banking will be facilitated in the next few years. The impact of increased regulation and capitalization requirements has intensified competition, making it more difficult for traditional banks to do business, especially with regard to “know your customer” (KYC) requirements. Legacy infrastructure is also adding to the financial and operational burden of the incumbents.

According to Boston Consulting Group (BCG), global transaction banking generated almost $1.1 trillion in revenues in 2015, representing nearly 27 per cent of total global banking revenues. This is set to increase markedly over the coming decade, hitting nearly two trillion dollars in 2025. However, whilst these growth projections for revenue are positive, it is becoming increasingly challenging for incumbents to deliver the service their clients need. The last few years have seen a shift in the availability and accessibility of banking services for global trade. Increased focus on regulation as well as the higher capitalization required for multinational banking has resulted in a number of the tier one global players pulling back from providing services to businesses outside their own geography. HSBC pulled out of 10 countries in 2015 and there has been a decrease in the number of countries that banks such as Barclays, Lloyds Banking Group and Standard Chartered are operating in between 2008 and 2015. According to a 2017 East and Partners report including 2,000 SMEs and large UK companies, the volume of foreign exchange services business conducted with UK banks has declined—as has the number of companies using a UK bank as their primary provider of foreign exchange (FX) services, with non-bank providers taking market share. But, whilst the emerging FinTech sector is providing some solutions with, currently, about one-third of payments-related FinTech investment going to B2B providers (according to BCG), these players are not likely to displace the traditional players completely.

The great unbanked

Against this backdrop, I believe there are five key trends that are going influence the world of international trade in the next few years.

Anders la Cour is co-founder of Saxo Payments.

Shortcomings in banking services, along with the wish of some corporations to be “bank agnostic,” have therefore opened the revenue doors to FinTechs and digital giants. But how easy is it for businesses to switch and what can they expect from both incumbents and new service providers? As FinTech startups continue to emerge on an almost daily basis, it seems that the supposedly simple process of opening a bank account is becoming increasingly difficult for startups and even established payments businesses—especially outside of first-world markets. Companies looking to trade abroad generally need to open accounts in the geographical region in which they wish to do business. As a result, startups including the burgeoning world of FinTechs and established payments businesses are left searching for a bank that is willing and able to help them reach their international trading potential by allowing them to open the necessary bank accounts.

march/April 2017

Five key trends

1. New market opportunities driven by globalization While Europe is still the largest “inbound” transaction banking market, rapidly developing economies will grow significantly faster during the next decade. This strong growth will be driven by a significant increase of international trade flows, especially with and within Asia, with rapidly developing economies contributing around 55 per cent of expected transaction growth.

2. Digitization and the focus on the customer The digital wave is changing dramatically how businesses engage with their customers, as well as how they run their organizations. As they improve their own customer engagement and service levels, businesses’ expectations of the digital capabilities of their banking providers steadily rise; however, incumbents are not as operationally efficient as newer market entrants, with their STP rates as low as 60 per cent.

3. New regulation driving banks to retrench A new set of regulations issued mainly in Europe and the U.S. in the last five years (e.g. Basel III and the Payment Services Directive PAYMENTSBUSINESS

International payments and tighter requirements around KYC and anti-money laundering) will continue to severely impact the global transaction banking landscape. Stricter KYC and AML legislation have led to increasing compliance costs and litigation risk for banks. These in turn can have adverse consequences for bank-corporate relationships: e.g. protracted account opening processes, payment value limits and difficulties for banks in supporting corporate international business in less secure jurisdictions. Banks are, as a result, retrenching due to the burden of compliance.

4. Entry of third-party payment providers Taking full advantage of the trends in the global payments space, new entrants are striving to fulfill the demands of businesses, with some threatening to disintermediate banks. New entrants aim to address existing pain points by providing, for example, real-time rich remittance information, lower fees and launching innovative offerings to enable seamless integration of payments.

5. The evolution of the utility This is the newest trend in international transactions. A whole new ecosystem is providing the infrastructure for business-tobusiness cross-border payments. And this ecosystem is underpinned by “utilities” which, just like the utilities used in a domestic environment—gas, electricity, water, etc.—provide the unseen but necessary power and energy to provide the best possible foundation for delivering a great customer experience worldwide for the end clients. Working in partnership with specialist utilities also means that a business can move much faster, as well as reduce costs—all of which can be passed onto the customer. And because the utility isn’t in competition with a business (it’s a supporter) both organizations should have like-minded goals, rather than pitch themselves against each other.

The current situation Recognizing the changing shape of the international payments marketplace, Saxo Payments commissioned exclusive research to identify how the diminishing availability of services is impacting not only on FinTechs but on the business of their clients’ operating in international markets. This research has been published in our new white paper Missing the Opportunity. Ranking their top three biggest concerns when it comes to crossborder transfers, respondents placed cost as their biggest concern, unsurprisingly, with 50 per cent granting it top ranking. Speed of transaction ranked highest as the second biggest concern, taking 32 per cent of the votes. International regulatory requirements ranked third recording 30 per cent of the votes followed closely by limited payment channels. Clearly the flow of cash to and from different businesses is vital to keep a business alive. Yet in the world of FX payments it appears that there are some severe barriers that are stifling cash flow, with nearly half (44 per cent) saying that payment settlement times cause the longest delays. In second place, reconciliation (17 per cent) also caused delays, followed by screening (12 per cent). It’s not all bad, 12

PAYMENTSBUSINESS

though, as nearly a quarter (24 per cent) said they aren’t aware of any delays. However, this could simply be that they have come to accept and live with long lead times without being aware of other options. High overheads are compounded by the fact that nearly a third believe they are not offered competitive rates by their current FX provider (29 per cent). Interestingly, however, nearly one in 10 simply haven’t compared rates. And, significantly, going to the heart of the challenges faced by fast-moving businesses, it seems that current providers are not responsive to the FX and payments businesses needs with one in five (21 per cent) saying it took between two and three months to set up currency account, payment and FX facilities for their business.

Cross-border payments key for growth Given the concerns already identified by respondents, it’s probably not surprising that the top three payments-related factors hindering the growth of FX and payments businesses are the cost of FX, access to bank accounts and the speed of settlement. With many of the big banks pulling out of overseas markets and preferring to operate in their domestic market, access to these services looks set to get worse, not better for businesses still relying on the traditional providers. Forty per cent said their current provider cannot help them reach new international markets and 45 per cent say their provider does not offer access to FX tools or analytics to help manage FX risk, despite the cost of FX being identified as a barrier to growth. What our white paper identifies is that in what has become a global digital world with very few barriers, the banking process still appears to be fenced in. Rising compliance, risk and operational costs are driving the banking sector to focus on digitizing their business and operating domestically. Businesses that want to trade internationally, therefore, have to open separate accounts with multiple banks in multiple countries. With lengthy application processes taking as much as six to 12 months, the administrative burden can be huge. Whether it is the lack of competitive rates or long delays in payment settlement, it seems that accessing global transaction banking is at the heart of the challenges facing businesses trading internationally. Access to fast, low cost FX rates is no longer the preserve of big multi-nationals, as online trading opens the door to smaller businesses that need to be able to make and receive international payments. However, the research shows that too many businesses are unable to grow into new markets and reach their potential due to slow, expensive services that put too high a burden on smaller firms and startups. To access a full copy of the Saxo Payments FX white paper please go to www.saxopayments.com/fx-white-paper.

Using his experience in legal M&A as well as in venture capital, coupled with a strong commercial acumen and entrepreneurial mind-set, Anders la Cour co-founded Saxo Payments in 2013, with backing from Saxo Bank. March/April 2017

Hardware report:

POS & mPOS

In 2017, commerce happens everywhere By Cathy Vigrass

or many sellers, one of the most challenging parts of running a business is getting paid. This is surprising if we think of the straightforward situation where a buyer walks into a store to purchase goods and/or services from a seller; however, we know not all transactions follow this simple script. Commerce is increasingly conducted across time and space which makes buying and selling more complicated. Transactions can happen immediately or in the future, in store, at an office or on-thego, over email, mail, by phone or online. We believe that no matter when or where commerce happens, it should be easy. At Square, we serve many types of businesses, from contractors to coffee shops, lawyers to landscapers, retail stores to restaurants and we are always in touch with our sellers to hear what tools they need to run a successful business. We learned from our sellers that transactions where a payment card was not present (CNP) were not easy, simple or intuitive enough for the seller or the buyer. I’ll share real-life examples to illustrate. Julian Bell is owner of CrossFit Leviathan in Toronto. On a monthly basis, Julian would send out email invoices to his members. He found invoicing members for payment was more convenient for both his members and himself in place of catching people before or after their workout as often people do not have their credit cards on them at the gym. The downside was he had to follow up with some members for payment. He believed it doesn’t matter who you are or what kind of business you have, not everyone is going to pay you on time. It was time this “reality” for many business owners changed. Square’s new Card on File feature blew away these old beliefs by offering safe storage of card information with the buyer’s permission. With this feature, the seller is able to remotely charge their buyer’s card on file for a sale. The feature also allows sellers to set up recurring payments that happen seamlessly and on schedule, reducing friction. The Card on File feature is also ideal for retail or wholesale businesses that take reoccurring phone or email orders, or professional services businesses such as lawyers, where sellers may have a first in-person encounter with their customers, but tend to serve or bill them remotely thereafter. We also heard from sellers about the desire to switch between march/April 2017

devices when taking card not present transactions. Nathan Sally, owner of a seasonal snow blowing service business, Metro Wellington Civic, in Ottawa, experienced this firsthand. His office staff often take payments over the phone and they would have to stop what they’re doing to push the payment through on their phone using the app. This also became evident across different industries including contractors, charities, and health and beauty professionals. While smartphones and tablets continue to be vital business tools, the reality is many businesses rely on computers for much of their backoffice operations. Virtual Terminal was launched to allow sellers to key in payments directly from a web browser and complete a payment in seconds. Office staff can now take payments faster and in multiple locations. Nathan and his office staff are now taking payments on any device, at the office or at home while staying on the phone with their clients. In simplifying payment processes no matter when or where commerce happens, business becomes better than usual for both the buyer and the seller. As a payment technology company we truly believe the most challenging parts of running a business for sellers of any size should not be getting paid. Cathy Vigrass is the head of Canada at Square.

PAYMENTSBUSINESS

Hardware report:

POS & mPOS

Now is the time for point-of-sale financing By Peter Kalen

he notion of providing financing at the pointof-sale (POS) and the many benefits derived by doing so isnâ&#x20AC;&#x2122;t new. Many large retailers have offered this in some way, usually through white label credit cards or loans managed in the backend by large financial institutions. The traditional method, however, has been cumbersome. Outdated paper-based applications, long approval times that can take hours or even days, overt risk aversion by financial institutions resulting in fewer approvals and the burden of training sales staff to even offer financing as an option have relegated POS financing as a nice-to-have versus a must have. Thatâ&#x20AC;&#x2122;s now changing. Like all industries and sectors today, advances in technology and a shifting marketplace have completely redefined POS financing as a sales tool. The result? Progressive retailers across North America are experiencing a significant increase in sales of big ticket items by giving customers a viable and attractive payment option.

Think Canadians donâ&#x20AC;&#x2122;t want financing? Think again Statistics show that there is a huge demand for financing in Canada. 14

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As much as 50 to 60 per cent of furniture, appliances and electronics sales at large retailers can be driven by promotional financing offers. A 2012 Harris/Decima survey commissioned by the Canadian Institute of Chartered Accountants revealed that 43 per cent of Canadians carried over a month-to-month balance on a credit card, of which 60 per cent indicated they have done so in the past 12 months. A total of 60 per cent of the cardholders have borrowed money to finance a big-ticket purchase, such as a car or vacation, and 44 per cent still owe against these loans. It is easy to conclude that Canadians are in fact quite comfortable with maintaining a credit balance on all types of loans and are open to using credit for big-ticket purchases. Financing is a means to satisfy the demand for Canadians to afford products that will enhance their quality of life.

Why the time for POS financing is now Since the lead-up to the global credit crisis of 2008, there were a number of large players in consumer lending. In the midst of the crisis, between 2009 and 2012, all of these players either exited the market or dramatically curtailed their activity in Canada. Their departure created a large void, estimated at approximately $5.5 March/April 2017

Advertorial

TALKINGTECH Partners with SCORE to launch digital collections to Canadian market Partnership will maximise powerful data to enrich collections for Canadian organisations and their customers TALKINGTECH, a global leader in customer engagement and payments, today announces a strategic partnership with SCORE, a leading provider of analytic solutions in risk management and collections, based in Toronto, Canada. The partnership combines SCORE’s risk and propensity scorecards that identify customers most likely to self-cure with TALKINGTECH’s self-service and omni-channel digital bill payments. This unique blend of data, analytics and technology will reduce collection costs and improve customer engagement. Both SCORE and TALKINGTECH have extensive and deep experience in working with financial service and telecommunications providers, bringing best practice in digital bill payment solutions to the Canadian marketplace. Richard Yap, Chief Operating Officer of SCORE commented: “This partnership will enhance the existing services that we offer to our clients. Our clients will benefit from offering TALKINGTECH’s multi-channel, digital payments services to customers in collections, thereby increasing revenues and improving the brand journey. As the Canadian market inevitably becomes more regulated in forthcoming years, TALKINGTECH’s experience in addressing regulation and compliance will also prove invaluable.” Simon Howard, Director of Business Development at TALKINGTECH, added: “SCORE, like TALKINGTECH, is a long established and well-respected business with a proven business model. Its unique approach to collections uses bureau-based scores to build propensity models and strategies that identify the customers most likely to cure or pay. TALKINGTECH’s ability to execute this, using our SWIPE solution that encompasses SMS, web, and voice will be a powerful and compelling proposition. We have already seen a huge amount of initial interest and over the next 12 months we will work closely with SCORE to ensure that Canadian organisations are better prepared to embrace the digital age in collections.” TALKINGTECH and SCORE will be speaking about ‘Frictionless Payments and Collections’ at the CSRSA 2017 Annual Conference, June 4 - 6, 2017 The Hilton Niagara Falls / Fallsview Hotel & Suites, ON Canada About TALKINGTECH TALKINGTECH is a global leader in customer engagement and payment technology solutions for some of the world’s largest utilities, telecommunications and financial services organisations. Founded in 1986 and with deep expertise in the areas of customer engagement, payments and collections, TALKINGTECH is headquartered in New Zealand and has offices across EMEA, Australasia, South Africa and North America. TALKINGTECH helps organisations such as, Vodafone, O2 and EDF Energy to improve overall customer satisfaction and increase revenues by making it easy for their customers to pay their bills promptly. For more information visit http://www.talkingtech.com. About SCORE Since 1997, SCORE has offered trusted models, predictive analytics and expert insights with proven results. SCORE helps clients optimize accounts receivable management returns through the optimization of scoring, analytic and consulting solutions. Headquartered in Toronto, SCORE is dedicated to offering clarity and providing solutions for our clients in banking, insurance, telephony, and public/government institutions in accounts receivable management. SCORE partners with industry leaders to provide unique models and unparalleled results. For more information visit http://www.scorestat.com.

Media enquiries:

Lisa Hancox at The Bright Hub lisa@thebrighthub.co.uk +44 (0)20 3475 4112 march/April 2017

Richard Yap, COO, SCORE Statistical Consulting Inc. richard@scorestat.com (416) 861-1217 PAYMENTSBUSINESS

Hardware report:

POS & mPOS

billion in receivables, and caused a significant shortage of sales financing supply for small- and medium-sized retailers. The past decade has also seen significant advances in technology, and we’re not just talking about the iPhone and virtual reality. Backend, enterprise-level systems have evolved just as significantly, which has fueled the rise of startups and technology companies across all verticals and sectors. The financial sector, long associated with bureaucracy and lack of innovative thinking, was ripe for disruption. Enter the explosion of FinTech companies, particularly in Canada, and the birth of Flexiti Financial. From a regulatory perspective, the rules of financing and lending haven’t changed. Advances in technology, however, have completely altered the landscape. Customers, particularly Millennials, expect the promise of choice and convenience in every aspect of their life. FinTech is answering the call across financial touch points, with POS financing being no exception.

Customers want to buy now and typically don’t care about the backend process through which they will get their financing so long as the transaction is smooth, easy and under transparent terms and conditions. Guess what, your customers expect options—now they have them Turns out many customers already qualify for POS financing. How? If they have a credit card or line of credit, then they have been deemed a low risk to make their payments and therefore approved by a major financial institution for a loan or credit card. But are either of these a smart choice for customers when deciding on payment options? Due to high interest rates and rigid payment plans, likely not, but a customer will be weighing these options when making a purchasing decision. Critically, a retailer has no control over the terms set out by the customer’s financial institution which, as it turns out, will have a major impact on a potential sale. POS financing, done right, becomes a very attractive alternative not only for the customer, but also for a retailer trying to close a crucial sale.

Flexiti Financial’s sales financing technology is specifically designed to capitalize on the unique opportunity that exists today to finance consumer purchases from mid-to-large vendors of traditional “big ticket” products. We have taken advantage of advances in technology to create the only custom-made solution for POS financing with a leading-edge merchant technology platform built for scale. One of our customers, Big O Tires of Chilliwack B.C., is an excellent example of a mid-sized retailer taking advantage of alternative lending options like POS financing. Big O Tires is an automotive repair, tire and wheel centre. Given the potentially large costs of automotive repairs and supplies, for the past 20 years they have offered customers a financing option to help bridge the gap in their ability to pay. The shortcomings in its offering, however, mirrored the rest of the industry—too cumbersome or intrusive for the customer to bother, too complex for the sales team to even offer. Financing was seen as a last resort. Further, big name financial institutions that acted as the backend provider of the financing itself would come and go based on the whims of their business objectives, leaving Big O Tires constantly looking for new partners. Now, by using a technologically advanced financing platform at the point-of-sale, not only are they able to provide instant financing on any device, anywhere, and instant credit approval in three minutes, but they can now offer customized payment options at interest rates significantly below current credit options on the market through options like full interest, low interest or no interest. Also, Flexiti Financial’s advanced algorithm and customer service is able to confidently approve more people than a typical financial institution. The results? According to Barry Pederson, owner of Big O Tires in Chilliwack, more customers are able to quickly make a purchase without having to pay a large amount of interest on borrowed money. The implementation of our financing platform has proven so successful that Big O Tires is now using POS financing as a sales driver. In the past nine months alone, they have directly attributed tens of thousands of dollars in sales to POS financing—sales that would have otherwise been lost.

POS financing as a must have Customers want to buy now and typically don’t care about the backend process through which they will get their financing so long as the transaction is smooth, easy and under transparent terms and conditions. Retailers, hyper-focused on closing sales, want a proven solution that can quickly integrate with their business, is easily understood and used by the sales team, lacks complexity and can be customized to offer compelling promotions to their customers. Advances in the payments business, and POS financing in particular, meet these needs, providing retailers of all sizes with a new musthave option in their sales arsenal.

What does POS financing “done right” mean? Today’s technology allows for higher approval rates, instant and paperless origination process and a focus on customer service. In March of 2016, Flexiti Financial launched its award winning mobile delivery platform to take advantage of the opening in the market and demand for better payment choices at the POS for the consumer. 16

PAYMENTSBUSINESS

Peter Kalen is founder and CEO of Flexiti Financial, Canada’s leading POS financing platform for retailers. Peter is a seasoned credit card and retail executive with over 25 years of experience in the financial services industry. Prior to founding Flexiti Financial, he served as EVP at Sears Financial and Home Services, SVP at President’s Choice Financial and SVP Citi Cards Canada. Peter received his MBA from the Richard Ivey School of Business in 2001.

March/April 2017

*Not applicable to all use cases

How Tokens Are Used

Hardware report:

POS & As consumers increasingly shop with connected devices, the need for a seamless and secure digital payment experience becomes crucial. Without exposing the consumer’s account to fraud, tokenization enables frictionless, card-free payments in digital commerce environments.

mPOS

946

936 Oranges

Apples

Mangos

Pizza Delivery

Bringing commerce to the IoT Online

In-Store

Making eCommerce purchases is becoming commonplace. Tokenization provides online retailers with an innovative and secure way of handling payments.

Tokenization provides a secure way for consumers to make in-store payments by simply waving their device near the payment terminal.

In-App

1 PAIR JEANS $ 27.00

PROCEED TO CHECKOUT

And what it means for Canadians

4000 1234 5600 9010

The ability to pay with Visa is increasingly embedded in innovative mobile applications that make By Derek Colferit even easier to pay for your transaction on the go. s the Internet of Things (IoT) continues to grow and drive a more connected world, it is changing the way we live, shop NOWby moving the point-ofand PAY pay sale to wherever the consumer wants it to be. Visa’s new global collaboration with IBM was designed to allow businesses to introduce secure payment experiences quickly 2to any connected device. This PIZZAS $20.00 collaboration with IBM is rooted in a shared vision and belief that we can securely embed payments and commerce into any device—from a watch to a ring to an appliance or a car. Let’s consider the car. Experts estimate there will be 380 million connected cars by 2021. Since the Canadian debut of our Connected Car prototype at the 2015 Toronto International Film Festival, Visa has continued to work with a broad group of partners to build and test prototypes for car-based PAYMENTSBUSINESS

march/April 2017

Payment initiated

Merchant sends token to acquirer

Hardware report:

POS & mPOS

payments. By connecting the car ecosystem to the Watson IoT Platform and enabling the car with secure payment functionality, the possibilities are very exciting. Imagine being alerted when a specific car part needs replacing before it needs replacing. Then imagine your vehicle independently responds by either scheduling a service appointment or ordering the part that has the combined lowest cost and fastest shipping time. With Visa Checkout, this type of payment experience is made possible through streamlined e-commerce or in-app payments. The range of other options is virtually limitless, extending to on demand insurance offerings, paying for gas without a physical card or zipping through the drive-thru that much faster because the payment part of the transaction is built into the car and not the drive through window.

All you need to know about

Tokenization Visa Token Service, a new security technology from Visa, replaces sensitive account information, such as the 16-digit account number, with a unique digital identiﬁer called a token. The token allows payments to be processed without exposing actual account details that could potentially be compromised.

How Visa Token Service Works The Visa Token Service enables digital payment service providers and ﬁnancial institutions to offer their customers a safe way to shop online and with mobile devices. Here’s how a token is initiated.

Step 1

Step 2

Step 3

Consumer enrolls their Visa account with a digital payment service (such as an online retailer or mobile wallet) by entering their primary account number (PAN), security code and other payment account information.

The digital payment service provider requests a payment token from Visa for the enrolled account.

Visa shares the token request with the account issuer (such as the consumer’s bank).*

VisaNet

Conservative estimates expect 20 billion connected devices in just three more years.

PAN

Enter payment details below:

PAN

Issuer

61,802,000,000

Token Requestor

Consumer

Enter payment details below:

PAN

Token Vault

Step 5

Step 4

Visa shares the token with the token requestor for online and mobile (NFC) payment use. A payment token can be limited to a speciﬁc mobile device, eCommerce merchant or number of purchases (say, a limit of ﬁve) before expiring.

With the account issuer’s approval, Visa replaces the consumer’s PAN with a unique digital identiﬁer (the token). *Not applicable to all use cases

We believe Canadians are poised and ready to embrace this tidal wave of new digital commerce use cases. One decade after launching EMV/ Chip cards in Canada, 92 per cent of cards are now enabled. With a high concentration of contactless cards and merchant acceptance, Canadians make 24 contactless Visa payWave transactions every second. Mobile payments, mobile e-commerce and in-app purchasing are all on the rise. We know that Canadians prioritize security along with convenience; accordingly, we know that this vision of commerce-based IoT can only flourish when consumers feel secure. This is where Visa’s work with IBM will first begin. The 6,000 clients already utilizing the Watson IoT Platform today will now be able to more easily infuse secure payments across their entire product lines using the Visa Token Service, a new security technology that replaces sensitive payment account information found on payment cards with a unique digital identifier. For IBM’s Watson IoT clients, we will make the Visa Token Service accessible through a network 18

PAYMENTSBUSINESS

How Tokens Are Used As consumers increasingly shop with connected devices, the need for a seamless and secure digital payment experience becomes crucial. Without exposing the consumer’s account to fraud, tokenization enables frictionless, card-free payments in digital commerce environments.

946

936 Oranges

Apples

Mangos

Pizza Delivery

Online

In-Store

In-App

Making eCommerce purchases is becoming commonplace. Tokenization provides online retailers with an innovative and secure way of handling payments.

Tokenization provides a secure way for consumers to make in-store payments by simply waving their device near the payment terminal.

The ability to pay with Visa is increasingly embedded in innovative mobile applications that make it even easier to pay for your transaction on the go.

March/April 2017

946

936 Oranges

Apples

Hardware report:

Mangos

POS & mPOS

Pizza Delivery

Online

In-Store

In-App

Making eCommerce purchases is becoming commonplace. Tokenization provides online retailers with an innovative and secure way of handling payments.

Tokenization provides a secure way for consumers to make in-store payments by simply waving their device near the payment terminal.

The ability to pay with Visa is increasingly embedded in innovative mobile applications that make it even easier to pay for your transaction on the go.

PAY NOW

1 PAIR JEANS $ 27.00

PROCEED TO CHECKOUT

2 PIZZAS $20.00

Payment initiated The consumer initiates a payment online, in-store or in-app.

Merchant sends token to acquirer Depending on the commerce environment, the digital payment service provider (e-wallet, eCommerce merchant or app) passes the token to the acquirer as part of an authorization request.

Acquirer

Acquirer routes the token The acquirer receives the token and routes it to Visa’s network to begin processing the transaction.

6 VisaNet

Transaction completed The token and payment authorization are routed back to the merchant's bank, the acquirer.

61,802,000,000

Visa sends token to card issuer

Issuer returns token and authorization The issuer accepts or declines the transaction and sends its response back to Visa.

Visa sends the token, along with the payment card details, to the issuer for authorization.

Issuer

of token service providers (TSPs) as part of our Visa Ready partnership program. We created the Visa Ready program to help quickly certify emerging, third-party payment solutions to ensure they meet Visa’s security standards and specifications, and have seamless and secure global acceptance. Being confident that your Visa account will work the same way on an app from your phone or while travelling internationally is another hallmark of Visa’s brand promise that is essential for us to maintain.

The tokenization of digital payments is the newest component in an always evolving security strategy. Today, Visa has three billion account holders and conservative estimates expect 20 billion connected devices in just three more years. With this kind of penetration, removing sensitive account information such as the 16-digit account number from the system was an essential step in preparing for this very digital future. We consider the tokenization of digital payments the newest component in an always evolving and very comprehensive security strategy to identify and prevent fraud. At Visa, we fundamentally believe you can be everywhere you want to be—and now pay with everything you want to use. We have spent the last several years investing in and preparing for this future and that payments will be at the core of not only devices, but also experiences. Working with Watson IoT is a major step in getting us to a place where we can deliver secure payments to “virtually anywhere” and transform that long retail line to a line of one: you. With more than 15 years of digital and mobile experience in North America, Europe and the Middle East, Derek Colfer is currently the head of digital innovation for Visa Canada, focused on mobile innovations like HCE and NFC, core platform technologies and the recently announced Visa Token Service and Apple Pay initiatives. Since joining Visa in 2010, Derek has led several successful mobile initiatives including Canada’s first commercial NFC deployment in 2012.

For more information visit: www.visa.com/digitalsolutions Source: Visa Inc.

march/April 2017

PAYMENTSBUSINESS

Pay channel Report: CARDS

Are PayPal and Visa going to (finally) kill the cheque? By David Eason

isa and PayPal recently announced a strategic partnership that will combine the power of the largest payments network in the world with the largest digital payments network in the world. The partnership will give consumers and businesses new ways to pay and move money online among peers and businesses, as well as new ways to complete in-store transactions. Will this be the final nail in the coffin for the dogged cheque? In 1990, the cheque was living large, enjoying 2.3 billion in processing with little competition for a better means of money transfer for consumers, businesses and governments. Fast forward 25 years and digital payment solutions have flooded the Canadian payments system. Cheque usage fell by nearly 30 per cent between 2008 to 2014, with less than one billion cheques written in Canada in 2014. But that is still a billion cheques for a country of 34 billion people. Banks have supported cheque settlement, even as market forces move towards faster digital payments. But the truth is that cheque usage creates massive friction in the financial system and there are safer, cheaper and more convenient payment solutions to support. Part of the reason for cheques’ tenacity is practical; there isn’t a perfect replacement for it. Peer-to-peer digital money transfer is growing through services such as MintChip—in 2015, Javelin Strategy estimated that peer-to-peer transfers hit nearly $379 billion in the U.S. alone—but it isn’t mainstream yet (at least for people over 30). Most people are still looking for an easy way to pay a babysitter or to reimburse a friend for buying concert tickets. The Canadian government issues millions of cheques every year in pension and social payments. While 94 per cent of Canadians have a bank account and the ability to receive an electronic payment, many don’t utilize online banking or other digital banking services. And 20

PAYMENTSBUSINESS

the Canadian government has not mandated electronic payment for social payments like the U.S. Federal government has done. According to Brigitte Fortin, assistant deputy minister for accounting, banking and compensation at Public Works and Government Services Canada, direct deposit is not mandatory and those not enrolled will continue to receive their payments by cheque. Businesses have also been slow to change their systems to adopt an electronic payment process for suppliers and contractors. According to ePayments Rising: The 2014 Market Report conducted by Ardent Partners, 71 per cent of B2B companies are now fully capable of paying their suppliers electronically. Despite this potential, a recent survey by the Association of Finance Professionals found that only 50 per cent of companies are taking advantage of this technology. The simple familiarity of cheques holds back progress because cheques have been the preferred method of payment for decades. Buyers and suppliers in every industry are familiar with them, know how to handle them and have been reluctant to give up this level of comfort. If it works, why change it? And cheque truncation and remote deposit capture have made it possible to convert physical cheques into digital images, further prolonging their relevancy. Many small suppliers have not even invested in the acceptance of electronic payments, even if a business is ready to pay electronically. But the ubiquity of cheques should not hold us back from moving forward. Cheques are incredibly costly to employers, employees and small business owners in many ways that are hidden but important: • Cheque processing is expensive: Cheques cost between $2.00 and $3.85 more to process than electronic payments. • Cheque fraud is a big problem: Cheque fraud is among the oldest and most common forms of financial crime. And if a cheque is stolen or lost, it’s gone and painful to replace because it lacks March/April 2017

Pay channel Report: CARDS the security features common on credit, debit and prepaid cards. • Cheques waste time: In today’s digital age the act of writing, mailing and going to the bank to deposit a cheque, and then waiting for it to clear is akin to waiting for a fax to transmit and print. If time is money, this cost is astronomical (also, who wants to carry around a cheque book?). • Cheques delay capital movement: Businesses must send funds a week in advance before cheques can be processed and printed, making them inefficient. With electronic payments, the capital goes straight to the source. • Cheque cashing costs are high: While Canada is a highly banked population, there are still nearly one billion cheques cashed each year with an average transaction rate of $4,200. Giving consumers access to an electronic payment tool would eliminate these high fees. So what is the perfect replacement for the cheque? I would argue that open-loop prepaid cards are one solution that could reduce 50 per cent of Canadian cheque usage. Here’s why: Open-loop prepaid cards provide consumers, businesses and governments with the efficiency, security and flexibility of electronic payments by leveraging a payment tool that is nearly universally understood and accepted—the card. Prepaid cards can be used anywhere the card network (i.e. American Express, MasterCard and Visa) is accepted, including online. Today, the open-loop prepaid payment card market, once confined to servicing a narrow underbanked niche segment, has expanded dramatically. It has evolved into an accepted mainstream mechanism, providing a credit-free, convenient, secure and budget-controlled tool for many sectors. As a viable cheque replacement solution, prepaid tools are improving financial inclusion for consumers, removing friction and cost from business-to-business payments and implementing more secure ways to distribute funds where and when people need them. Open-loop prepaid cards are already rapidly replacing cheques as a less expensive and more secure option for issuing payments. Funds can be electronically transferred and distributed within seconds to the intended recipients without the hassle and delays of mailing cheques.

They can replace a direct deposit or wire transfer, giving the end user quicker access and more flexibility to use the funds and, unlike a cheque, the funds are immediately available to the consumer to make purchases or withdraw cash at an ATM. Businesses can use the card to pay wages and commissions, to reimburse expenses immediately, to pay contractors and more through one tool in a faster, more cost-effective and more controlled manner. Open-loop prepaid cards can also replace traditional company credit cards, direct deposit transactions and petty cash in a form that is easier for the end user to use at the point of sale. The federal and provincial governments also save time, money and reduce fraud by issuing payments on open-loop prepaid cards versus cheques. According to a recent MasterCard Canada study, 86 per cent of Canadian government benefit cheque recipients are aware that direct deposit is an option, yet, depending on the program, up to half of recipients still choose to receive benefits by cheque. A card would be an easier transition to electronic payments than an automated clearing house (ACH) deposit. With cheque usage plummeting, consumers and businesses are turning to prepaid at an extraordinary rate, quickly solidifying the country’s prepaid market as one of the fastest growing in the world. According to the Canadian Prepaid Providers Organization (CPPO), the open-loop prepaid card market in Canada reached $3.1 billion in total dollars loaded onto cards in 2015 alone and, according to market research firm Euromonitor International, it is on track for a compound annual growth rate of 18.5 per cent from 2015 to 2020, or an additional $9.4 billion growth. In order for Canada to live up to its reputation as a banking and payments leader, it must do more to reduce the reliance on this antiquated form of payment. Open-loop prepaid cards solve many of the problems posed by cheques and offer consumers a familiar and comfortable step into the fast-growing world of electronic payments. David Eason is chairman of the Canadian Prepaid Providers Organization.

Want to know more about your card programs? Do you issue fleet cards? Manage transactions? Is it vital to keep on top of technology which affects your mobile solutions?

Sign up NOW for a free subscription Visit our website at www.paymentsbusiness.ca and learn more about the magazine march/April 2017

PAYMENTSBUSINESS

Pay channel Report: CARDS

Consumers in control How Mogo aims to help reduce consumer overspending by building a fully digital banking experience By David Feller

raditional financial products and providers are under serving consumers. Despite the fact that the overwhelming majority of Canadians are banked, Canadians now hold record amounts of debt, owing $1.67 for every dollar of disposable income while Canadian banks make over $30 billion in combined net income per year. One of the biggest financial challenges consumers face is not saving but overspending. Almost one third of Canadians who incurred new debt in the last year said “the primary reason for overspending was day-to-day expenses beyond their monthly income.” Traditional financial products—bank accounts, credit cards, mortgages and loans—are designed to make it difficult to spend responsibly and easy to overspend. Consumers incur an average of $216 annually in bank service fees using these products and have trouble effectively managing their financial health. As a result, there is growing consumer interest in adopting alternative payment tools. Many people, especially Millennials, are looking for more convenient payment solutions and better digital options, according to the Canadian Prepaid Providers Organization (CPPO). Nearly 60 per cent of Canadians have used alternative payment tools. Twenty-six per cent of consumers want to move to more digital payment tools and, simultaneously, 13 per cent of consumers are using traditional bank accounts less. As consumers are increasingly adopting alternative payment tools, the $3.1 billion prepaid market is becoming the fastest growing payment method in Canada and its popularity has grown particularly amongst younger consumers. 22

PAYMENTSBUSINESS

Many confuse “digital tools” with using a mobile app to view your financial accounts. In reality, a fully digital banking experience means an end-to-end digital user experience that can be executed without a visit to your bank branch. FinTech companies have an opportunity to address consumers’ overspending problem and desire for alternative payment options by offering convenient and sustainable digital solutions that complement consumers’ existing financial habits and tools. While there are several FinTech companies working on individual solutions, Mogo Finance Technology is focused on building a March/April 2017

comprehensive digital banking experience with the goal of offering Canadian consumers all the tools they need to control their financial health. We recently launched the Mogo Spending Account, the fourth product in our suite of financial solutions designed to help Canadians manage their financial health. The Mogo Spending Account is a convenient, engaging digital solution to control Canadian consumer debt and overspending. Money can be transferred instantly into the Mogo Spending Account directly from most bank accounts in Canada through the IOS app, without having to go to the bank branch or change banks. Push notifications about recent transactions and real-time balance help track how much of their money is available in real-time. The spending account comes with a prepaid card to help consumers limit spending to the money they have allocated. The chip/PIN and PayWave enabled card has no monthly fees, overdraft fees or interest charges, unlike a regular credit card. This is the first full-service GPR card in Canada aimed at younger consumers, and it will test the expansion market for U.S. businesses. We designed and built the spending account based on continuous testing, starting with internal alpha testing followed by an invite-only beta program. Our goal was maintaining customer trust throughout the process. We created a feedback loop with our beta community that enabled us to identify opportunities for new features and improvements in each iteration leading up to our official launch. Weâ&#x20AC;&#x2122;re continuing to roll out the spending account in a controlled manner and the product will open to all existing and new members shortly. Mogoâ&#x20AC;&#x2122;s experience with consumer credit and lending in the Canadian FinTech space has enabled us to develop a suite of products designed to help consumers take control of their financial health. In addition to the digital spending account, Mogo also offers free monthly credit score monitoring, mortgages and personal loans. Mogo believes that by aligning with consumer interests as opposed to promoting fees, interest or penalties, we can provide instant value and utility that consumers are not getting from their current financial institutions. Building digital products that are fun to use, transparent and incentivize financial health can help consumers manage their financial health in an effective and sustainable way. David Feller founded Mogo in 2003 and currently serves as the companyâ&#x20AC;&#x2122;s chief executive officer and chair of the board of directors. Over the past 12 years, Feller has grown Mogo into Canada's leading digital financial platform with over 350,000 members, annual revenues exceeding $43M and more than 275 team members. march/April 2017

PAYMENTSBUSINESS

Credit: Mogo Finance Technology

Pay channel Report: CARDS

Canadians move toward alternative payments By Jennifer Tramontana

recent payments study conducted by the Canadian Prepaid Providers Organization revealed that while 99 per cent of Canadians have a bank account there is a growing interest, especially amongst younger Canadians, to adopt alternative payment tools that they view as more convenient. Prepaid cards continue to grow in both usage and popularity. At the same time, 13 per cent of consumers are using bank accounts less. Canada has both a highly banked population and many consumers with a strong willingness to try new financial services products. Canadians are adopting emerging payment tools that are more convenient and secure and prepaid cards top the list as the fastest-growing payment product. Prepaid cards also boasted the highest level of satisfaction among payments tools. Prepaid cards issued by American Express, Mastercard and Visa reached $3.1 billion dollars in loads onto open-loop prepaid cards of all types in Canada in 2015. Additionally, eight per cent more consumers are seeking out these types of prepaid cards today compared to 2015. Consumers have said that their current financial tools don’t always meet their needs for convenience or a digital-first experience. Canadians still use bank accounts and credit cards at high levels, but the majority of Canadians have also used alternative payment tools citing convenience as the main reason. Thirty-three per cent of Canadians do not want to use traditional banks because alternative providers and new tools are cheaper and more convenient. Twenty-six per cent want to move to more digital payment tools such as Apple Pay. Additionally, traditional payment tools don’t do a good job at curbing spending or debt. Canadians now hold record amounts of debt, owing $1.67 for every dollar of disposable income and nearly half of Canadians have struggled to stick to a budget in the last year. Twenty-six per cent often keep a running balance on their credit card and 25 per cent have struggled with their credit score. Forty per cent have usually had credit card debt. Ninety-two per cent of Canadians have credit cards, but 31 per cent do not want to have one. Prepaid cards provide an easy way to track spending in real time and completely avoid debt and interest charges. 24

PAYMENTSBUSINESS

2016 CPPO RESEARCH

How Canadians Pay Today The 2016 annual How Canadians Pay Today Survey of 1006 Canadian reveals younger consumers are using alternative payment tools more and bank accounts less.

13% are using their bank account less

AID

PREP

59% have used alternative payment tools citing convenience as the main reason

Eight per c consumers out Americ Mastercard prepaid car 2015

Prepaid cards have the highest lev and satisfaction amongst all paym

95%

Satisfaction rate with reloadable prepaid cards

89%

Satisfaction rate with single-use prepaid cards

March/April 2017

A prepaid card user is l university

reloadable prepaid cards

89%

Satisfaction rate with single-use prepaid cards

Pay channel

Report: Up 14% from 2015 CARDS

A prepaid card user is likely to be . . .

26% of consumers want to move to more digital payment tools such as Apple Pay

cent more s are seeking can Express, d and Visa rds versus

vels of growth ment tools

Up 22% from 2015

Up 14% from 2015

ikely to be . . . an

a millennial

university educated

making less than $40,000 per year, and under the age of 45

a user of other emerging payment products

an immigrant to Canada

$3.1 BILLION

IN LOADS ONTO AMERICAN EXPRESS, MASTERCARD AND VISA PREPAID CARDS IN 2015

AID

PREP

$ $

60 per cent of consumers find it appealing to use prepaid cards to help their children manage their money

In November 2016, the Canadian Prepaid Providers Organization commissioned Leger to conduct a survey of more than 1,006 Canadian consumers exploring their preferred payment methods.

While nearly all Canadians are banked, they are open to adopting new ways of managing their money and spending. Some of the big banks and smaller FinTech players are offering digital spending accounts and prepaid cards as a complement to their bank accounts and credit cards. With the high satisfaction and growth levels seen in this survey, it is likely that Canadians will continue to march/April 2017

embrace new forms of prepaid payments tools. Jennifer Tramontana, CPPOâ&#x20AC;&#x2122;s executive director, is a sought-after communications partner for growth companies in FinTech and commerce. She leads The Fletcher Group, a payments PR and marketing firm with a reputation for smart strategy and exceptional client service. Jennifer specializes in advising clients in the era of modern commerce that blurs the lines of payments, technology, retail/e-tail, customer loyalty, customer acquisition and customer service. PAYMENTSBUSINESS

Industry Updates

Budget 2017 commentary from the Canadian Credit Union Association By Marc-Andre Pigeon

he 2017 federal budget is perhaps most remarkable for what it does not say. For example, the budget does not advance any proposals in relation to postal banking, an idea floated early in the Liberal government mandate and which CCUA put considerable effort into challenging. Similarly, as discussed below, the budget does not propose any major new changes to tax policy despite considerable speculation to that effect in the lead up to the budget. With that in mind, our budget summary focuses on issues that might have some direct or indirect bearing on credit unions, with particular emphasis on budget measures related to financial institutions, tax expenditures, efforts to reduce tax evasion, the Canada learning bond and the Canada Infrastructure Bank.

Data gathering initiative The budget proposes to provide Statistics Canada with $39.9 million over five years, and $6.6 million per year thereafter, to collect housing-related data from financial institutions under the auspices of what it calls a “National Statistics Framework.” Under the Statistics Canada Act, the agency has the power to compel these data from Canadians, including Canadian legal entities. The budget also proposes allocating $241 million over 11 years to the Canada Mortgage and Housing Corporation (CMHC) to improve data collection, analytics and expand housing research. Credit union implications: These measures will likely lead to increased data reporting requirements for credit unions. They also underline the federal 26

PAYMENTSBUSINESS

government’s ongoing concern about the state of Canada’s housing market.

FinTech collaboration Under the budget’s “innovation” theme, the federal government says it is “committed” to working with the provinces to better coordinate and share information around regulating financial innovation firms. The budget notes that FinTech companies, “along with Canadian banks, insurers and credit unions are innovating to make financial services more accessible, more useful and more affordable.” The federal government also signalled its “commitment” to work with stakeholders on thinking through the implications of FinTech on the federal government’s 2019 legislative review process. Credit union implications: The budget discussion on FinTech underlines a point that CCUA has emphasized in the past, namely that addressing the FinTech issue has been a major motivation for the extend legislative review to 2019, instead of its scheduled 2017 time frame (as announced in Budget 2016). The Department’s emphasis on collaborating with the provinces is aligned with CCUA’s advocacy, which has stressed that the federal government should work closely with provincial counterparts on policy development given that many FinTech activities are more properly regulated at the sub-national level.

Financial institutions Retail payments consultation The budget says the federal government intends to release a consultation paper on

a new retail payments oversight framework sometime in 2017. The consultation process will feed into eventual legislative changes. Credit union implications: For credit unions, this consultation could have an impact on the payments landscape, allowing new entrants into a payments space traditionally limited to large banks and credit unions.

Changes to deposit insurance legislation The budget says the federal government will introduce legislative changes that build off a consultation completed in late fall 2016 around its deposit insurance framework. Credit union implications: While these legislative changes will have a direct bearing on federal credit unions, the fall 2016 consultation paper suggests they are unlikely to have much impact on the competitive balance between federal and provincial entities. For the most part, the fall consultation focused on modernizing the federal insurance framework. It did not propose a coverage increase.

Recovery and resolution framework The budget signals the federal government’s intention, first announced several years ago, to continue rolling out elements of its recovery and resolution framework and, in particular, the “bail-in” regime targeted at the largest banks. The budget proposes to make legislative changes on the bail-in regime that would explicitly designate the Canada Deposit Insurance Corporation (CDIC) as its resolution authority, clarify the treatment of so-called “eligible financial contracts” such as derivatives in a bank resolution process, and reinforce the March/April 2017

Industry Updates powers of the Office of the Superintendent of Financial Institutions (OSFI) to require the large banks to maintain sufficient capital to absorb losses in resolution. Credit union implications: The bail-in regime is aimed at the largest banks and is therefore not directly relevant to credit unions. CCUA and others have long flagged a concern that the bail-in framework seems to preclude the possibility of exposing depositors to losses in the event of a large bank insolvency. It will continue to monitor this issue on behalf of the credit union system, reporting back on the proposed legislative changes as well as anticipated regulatory measures.

Financial market infrastructure The federal budget signalled the federal government’s intention to strengthen the Bank of Canada’s powers over “financial market infrastructure (FMI)”—essentially clearing and settlement systems like the large-value transfer system (LVTS). The proposed changes will, according to the budget, “enhance the bank’s ability to identify and respond to risks to FMIs in a proactive and timely manner.” Credit union implications: While it is unclear what precise impact these enhanced powers will have on the credit union system’s interactions with the financial market infrastructure, they do underline an ongoing effort by the federal government to ensure the integrity of Canada’s FMI.

Tax expenditures From a tax policy perspective, the most notable part of the budget, at least insofar as credit unions are concerned, is what it does not propose. In the lead up to the federal budget, provincial politicians in Ontario had called on the federal government to consider taxation measures that could help control housing price appreciation in the greater Toronto area. Meanwhile, several media reports suggested that the federal government was considering adjusting its capital gains regime, raising for example the capital gains inclusion rate to 75 per cent from the current 50 per cent. The budget does not propose any changes to the federal government’s march/April 2017

policy around the capital gains inclusion rate or the principal residence tax exemption, another area where pundits had speculated the federal government might take action. That said, the budget does propose several measures that will “crack down” on tax evasion and combat tax avoidance, while streamlining the tax system. While not directly relevant to credit unions, these measures could affect some members. They include for example: • More investment in anti-tax avoidance: The budget proposes to invest more than $500 million over five years to fund new Canada Revenue Agency (CRA) initiatives and extend existing CRA efforts such as verification activities, hiring more auditors and underground economy specialists, and developing business intelligence infrastructure to conduct better risk assessments; • Eliminating tax loopholes: The budget proposes the elimination of several specialized tax loopholes and tax planning schemes, while signalling that it will continuing to study these tax strategies for future action; and • International tax evasion: The budget proposes measures to combat international tax evasion by, for example, tightening rules around profit shifting to lower-tax jurisdictions. Finally, the budget also signals the government’s intention to release a consultation paper on certain tax planning strategies used by high-income earners, including so-called “income sprinkling,” holding passive investment portfolios inside private corporations and converting private corporate income into capital gains.

Money laundering, terrorist financing, tax evasion and tax avoidance The budget says the federal government will work with provinces to develop a national strategy around strengthening the transparency of legal persons and legal arrangements and improve the availability of beneficial ownership information. The underlying policy concern is that corporate structures can be used to avoid or evade taxes and channel illegal or terrorist funds.

Having good information on ownership can minimize these risks. Credit unions have long expressed concern about the challenges related to collecting the kind of beneficial ownership information required by the Financial Transactions and Reports Analysis Centre (FINTRAC).

Canada Learning Bonds Budget 2017 is proposing to re-allocate $12.5 million over six years, starting in 2017–18, from Employment and Social Development Canada’s existing resources that focused on raising awareness and improving access for the Canada Learning Bond (CLB) to launch a pilot project that will engage community organizations and businesses to explore new ways to increase awareness of the CLB and specifically, how to reduce barriers to access. CCUA has recently met with officials at the Innovation Hub at the Privy Council Office to position credit unions as partners in raising awareness of the CLB and promoting uptake. We will continue to advance this opportunity.

Infrastructure Bank The budget indicates that the federal government will soon be proposing legislation to create the Canada Infrastructure Bank, which will be expected to invest more at least $35 billion over 11 years using loans, loan guarantees and equity investments. While the infrastructure bank is unlikely to pose a competitive threat to credit unions—or offer much in the way of opportunities for partnerships given the nature of credit union operations—there is always the possibility that the bank’s mandate could shift over time. CCUA will monitor these development and report back on any changes that developments on the credit union sector. This report is provided courtesy of the CCUA. Marc-Andre Pigeon is AVP, government relations at the Canadian Credit Union Association.

PAYMENTSBUSINESS

Industry Updates

Reinventing the payments infrastructure The only way to win is to lead

By Cheryl Gurz

ccording to a recent CEB TowerGroup Poll, 100 per cent of bankers cited “meeting evolving customer needs” as either very important or important, outranking all other priorities on the survey. Banks are under continual pressure to improve the customer experience and payments modernization is certainly a highranking priority for doing so. As one of the most essential connections between all players in the financial 28

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ecosystem, payments are fundamental to a bank’s core operations. Because they are the most routine experience for both retail and corporate customers—and profoundly impact liquidity and cash flow—banks everywhere have been tasked with making transactions simpler, faster and more convenient, all while improving efficiency and reducing risk and costs for the organization. The problem is that today’s payment ecosystem is a complex web of old and new technologies, channels, processing systems, and clearing and settlement platforms. Many payment methods, such as cards, automatic

clearing house (ACH), electronic funds transfer (EFT) and wire, are decades old. These antiquated methods work just fine, but customer expectations are evolving rapidly as the world becomes more immediate, digital and mobile. In order for banks to continue to drive more revenue and stay competitive, the payments experience must be modernized to meet market expectations. At the same time, new competition and initiatives like real-time payments and “zero pricing” are driving the need to modernize and reduce complexity and back-end cost. Beyond competing for customers’ payments March/April 2017

Industry Updates business with other banks, today’s banks also must face emerging players in telecom, technology and other sectors that have serious sights set on the payments space and are not afraid to push the market into new places.

Moving past the “me too” mindset Too often, banks’ appetite for change ranges from reserved to tepid. The industry often grudgingly modernizes in a huddle, with few desiring to make the first move. This, sometimes described as being a “Fast Follower,” is an overly positive characterization of a relatively weak position. The Fast Follower mindset is detrimental for several reasons: one, it usually indicates a lagging competitive position; two, it gives up on creating differentiation in offerings; and three, it may indicate an insufficient plan or vision. Worse yet, the Fast Follower may have an eye to what other peer banks are doing but could get blind sided by the alternative telecom or technology vendor that wildly changes the game. Innovation in payments is a key strategy for banks and must be embraced to create competitive advantage, maximize the customer experience and vastly reduce costs and complexity. Innovation is the only way to be first and to be a leader. It should not be confused with simple creativity, being different “for different’s sake,” or flirting with unnecessary risk. Innovation must be strategically aligned to business goals. It should be formalized with innovation methodologies and processes and have a proper mechanism for filtering ideas based on their value and feasibility. Innovation also requires information and support. The best organizations invest in research about what the market needs and they talk and listen to their customers. Innovation has to be part of the culture in order to succeed and senior C-level buy-in is essential.

A road map to flexible infrastructures and unified payment hubs To be able to quickly innovate in the payments space—whether in terms of functionality, speed, business model, etc.—the current infrastructure must be updated. Much of the march/April 2017

existing progress has focused on maintaining various old source processes (ACH, wire, EFT, etc.), incrementally updating them with new channels, platforms, regulations and other factors while still keeping them in their own separate silos. This leads to different levels of service, functionality and performance across payment systems and duplicative efforts to repeat features, functions and compliance within the different payment silos. The vision most banks are now embracing is a move to a single payments hub that can support various channels (e.g. mobile, SWIFT, FED, branch), pre-processing systems (e.g. accounting, CRM, billing), payment processing systems (e.g. ACH, EFT, wire) and clearing and settlement platforms. They want a unified hub that supports all services and all customers. According to the CEB TowerGroup research, 63 per cent of surveyed banks desire a “single hub for all” in the next three years and 17 per cent desire multiple hubs. Currently, the majority have no hubs at all. The hub approach provides a central platform for different modules of functionality. These can enable new, innovative functionality for customers, provide efficiency and speed in processing, monitor for fraud, perform rules-based routing, integrate with other systems, enable analytics and perform other functions. The value is that the core functions within the hub are implemented once and are instantly applied and connected to the various channels and gateway services. This eliminates the need to make repeated updates in the various payment silos and provides a place where new innovations can be quickly enabled and tested.

Capturing value early It’s important to de-risk and deliver benefits early while building a sustainable and nimble platform. Every new stage of development should have its own set of realizable and tangible benefits. Modernizing payment ecosystems is a multi-year journey; therefore, it’s critical to unlock value early on and frequently along the way. In addition, your path forward should: • Reduce operating costs as quickly as possible by using, building and/or

consolidating services; • Build flexibility and agility into the architecture with the right capability at the right time based on the organization’s business strategies and priorities; and • Minimize risk through the use of standards such as ISO 20022, servicebased architecture, thorough testing and migration execution strategies. In pursuing payments innovation and a hub strategy, be careful to avoid common pitfalls. Too often the strategy and objectives are poorly defined, creating stall points on what to do and when to do it. Too many banks want to see a full proof-of-concept before moving forward when they should be focusing on testing things quickly and inexpensively. Making decisions can be difficult and banks may insist on having clear measurements in place. Sometimes these won’t be available and more subjective measures of value must be used. Often the biggest shortcoming is not having the right people or expertise to get the job done. Banks should look for capable partners and vendors that have deep expertise in payments and that can be depended on for the long term. The quality of the people involved will be the key driver of the transformation’s success, speed, avoidance of risk and value. Payment modernization will happen at different speeds and degrees within the payments ecosystem. Waiting to see what happens though is a risky proposition, especially since we don’t know which player will be most eager to take the lead position. The leaders and innovators in payments don’t just get bragging rights; they get the customers, the efficiencies and the opportunity to drive the vision for the entire industry. The only way to win is to lead. Smart banks will stop waiting for an answer to payments modernization and instead will decide to write their own future. Cheryl Gurz, director of global payments products and product strategy at CGI, has responsibility for delivering payment technology solutions to banks and payment operators covering payment hubs, engines, risk screening solutions, financial messaging gateways, CLS and RTGS products. Cheryl joined CGI in 2016 bringing a deep subject matter expertise of the payments and transaction banking industry. PAYMENTSBUSINESS

Industry Updates

Introducing ISO 20022 Getting Canada ready for the new payment wave

By Jan Pilbauer

anada is on the verge of an entirely new era in payments that will help businesses let go of the paper-heavy past and look to the future. Businesses that are not preparing for this change may find themselves left behind. This past December, Payments Canada unveiled its Modernization plan outlining a number of improvements that will be implemented so that Canada can once again become a global payments leader. Among the changes is the introduction of the ISO 2002 standard, which will transform business transactions and streamline the payments process, both in Canada and internationally. ISO 20022 is a powerful global language that enhances the payment information to be shared and facilitates the electronic payments process. Research from Payments Canada shows Canadians could see savings of up to $4.5 billion over a five year period if ISO 20022 is implemented effectively. That’s just from eliminating cheques. There are also enormous savings expected from improvements in compliance, cyber security, fraud protection and transaction times. 30

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The message standard will streamline the reconciliation processes for accounting and treasury professionals by providing more information with each payment, greater visibility and a standard language making it easier to interact with other parties. Global adoption of ISO 20022 is happening quickly and it will soon be seen as the standard for new electronic payment methods. Businesses will need to connect with their partners—franchisees, vendors and suppliers—about ISO 20022, because these changes could have a significant impact on the way they conduct business. The value the additional data ISO 20022 will provide is in the exchange of it. As businesses begin to adopt ISO 20022, both in Canada and around the world, it will start to become a standard expectation when conducting business. It is important for Canadian businesses to speak to their financial institutions about ISO 20022 as well. As part of the roll out, they will have access to “unstructured” data with their payments—140 characters, or a tweet’s worth of free form text—and they will be able to work with their financial

institution to receive “structured” data from business partners. This means they can use a customized data set for things like invoice and customer numbers, amount paid, discount applied, invoice date—all the specific details needed to streamline payments. This also allows for the input of data across multiple invoices, a particular benefit for those with complex and frequent exchanges between partners and vendors in any given month. This is set to be implemented over the next three to four years across Payments Canada’s modernized systems. As these changes roll out, it will be interesting to see how Canadian businesses will use the additional information provided to them by their vendors, customers and partners. This new method will create an opportunity for businesses to improve their practices, not just raise their profits. ISO 20022 is the way of the future in Canada and the benefits are highly anticipated. Jan Pilbauer is executive director of the modernization program and CIO at Payments Canada.

March/April 2017

industry Updates

Setting our sights high

Innovation and disruption in Canadian payments

By John Landry

he Canadian payments landscape is on the verge of innovative changes that could lead to a positive disruption within the marketplace. Its core infrastructure, systems, rules and participants are rooted in work done in large part during the 1990s. Earnest work and stewardship has continued since then, but the participants and mechanisms would be largely familiar to a time traveler from the Chrétien era. Thankfully there are teams of professional technologists, bankers, regulators, entrepreneurs and others working hard to bring to reality a series of changes to offer Canadian businesses and citizens the safest, most efficient, innovative and interesting new capabilities. Capitalefficient large value transfer systems, instantaneous person-to-person payments and data-rich business-to-business and businessto-consumer transfers are all topics of vibrant discussion. The plans for their delivery in the near future are starting to solidify and, as with any such foundational change, there are differing views on both the path and the destination. To illustrate how competing agendas are influencing the Canadian payments marketspace consider a few examples, such as managing moral hazard versus facilitating a competitive marketplace. On one hand, the government or other payments stream participants accepting liability for a participant failure theoretically invites fast-and-loose risk taking. The alternative may make entrance by new participants so onerous as to stifle innovation. Another example is striking the balance between the commercial interest of legacy payments players and access for new entrants or payment methods. Canadian banks and payments firms have spent many millions of dollars over the last decades on securing, operating and enhancing our current infrastructure. They are about to spend even more on modernization and there is a strong march/April 2017

argument for recouping and protecting those investments. However, there is also a strong argument that those parties aren’t necessarily the source of all innovations—to truly innovate we must allow new ideas to enter the marketplace. We should also take into consideration that the people most experienced and engaged in the debate around the development of our payments infrastructure also have commercial interests in the outcomes. The topic of player/referee is such a delicate one that it’s rarely discussed openly. It deserves recognition. My own experience is this is diligently managed by our Canadian market colleagues, but we should not lose sight of its threat to innovation. As stakeholders in this system, we must keep focused on what is possible. Yes, realities of the challenges in the three examples above cannot be ignored and are a part of the journey. The Canadian payments marketplace is in a rare period where many stakeholders agree significant change is necessary and an engaging and vibrant discussion amongst players is underway, but there are also competing agendas and some of the dynamics I described above will shape the path and the journey. The temptation can be to try and achieve smaller goals to demonstrate progress. The risk is great that we set our sights too low and achieve them. Let us consider what is possible and aim even higher. What if all payment streams were open directly to all participants who could demonstrate safety and soundness? Restrictions on values and volumes as well as collateral should remain in accordance with the participant’s profile. An additional benefit would be the central clearing authority’s direct insight into participants’ risk profile rather than through intermediaries. What if the payments and settlement infrastructure was natively integrated into other major markets and supported many currencies? Seamless transfers with suppliers

and buyers across borders would enhance Canadian business’ competitiveness. Citizens would benefit through a more transparent and user-friendly experience. What if our central clearing infrastructure managed more of the administrative but non-value-add activities that can be barriers to entry? Management of intercompany contracts, exposures, limit and collateral management provide no direct benefit to Canadian businesses and citizens yet they are largely pushed out to the many independently operating participants. Sanctions screening is another area ripe for centralization of the administrative, nonvalue-add activities and can be achieved while continuing to hold regulated banks and other participants responsible. In fact there is a strong argument that centralization of aspects of that activity enhances controls and appropriate government oversight. I hope the questions I proposed will encourage us to remain focused on an inspirational, aspirational vision of the Canadian payments marketspace. Driving and stewarding change is an unenviable role. The Government of Canada, major bank participants, financial technology firms and other stakeholders often have competing agendas. A number of hopeful entrants, many of whom bring international experience in many markets, bring further ideas and goals to the discussion. I again applaud our regulators and payments infrastructure compatriots for their hard work and dedication through these exciting times. Amazing innovations are being introduced to markets around the world, and Canada could count itself amongst those ranks as leaders in innovation. We must challenge ourselves to continue to innovate and achieve these results and remember what is possible. Let’s set our sights high and achieve them. John Landry is head of treasury and trade solutions for Canada at Citibank.

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Industry news

Credit card payment tested onboard Laval buses, a first in Canada LAVAL, QC -- The Société de transport de Laval (STL) and Desjardins Group have announced the implementation of a new pilot project to accept credit card payments by Visa or MasterCard onboard Laval buses. These two leading Quebec companies have joined forces to bring this innovative project to life as of Friday, April 21 on six of the STL's bus routes: 20, 39, 48, 60, 63 and 73. The STL is the first public transit company in Canada to test onboard fare payment by credit card (single fares). The technology used is a contactless payment terminal similar to those found in most retailers across Canada. This Monetico payment solution, developed by Desjardins, allows for instant payment by simply tapping your card on the terminal. No swiping, inserting or personal identification numbers are required. This new credit card payment option is available for single fares, in addition to the traditional cash payment and the advance purchase of fares. This convenient solution will allow occasional

riders of public transit to save time, not having to plan for exact change or to purchase fares in advance. "For the STL, innovation is a core principle. It is deeply rooted in the way they conduct business" says Mayor of Laval Marc Demers. "Public transportation is a major vector for the development of Laval and we are proud to support this type of experiment at the STL. It improves the public transit offer for Laval residents and everyone who comes to visit us." "Simple, safe and fast, this new payment option fills the needs of our riders who don't always have the exact change or time to purchase fares. We hope this new initiative will attract new clients and convince our occasional riders to take public transportation more often and make it a part of their daily travel routine," adds David De Cotis, president of the STL's board of directors. "Contactless payment is a growing trend in public transportation around the world. We are proud of this partnership

with Desjardins, who share our desire to actively contribute to the advancement of technology and, at the same time, our respective industries," concludes De Cotis. "We are happy to be partnering with the STL to provide its clients with a payment experience that meets modern expectations and that contributes to broadening the payment offer for the public transportation industry," says André Chatelain, executive vice-president, personal services, payments at Desjardins Group Marketing. "As one of the global leaders in payment systems, Desjardins is expecting this innovation, a first in Canada, to mark a major milestone in the integration of contactless payment into the various modes of transportation in this country." The results of this trial will be shared with the Autorité régionale de transport métropolitain (ARTM) and with Quebec's other public transportation companies.

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March/April 2017

Industry News

Settlement times hampering cross-border transactions for nearly half of payments businesses: Saxo white paper

IBM, SecureKey Technologies to deliver blockchain-based digital identity network for consumers

London -- Saxo Payments has published a new white paper, Missing the Opportunity, which examines the challenges facing FX and payments businesses when it comes to adding value to their client proposition. Whilst cost comes top of the list of concerns for half of payments-related businesses when it comes to cross-border transfers, the speed of setting up a currency account, FX and payment facilities is the greater risk when it comes to servicing clients. One in five respondents to the Saxo Payments exclusive research said that it takes two to three months to set up new accounts with their current provider. And nearly half (44 per cent) cited payment settlement times as causing the longest delay to the processing of FX payments— again hampering the service delivered to their clients. “As a game changer in the international payments industry, we wanted to identify the particular challenges facing FX and Payments businesses and banks that are servicing global enterprises,” explained Anders la Cour, chief executive officer of Saxo Payments. “The exclusive research featured in our new white paper highlights that if the current limitations in cross border payments are allowed to perpetuate, there could be a real risk of businesses operating in the international marketplace finding themselves underbanked.” Saxo Payments’ white paper asks: Are FX and Payments businesses missing out because they can’t support the international trading ambitions of their clients? As well as examining the challenges facing the sector as a whole, research was conducted amongst FX businesses in particular, to identify the factors having a direct impact on their customer proposition. A point of differentiation for FX businesses is to extend their value proposition. Having the ability to open currency accounts on behalf of clients is a key added value. However, FX businesses revealed that over half (51.6 per cent) are not able to do this for their clients with their current banking provider. And nearly a third (29 per cent) said it took two to three months to set up currency account, payment and FX facilities, displaying a distinct lack of speed in a fast-moving marketplace. Almost half (48.4 per cent) of FX businesses also said that their current provider does not help them reach or expand into new international markets. “Our new white paper identifies that although there is a growing global economy, too many businesses are still finding it hard to access the services and support they need to capitalise on this opportunity,” concluded Anders la Cour. “The emerging FinTech sector is providing some solutions, but it won’t be able to provide a genuine alternative to traditional players until it can deliver a truly competitive, added value service." To download the Saxo Payments white paper go to saxopayments.com/fx-white-paper.

LAS VEGAS -- IBM InterConnect: IBM and SecureKey Technologies have announced they are working together to enable a new digital identity and attribute sharing network based on IBM Blockchain. The network will be designed to make it easier for consumers to verify they are who they say they are, in a privacy-enhanced, security-rich and efficient way. When launched later this year, consumers can use the network to instantly verify their identity for services such as new bank accounts, driver's licenses or utilities. To create a highly secure, global and enterprise-ready ecosystem for sharing identity requires both advanced federated identity technology and blockchain technology specifically designed for regulated industries. Together SecureKey and IBM are developing a digital identity and attribute sharing network using IBM's Blockchain service which is built on top of the Linux Foundation's open source Hyperledger Fabric v1.0. As a permissioned blockchain, the Hyperledger Fabric is an essential component in delivering services that comply with regulations where data protection and confidentiality matter. The network is currently in the testing phase in Canada, and once it goes live later in 2017 Canadian consumers will be able to opt-in to the new blockchain-based service using a mobile app. Consumers—or network members—will be able to control what identifying information they share from trusted credentials to the organizations of their choice, for those organizations to quickly and efficiently validate the consumer's identity and arrange new services. For example, if a consumer has proven their identity with their bank and a credit agency, they can grant permission to share their data with a utility to create a new account. Since the bank and the credit agency have already gone through extensive verification of the consumer's identity, the utility can choose to rely on the fact that the information is verified, and the consumer can be approved for new services. "What IBM is building with SecureKey and members of the digital identity ecosystem in Canada, including major banks, telecom companies and government agencies, will help tackle the toughest challenges surrounding identity," said Marie Wieck, general manager, IBM Blockchain. "This method is an entirely different approach to identity verification and, together with SecureKey, we have a head start on putting it on the blockchain. This is a prime example of the type of innovation

One in five say it takes two to three months to set up currency account, FX and payment facilities

march/April 2017

Collaboration to help increase privacy, security and trust for consumers worldwide

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Industry news

permissioned blockchain networks can accelerate." "Hyperledger Fabric is by far the most advanced permissioned-blockchain technology available today, in my opinion, both in protecting user data and allowing us to work within the context of industry and country privacy laws," said Greg Wolfond, founder and CEO, SecureKey Technologies. "Among the many contributors to Hyperledger Fabric including SecureKey, IBM is a standout innovator that has proven that they can rapidly bring blockchain solutions to production. We are very excited to enter into this formal agreement that will benefit consumers around the world." Canada's leading banks, including BMO, CIBC, Desjardins, RBC, Scotiabank and TD joined the digital identity ecosystem in October 2016, investing $27M collectively in SecureKey. The Digital ID and Authentication Council of Canada (DIACC) and the Command Control and Interoperability Center for Advanced Data Analytics (CCICADA), a research centre of excellence funded by the U.S. Department of Homeland Security Science & Technology Directorate, have also provided funding to bring the new approach to digital identity to market. SecureKey's leadership in identity is evidenced by its association with industry leaders and regulators such as DIACC, Privacy By Design, NIST, FIDO, OIX, Kantara and the Linux Foundation. "Our goal for this partnership is to accelerate the pace at which we can develop a service to help consumers better manage, protect and control their digital assets and identity, and ultimately provide our customers with greater convenience and a better overall experience," said Andrew Irvine, head of commercial banking and partnerships, BMO Bank of Montreal. "Implementing forward thinking innovation is key to ensuring our clients have the best possible experience in today's digital environment," said Todd Roberts, senior vice president, innovation, CIBC. "We are pleased to continue working with SecureKey to implement leading edge technology that protects our clients' security and privacy in the digital ecosystem." "We believe that combining SecureKey's expertise and innovation in identity and the technological knowledge and leadership of Hyperledger Fabric and IBM Blockchain's High Security Business Network will be foundational in delivering a great identity solution for consumers in Canada and also help pave the way at the international level," said Patrice Dagenais, vice president, payment and business partnerships for Desjardins Group. "Collaborating with partners like SecureKey and IBM in the development and implementation of solutions that make our clients' interactions secure and seamless is essential to meeting evolving expectations in a digital world," said Eddy Ortiz, VP, solution acceleration and innovation, RBC. "Canada has an important opportunity to innovate with emerging technologies like blockchain to advance digital identity in Canada." "Scotiabank is embracing digital technologies like blockchain to offer a superior customer experience and to make it easier for customers to bank with us whenever they want and wherever they are," said Mike Henry, executive vice president, retail payments, deposits and unsecured lending, Scotiabank. "We are pleased to work with SecureKey and other innovative partners to provide Canadian consumers with an easy and secure privacy-enhanced digital ID process." "Helping Canadians control the security of their personal data to reduce the risk of fraud online, in person, or over the phone is innovating with purpose," said Rizwan Khalfan, chief digital officer, TD. "We are thrilled to work with SecureKey and its partners in the creation of an innovative identity ecosystem designed to allow our customers to digitally and securely validate their identity, when and how they want to.

PAYMENTSBUSINESS

Nearly half of Canadian small businesses are using old technology to process sales

Despite more advanced POS options, 42 per cent of small businesses are relying on outdated cash registers to accept customer payments TORONTO -- Canadian small businesses are adopting modern, tablet-based point-of-sale (POS) solutions in surprisingly low numbers, according to research commissioned by Moneris Solutions Corporation. Research revealed that less than one per cent of small businesses are using an advanced, tablet-based POS solution to process sales, while 42 per cent are sticking to the basics of a standard cash register. In retail environments where smartphones, mobility and self-serve technologies are shaping the customer experience, the cash register, with its limited functionality, will struggle to maintain its usefulness over time. Businesses using standard cash registers are at a greater risk of experiencing inefficiencies such as longer checkout times, more complex accounting processes and higher rates of input error. Modern, iPad POS solutions integrate payments with specialized applications to offer businesses a more complete view of their operations. These fully automated, cloud-based solutions offer comprehensive reporting and data analysis and enable businesses to identify sales opportunities and make smarter, more informed business decisions. "Point-of-sale technology has undergone massive transformation in recent years to combine payments with the many other aspects of running a business," said Jeff Guthrie, chief sales officer, Moneris. "iPad-based solutions allow you to gain insight into areas such as inventory management, staff performance and customer history, which can help businesses save time and identify more opportunities for growth. Retailers and restaurants opting to use the old style of register are missing out on a significant opportunity to streamline their operations." A 2016 study predicts that smartphone and tabletbased POS terminals will handle 20 per cent of all retail transaction value by 2021, up from four per cent in 2016. The study forecasts that the use of mPOS systems will account for more than one in three POS terminals by the end of the same year. Additional research revealed the following information about Canadian small businesses when asked about new technologies and their current POS system: March/April 2017

Industry news

• Cost is a barrier: Cost is a perceived barrier for small businesses interested in adopting new technologies, with 68 per cent of respondents citing cost as the primary burden when considering the purchase of a new technology; • Unwilling to change: 57 per cent of small businesses reported an unwillingness to change their current POS technology, responding that there is "nothing" that would make them consider switching or upgrading their POS; • Ease of use is top of mind: Of the features that influenced small businesses' current choice of POS system, 18 per cent of respondents said they were looking for ease-of-use, followed by inventory management at 12 per cent; • Not all POS grows with the business: Of the small businesses who recently switched their POS system, 16 per cent did so because they outgrew their POS software, and 12 per cent reported that their previous POS lacked the right features; and, • Help is often appreciated: Small businesses value having a third party assist with getting their POS technology up and running, with 46 per cent of respondents saying they prefer having someone else install and set-up their POS solution.

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Interac e-Transfer volumes reached record levels in 2016 TORONTO -- Canadian consumers and businesses are using the Interac e-Transfer service at record levels with more than 158 million transfers made over the platform in 2016. This volume is up almost 50 per cent from the previous year's 105 million transfers, according to data released by Interac Association/ Acxsys Corporation (Interac). The total value of Interac e-Transfer transactions also reached a new high, with more than $63 billion transferred in 2016, representing an average transaction of $408. "Interac e-Transfer is leading secure, real-time money movement innovation in Canada," said Mark O'Connell, president and CEO, Interac Association and Acxsys Corporation. "We know Canadian consumers and businesses value the convenience and security of Interac e-Transfer today—and will no doubt find value in new enhancements that we'll bring to market in the coming months." Interac e-Transfer is a digital money transfer platform for every type of transaction: person-to-person (P2P), person-to-business (P2B), business-to-person (B2P) and business-to-business (B2B). Based on a "good funds" model in which a sender's funds are immediately removed from their account upon making a payment or transfer, the service offers real-time capabilities with 65 per cent of transfer notifications received instantly. O'Connell notes that the organization's mobile-first vision for the Interac e-Transfer platform became a reality in 2016, with almost 70 per cent of Interac e-Transfer notifications received on a mobile device. Later this year, Interac will introduce innovative capabilities to meet new and emerging user needs: • Request money: Send requests for money via Interac e-Transfer. • Recurring payments: Schedule future dated or recurring Interac e-Transfer transactions and money requests (e.g. schedule a transaction on a friend's birthday or recurring monthly rent payments). • Auto deposit: Receive Interac e-Transfer transactions and deposit funds directly into your account without the need to answer a security question. • Open access: Enable businesses to directly access payment services via APIs that leverage the Interac e-Transfer platform's money movement capabilities. "Since it was first launched in 2002, Interac e-Transfer has grown to become a service that Canadians use daily with upwards of one million transactions sent on peak days," said O'Connell. "Throughout its growth and innovation, the fundamentals of the service remain the same—a real-time, good funds solution on the solid foundation of trust and familiarity of the Interac brand."

march/April 2017

PAYMENTSBUSINESS

2017 Industry Events

March March 27-30 ICMA 2017 Card Manufacturing & Personalization EXPO Orlando, FL icma.com March 27-30 Smart Card Alliance Payments Summit Orlando, FL scapayments.com March 27-28 U.S. Payments Forum All Member Meeting Orlando, FL uspaymentsforum.org

April April 4 Retail Council of Canada Retail Marketing Conference 2017 Mississauga, ON racsymposium.ca April 5 BDC Canadian FinTech 2.0 Summit 2017 Toronto, ON bdc.ca April 10-13 NAPCP Commercial Card and Payment Conference Houston, TX www.napcp.org

April 13-14 Conference Board of Canada Canadian Privacy Summit 2017 Toronto, ON conferenceboard.ca

May 16-19 WB Research eTail Canada Toronto, ON etailcanada.wbresearch.com

April 23-26 NACHA Faster Payments 2017 Austin, TX payments.nacha.org/what-is-payments

May 23 Canadian Prepaid Providers Organization Prepaid Symposium cppo.ca

April 25-28 Central1 Momentum 2017: Annual Summit for Credit Union Leaders Vancouver, BC momentum2017.ca

May 24-26 Payments Canada Summit 2017 Payments Panorama Toronto, ON payments.ca

April 26-27 Finovate - FinovateSpring 2017 San Jose, CA spring2017.finovate.com

May

May 30-31 Retail Council of Canada STORE Toronto, ON storeconference.ca

June

May 1-3 ACT Canada Cardware 2017 Niagara Falls, ON cardware.ca

June 6-9 Internet Retailer Conference + Exhibition Chicago, IL irce.com

May 7-10 Canadian Credit Union Association 2017 National Conference for Canada's Credit Unions Halifax, NS ccua.com

June 14-16 FEI Canada 2017 Annual Conference Whistler, BC feicanada.org/2017/Annual/Conference

May 10-12 Electronic Transactions Association TRANSACT Las Vegas, NV etatrasact.com

June 28-29 InsuranceNexus 3rd Annual Insurance Analytics Canada Summit Toronto, ON events.insurancenexus.com/canada

August August 22-23 The Prepaid Press tppEXPOâ&#x20AC;&#x2122;17 Las Vegas, NV prepaidpressexpo.com August 28-30 Mobile Payments Conference Chicago, IL mobilepaymentconference.com

September September 20-21 NAPCP Commercial Card and Payment Conference Toronto, ON www.napcp.org September 27-28 Western States Acquirers Association 2017 Conference Rancho Mirage, CA westernstatesacquirers.com

October October 4-5 BAI BAIBeacon17 Atlanta, GA bai.org/baibeacon October 12-14 CAMA EXPO 2017 Quebec City, QC vending-cama.com

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march/April 2017

PAYMENTSBUSINESS

Industry Updates

A woman of influence Suzan Denoncourt of Ingenico recognized as one of the top 25 women in payments By Sarah O'Connor

Congratulations on being recognized among the most influential women in payments by PaymentsSource. What does this recognition mean to you? Thank you very much. I am truly humbled and flattered to receive such industry praise. Accolades aside, I now feel entrusted with a heightened sense of responsibility to affect positive change and progress for the good of the industry and the women within it. I see this as much as a mandate for continued contribution as it is an endorsement of my accomplishments to date.

It can be difficult to discuss gender in the context of the workplace without resorting to somewhat demeaning clichés. You are a woman. You are also the managing director of a cutting edge, global technology company. In your opinion, how are those two facts related to each other? In the case of my role, they are coincidental. My appointment was not predicated on a mandate to increase female participation at this level, but instead the result of corporate succession planning. That said, nothing showcases an organization’s support of women in the workplace more so than seeing them in senior roles. Working for a global organization certainly favours diversity, which Ingenico Group promotes and in turn benefits from. For those functions where there exists under representation of women, we strive to attract female talent by eliminating old-school 38

PAYMENTSBUSINESS

perceptions tied to unfair gender bias. The result is an increased proportion of women in traditionally male-dominated roles.

It is still unfortunately all too rare for women to reach the top tiers of corporate leadership. What advice do you have for female colleagues who are aiming to follow in your footsteps and avoid plateauing in middle management? If only the basics could apply to anyone aspiring to top tiers: showcase your talent, deliver measurable results and conduct yourself as a natural leader. Ambition, strategic thinking, confidence, good judgement and strong communication skills are not gender-specific traits. Sadly, in some cases they are unfairly perceived to be and this is where capable women need to navigate with awareness and be ready to work harder to earn fair judgement. To that end, my advice is to be acutely aware that confidence and competence cannot be revealed by women who underestimate their abilities or view themselves as inferior to male counterparts. Talented women need to own their ambition, be relentless in putting their best foot forward and leverage

those that do take proper notice.

Having been acknowledged as “one of the most influential women in payments,” how do you intend to exert that influence? In other words, when you are retired and are looking back on your career, what impact do you hope to have made on the Canadian payments industry? Given the pace of change in the payments industry, it is safe to assume that what I accomplish during the remainder of my career will likely be rendered obsolete by the time I one day attempt to explain what I did for a living to my future grandchildren. What I hope to be able to say is that I initially played an instrumental role in driving scale for payment acceptance technology across Canada, to later drive even greater adoption of connected points of dynamic interaction that completely redefined how and where payment acceptance could occur. Using my influence to engage more strategic dialogue and partnerships while building elevated trust and respect with all constituents is something I take very much to heart and remain fully committed to.

March/April 2017

THE WORLD’S CITI. IT’S WHEREVER YOU ARE.

Every day, in cities around the world, people are doing amazing things. They’re creating, innovating, adapting, building, imagining. What about a bank? Shouldn’t we be equally ingenious? Strive to match our clients’ vision, passion, innovation? At Citi, we believe that banking must solve problems, grow companies, build communities, change lives. With a network spanning the world and a comprehensive suite of treasury and trade solutions, Citi brings Canada to the world and the world to Canada. To learn more, visit: Citigroup.com/Canada

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