Canadaâ€™s magazine of Corporate Finance
Winter 2016 â€˘ www.canadiantreasurer.com
The new normal
How to prepare for a data breech
Fuelling business growth with working capital
FinTech FinTechs: Friend, foe or the future? The pulse of FinTech in Canada Trends driving transformation in global payments & regulation
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Canada’s magazine of Corporate Finance
Winter 2016 • www.canadiantreasurer.com
Table of Contents Departments & Columns 4
FinTechs: Friend, foe or the future?
FinTech right at home in York Region
Q&A with Dr. Scott Zoldi, FICO’s chief analytics officer
Trends driving transformation in global payments & regulation
The pulse of FinTech in Canada
Canada among leading digital payments markets worldwide
Managing Risk 18
The new normal How to prepare for a data breech
Enhance risk management with advanced location analytics
14 Winter 2016
Your Business How to fuel business growth with working capital
Accounting professionals will play a more strategic role in business growth in 2017 MILFORD, Conn. -- Leap the Pond predicts that 2017 will usher in major changes as corporate management increasingly turns to accounting and finance professionals to help it anticipate business opportunities and challenges in the coming year. Technology developments, such as the growing role of cloud, analytics and artificial intelligence (AI), will empower these professionals with more strategic insight to help drive business improvement and growth. “Company management is demanding more insight from accounting professionals than ever before,” said David Furth, president, Leap the Pond. “As we head into the new year, business leaders will ask less about what has happened in the past and more about where the business is headed. This will pressure CFOs, at growing companies in particular, to get their accounting infrastructure in place so they can strategically support and advise other members of the management team.” Leap the Pond anticipates that the following key technology trends will drive the growing role of accounting and finance professionals and help them meet increasing business demands: Cloud applications will be used to create “best-in-class” suites
With open, best-in-class, cloud software, organizations are leveraging a wide range of applications to meet their needs across every function. By some estimates, small to medium-sized organizations use as many as 15 applications to run their business and, in many organizations, these applications are not integrated. In 2017, we expect to see more companies integrate these applications to create their own best-in-class suites in all areas of the business, as opposed to the one-size fits-all approach of a legacy-style, pre-integrated suite from a single vendor. These new, integrated best-in-class suites enable every part of the business to use solutions from any vendor that best fits its needs, while still streamlining processes across functions and consolidating data for better reporting and analysis.
Winter 2016 Volume 25 Number 21 Publisher / Corporate Sales Mark Henry firstname.lastname@example.org Managing Editor Sarah O’Connor email@example.com Contributors Michael Garrity, president & CEO, Financeit
Sanjay Tugnait, CEO, Capgemini Canada
Paul Roman, vice president and general manager, global commercial payments, American Express Canada.
Ryan Wilson, STO, security, Scalar
Robert Szyngiel, director of product management, DMTI Spatial
Lian Zerafa, national consulting financial services industry leader, KPMG Canada
Stephanie Zee, TTS payments regulatory head, Citi
Creative Direction / Production Jennifer O’Neill firstname.lastname@example.org Photographer Gary Tannyan President Steve Lloyd email@example.com For subscription, circulation and change of address information, contact firstname.lastname@example.org
Analytics will democratize the data
One of the top reasons many companies want to move to a new, cloud-based financial ERP is to improve both financial and operational reporting. In 2017, we believe that all the talk about big data will push accounting and finance executives at SMBs to leverage reporting and analytics capabilities for multiple stakeholders using analytics tools that are embedded in key financial and operational systems. With solutions in place, processes streamlined and integration underway, next year companies will focus their efforts on pushing information and insight out to each stakeholder to drive better, more strategic decisions on issues such as product investment, market focus and business direction. Artificial intelligence will perform many traditional tasks
The cost of systems that can “think and act” independently has decreased along with the cost of computing power. These systems are also becoming more accessible through software-as-a-service (SaaS) platforms. In 2017, we expect accounting and finance professionals to reassess their roles as applications begin to perform tasks they typically handled, such as ensuring compliance to policies and procedures and gleaning insights from troves of data. Forward-thinking professionals will embrace new roles, find ways to add more value, and in the words of Rob Reid, CEO of Intacct, serve as “growth advisors” to their businesses.
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Finance function needs renewed technology to speed up close, offer value to business: FEI Canada TORONTO, ON -- A recent survey of Canadian financial executives has revealed that about 40 per cent of respondents (the majority being CFOs) have made no investment in renewing technology to support the financial close process over the past two years. Approximately one-third of respondents do not plan to make this type of investment any time soon. This was especially true for respondents from companies with less than $25M in revenue (42 per cent do not plan to make this type of technology investment in the next two years). “Given the importance of finance leaders as strategic advisors in supporting future growth, it is surprising that so many organizations have not advocated for leading tools and best practices that would support this,” said Laura Pacheco, vice president, research at FEI Canada (Financial Executives International Canada). “Finance professionals have much to offer beyond the reporting function, but they need the right technology to speed up the financial close, and then derive insights from data to support business goals.” Technology and the Accounting Process is the latest research study published by CFERF, the research arm of FEI Canada, prepared in collaboration with PwC Canada. It is based on the results of a recent online survey and research forum with senior financial executives from across the country. Dig a little deeper, and it’s clear that size and maturity play key roles in how technology is viewed and used: ◉◉ Respondents from companies with $1B or more in revenue were twice as likely (74 per cent) as their counterparts with revenue less than $25M (37 per cent) to have invested in technology that improves the financial close process. ◉◉ Respondents from companies generating between $100M and $1B were more focused on efficiency (71 per cent) than quality of output (54 per cent) whereas respondents from Canada’s largest businesses were equally split on the two objectives (at 53 per cent each). ◉◉ Participants from companies with a global presence were far more likely to have made the investment in technology to improve quality of output (level of detail) (71 per cent) than those with operations only in Canada (34 per cent) or North America (30 per cent). ◉◉ When it comes to the types of technology they’ve chosen to invest in over the last two years for the financial close process, workflow for review and approval was the most cited (52 per cent of all respondents), especially amongst private companies and those with revenues of $25M or less (62 per cent and 78 per cent, respectively). New accounting systems was the second most cited at 36 per cent and collaboration/shared workspace technologies at 28 per cent.
Credit unions lead the way in supporting the Canadian economy through community, job output and loans to SMEs TORONTO, ON -- Canadian credit unions are pleased to announce the release of their 2016 Credit Union Community & Economic Impact Report (Report) highlighting the fact that on average, credit unions’ contributions were equivalent to 5.7 per cent of pre-tax profits, well above the industry best standard of one per cent. The Report shows that in 2015, nearly 84 per cent of credit union and caisse populaires assets were dedicated to supporting the real economy through loans to consumers and Main Street businesses, compared to 70 per cent for chartered banks. How else are credit unions differentiating from banks? Dollar for dollar, credit unions create roughly twice as many jobs as Canada’s largest banks. For every million dollars of gross output, credit unions create a total of 14.5 jobs in Canada, compared to 8.4 for banks. In 2015, Canada’s credit unions: contributed more than $56 million to local communities across Canada; added $6.5 billion to Canada’s economic growth; retained $673 million in net income to support future growth and make community investments; paid $160 million in dividends and rewards to members for using credit union services (known as patronage); and paid $149 million in taxes to local, provincial and federal governments. “Credit unions are different from other financial institutions. Profits are invested back into the community and net income is also directed toward helping local communities through financial literacy initiatives and social finance innovation,” explains Martha Durdin, president and CEO, Canadian Credit Union Association. “This contribution helps communities and government invest in jobs and growth—and local communities prosper.” Since 2008, Canada’s credit unions have contributed more than $340 million to Canadian communities. In 2015 alone, credit unions gave: ◉◉ $24.7 million in donations; ◉◉ $16.5 million in sponsorships; ◉◉ $8 million in financial services (in reduced or waived service charges) to 58,363 community organizations; ◉◉ $2.8 million in donations in-kind; ◉◉ $2 million through 1,951 credit union scholarships and bursaries; ◉◉ $1.8 million to credit union charitable foundations; and ◉◉ $440 thousand to endowment funds. The Report was released on International Credit Union Day, which acknowledges the authentic difference credit unions make to Canadians, their commitment to local communities, and their contributions on a national and international level. International Credit Union Day has been celebrated on the third Thursday of October since 1948.
FinTechs: Friend, foe or the future?
By Michael Garrity
n recent years, there have been two main narratives on the FinTech industry. The first and most prominent is that FinTechs are “disruptors,” innovators shaking up the Canadian finance landscape. The second is that as these disruptors gain market traction, they are bound to be swallowed up by the established banks. I believe both of these narratives are short sighted. First off, the “us-versus-them” mentality isn’t in keeping with how the industry has evolved, and this is evidenced by recent developments involving FinTechs and Canada’s big banks. Many banks have already recognized that FinTechs shouldn’t be viewed strictly as rivals. They bring agility, ease-of-use and speed of service that can, in many cases, complement what the banks offer. They also might answer a need from businesses or consumers that might not align with the banks’ core competencies or business priorities. Secondly, the idea that FinTechs are just innovating to get acquired has also been challenged in the reality of the way that the market has evolved. One has to look no further than the FinTechs already on or focused on the public markets, such as LendingClub, Ondeck and Element Financial. Financeit’s own example of this trend occurred this past September, when we unveiled our first-ever major acquisition and announced that we acquired TD Bank Group’s indirect home financing assets in partnership with Concentra Financial (a partnership of Canadian credit unions).
Why now? If you’re not familiar with Financeit, we’re a point-of-sale financing platform for businesses looking to offer their customers competitive and innovative financing options, anytime, anywhere they do business. While financing solutions involving installment payment plans have traditionally been associated with big-box stores, the simplified Financeit platform enables businesses of all sizes to take advantage of a fast, easy digital solution so
they can offer customers an alternative to credit cards or traditional lines of credit. Financeit isn’t new on the alternative lending scene. We’ve been around since 2011 and we’ve processed more than $1.6 billion in loans in Canada and the United States. So why was now the time for a significant acquisition?
Bolstering our industry focus Over the past year, the home improvement industry has become a key area of focus for us. This shift comes at a time when many Canadians are opting to renovate their homes for varying reasons, including aging Canadians who may be choosing to invest in their current home rather than move to a new one, or those who might be making upgrades to prepare a home for sale or rental. A recent report from the Canada Mortgage and Housing Corporation (CMHC) revealed that Ontarians spent an average of $25 billion on renovations last year. The same report predicted that renovation spending will continue to increase over the next few years. Financeit has a nationwide footprint in the home improvement industry and has increased lending activity in the market by 200 per cent since 2015. Among the largest adopters of Financeit are businesses focused in the areas of roofing, HVAC, pools and spas, windows and doors, decks and plumbing. Through this recent acquisition, more than 800 of TD’s home improvement merchant dealers were assigned to Financeit, with Concentra purchasing approximately 45,000 TD loans. Given the high demand for renovations across the country, this addition of new merchant dealers means that even more businesses across Canada have the option of increasing their revenue by offering Financeit’s unique program to their customers. We’re excited to help drive sales for home improvement professionals from across the country.
Fueling growth through investment Like many FinTechs, we’ve been hyperfocused on an accelerated growth strategy. In order for FinTechs to compete
on a large scale, we turn to investors who see the potential that our unique approach brings to the market. In our case, the recent acquisition was made possible because of a US $17 million investment round led by The Pritzker Organization, DNS Capital and existing investors. This capital raise followed a minority equity financing round in October 2015, led by Goldman Sachs. A recent report from Accenture found that the first half of 2016 saw U.S. $4.58 billion in FinTech investments, through to July 31. This represents more than 500 deals. There’s no doubt that FinTech companies have proven we’re here to stay, and investors have helped fuel this change.
Looking ahead For Financeit, we’ve made an acquisition that perfectly complements our growth strategy by strengthening our position in the home improvement financing space. We’ll continue to place our focus on being an innovative financing partner for merchants in this industry and in our other core verticals. I anticipate that the Canadian FinTech industry will continue to evolve. FinTechs will benefit from new opportunities, as banks refocus their business or look for opportunities to strategically partner with FinTechs. Similarly, banks will benefit by collaborating with companies who offer cutting edge solutions for Canadian consumers and businesses. We are already seeing this happen regularly. CIBC recently partnered with both Thinking Capital for small business lending and with Borrowell for access to the company’s personal loan adjudication technology. Earlier this year, Scotiabank announced a partnership with U.S.-based Kabbage, enabling Scotiabank’s customers in Canada and Mexico to apply for small business loans. Just as there are opportunities for collaboration, there is always room for competition. FinTechs and banks will continue to challenge one another to bring modern, flexible and effective financing options to Canadians. Michael Garrity is president and CEO, Financeit.
Tom Di Emanuele, partner, Ernst & Young, delivers the keynote address at the first annual York Region FinTech Summit.
FinTech right at home in York Region The audience listens to The Future of FinTech panel discussion at the York Region FinTech Summit.
By Sarah O'Connor
n October 28th, York Region hosted the first annual York Region FinTech Summit in the Town of Richmond Hill. The Summit’s keynote was provided by Tom Di Emanuele, partner, Ernst & Young, who spoke about the state of FinTech in Canada. The Future of FinTech panel featured Alexander Peh, head of market development and mobile, PayPal Canada; Bianca Lopez, Bioconnect; Deepak Chopra, Clearbridge Mobile; and Eva Wong, Borrowell. Other topics addressed included the FinTech revolution and an investors’ perspective on FinTech. When asked whether he was excited about the potential for FinTech to take off in York Region, panelist Peh replied “Absolutely! The region already has a number of successful FinTech companies including Clearbridge Mobile and with the support of organizations like The Regional Municipality of York, I think it’s only a matter of when, not if.” Innovative FinTech companies are located throughout the Greater Toronto Area with a significant number in York Region. These firms employ thousands of highly skilled people who are developing new technologies, processes, products and business models to benefit global businesses and consumers. Representatives of many of these firms were present at the summit to network and share their insights. “Overall the feedback was extremely positive and York Region businesses appear to be excited about the opportunity FinTech provides them, not only locally, but internationally,” continued Peh. “As a global FinTech company, PayPal not only powers the payments for over 250,000 businesses in Canada, we are also passionate supporters and advocates of the Canadian FinTech industry. Unlike other industries, FinTech knows no boundaries, so we look forward to seeing success stories sprout up and flourish across Canada.” Doug Lindeblom, director of economic development for York Region, says the event was conceived in response to trends that his team had been observing for some time. “[York Region has] one of the largest information communications technology (ICT) clusters in Canada,” he notes. “What we were finding was that a lot of the technology companies we were running into, more and more were saying, ‘we’re in the FinTech business’ or ‘we’re heading into the FinTech business.’ There’s this growing area of activity that is starting to cross over between the ICT side and the financial services side.” Lindeblom says that the Region has identified about 60 local companies that are directly involved in the FinTech sector and he expects that number to grow. “York Region has a strong financial services base and its got a very strong ICT base, so we weren’t surprised [to see FinTech growth take off]. I think its been evolving over the last number of years as of course that business has grown up. We’re seeing research and we are hearing it from our businesses and so that’s really where [the Summit] came from—ground up, grassroots.”
Companies involved with the York Region FinTech Summit include: Paymate Software Corp. provides payroll, HR and time and attendance software solutions to organizations. Paymentus provides payment platform services, including paperless billing and payment solutions. Securter is developing a payment platform that enables making convenient and safe online payments. The company has patent pending payment platform adapting and extending conventional EMV payments of physical Point of Sales (POS) to secure for contactless EMV web payments. SmartworX capital provides foreign exchange trade services. The company researches and develops algorithmic models which are used to automate trading of futures. Its proprietary suite of models, Tempo, runs on the NinjaTrader trading platform and can be applied in most market environments. Tempo could automatically manage trades in multiple instruments simultaneously and takes both long and short positions. STJ Retail provides consulting services, software development and support services to retailers and payment clients using POS systems. Strategic Information Technology develops software for banking companies such as RBC, CIBC and Scotiabank and FinTech software to help its customers disrupt their markets. Its software, used to lend, collect and manage money, is also used by credit unions, automotive lenders, mortgage companies, trust companies, government lending programs and more. Terminal Management Concepts provides Point of Purchase terminal technology solutions, offering debit and credit application software for major terminal providers, host interfaces to major retail and hospitality systems and enabling integration with POS switches. For ISPs and banking institutions seeking secure payment technology, its secure hardware/software solutions integrate pinpad technology with Active-X controls for ease of integration to the PC application environment. XE provides online money quotes and easy online transfer options. The company serves over 22 million unique visitors monthly, using tools such as XE Currency Converter, forex market analysis, and XE Currency App, which has over 40 million downloads. Since 2002, XE Trade Money Transfers has processed more than $10 billion in global payments. XE Currency Data is used by thousands of businesses from SMEs to Fortune 500 companies. ZOMARON provides payment technology solutions, using Ingenico terminals.
Q&A with Dr. Scott Zoldi, FICO’s chief analytics officer By Sarah O'Connor
“Machine learning techniques enable the fraud detection models to continually keep or exceed pace of the fraudsters and their shifting tactics.” 10
rexel University’s LeBow College of Business and CIO.com have named Dr. Scott Zoldi, chief analytics officer at analytic software firm FICO, one of the winners of the first Analytics 50 Awards. The awards program honors 50 executives who are using analytics at their organizations to solve business challenges. Dr. Zoldi received the award for his leadership in developing new analytic technologies to reduce payment card fraud, by detecting rapidly changing criminal methods. Dr. Zoldi led the development of a patented adaptive analytics technology and multi-layered self-calibrating analytics, deployed in the company’s FICO Falcon Platform, which protects 2.6 billion payment cards worldwide. This solution can leverage a client’s fraud experience in near realtime to adjust model weights, without the need for time-consuming offline training. FICO also created a patented technology called behaviorsorted lists, which identifies an individual cardholder’s specific spending patterns at preferred merchants and individualized
transaction patterns By adding adaptive analytics, one large U.S debit card issuer realized an 18 per cent improvement in real-time fraud dollars detected and a relative reduction of 11 per cent in account false positive ratio, saving millions of dollars per year and improving the customer experience for its cardholders. One international card issuer has experienced a 17 per cent reduction in false-positive cases with no negative impact on real-time fraud dollars detection rate. For transactions that occur at a cardholder’s favourite merchants, bank clients have seen a reduction in false-positive occurrences of 35-50 per cent, contributing to significant increases in customer satisfaction. “These pioneering analytics have enabled card issuers and payment processors around the globe to combat the evolving barrage of payment card fraud attacks,” Dr. Zoldi said. “I am honored that Drexel University’s’ LeBow College of Business and CIO.com have recognized me, my team and FICO for our work to improve the security of the global payments
Fintech infrastructure.” “With the ever-growing threat of data breaches and identify theft, predictive solutions such as FICO’s use of adaptive analytics are exactly the types of innovate safeguards needed to protect the consumer,” said Murugan Anandarajan, PhD, department head of decision sciences and MIS at Drexel University. Canadian Treasurer spoke to Dr. Zoldi following news of his award.
I think there is little doubt that predictive analytics are an extremely hot topic. In your opinion, what market forces are highlighting the importance of this new technology?
Fraud has been a problem that FICO has been combating since 1992 with predictive analytic models, and since that time we have continually seen the criminal element becoming increasing sophisticated and adjusting their tactics to circumvent fraud protections. The new advanced analytics associated with the Analytics 50 Award focus on self-learning analytics, a new breed of machine learning. These analytics continually adjust in real time, learning the ever-changing and sophisticated behavioral patterns behind fraudster attacks in the payments network. The payments industry relies on these adaptive behavioral analytic scores to make the best decisions on which transactions to block, whom to investigate and what to let through. Adaptive behavioral analytic technology is a key tool that protects consumers and minimizes fraud losses for issuers.
Are fraudsters also benefitting from these technological advances? In other words, are they also getting a lot better at what they do?
Absolutely. The most sophisticated fraudsters make use of machine learning to determine how to stage their attacks. They gather information from the darkweb, conduct experimental
design and sometimes build models to determine how to circumvent the issuer’s countermeasures. They’ve been doing this since the early 90s, but now the stakes are higher as the barrier to entry has essentially disappeared due to the increase in computing power and use of new easily accessible analytic tools. This is why our adaptive and selflearning technologies which adjust the model continually, in conjunction with the issuer’s strategies using these model scores, make it difficult for fraudsters to game the system and minimizes their financial take.
Since the analytic technology you have developed can detect rapidly changing criminal tactics without human interference, is it accurate to characterize it as “machine learning”?
Yes, technology behind selflearning analytics is a form of machine learning in which sophisticated analytic algorithms enable the computer to learn from fraud attempts and analyst feedback. The algorithm monitors subtle changes in features, distributions and recent attacks to retrain the model continually in response to the attacks. In today’s data-driven world, these types of technologies are key to solving problems in many different areas, such as cybersecurity threat detection, IoT security, risk management, compliance, model governance, operational optimization and many others. These machine learning techniques enable the fraud detection models to continually keep or exceed pace of the fraudsters and their shifting tactics.
One of the basic assumptions of predictive analytics is that the future will resemble the past, but of course that isn’t always the case. How does software you have developed at FICO use the past to accurately predict future behaviour?
FICO has the world’s largest payment fraud data consortium: We currently monitor about two-thirds of the world’s
payment cards for fraud. This is an incredible data set for data scientists and it goes back more than 20 years. This payment card fraud consortium allows us to build models that incorporate a huge set of observed fraud attacks and normal cardholder behaviors from all over the world, to create the best feature detectors. The consortium is a vital research data resource for us; hence FICO’s 83 issued fraud detection patents and 47 patents still pending. The artificial intelligence models we deploy start with a base neural network model (or other deep learning model) trained on this consortium data. Then we employ the adaptive machine learning techniques that adjusts this base neural network score based on real-time shifts in behavioral feature distributions and recent attack attempts by fraudsters in the production environment. This allows for an optimal combination of the past and future fraud behaviors in tackling fraud.
As impressive as the patented adaptive analytics technology deployed in FICO’s Falcon Platform is, I can’t help but feel this is only the beginning. Are there other ways that you believe predictive analytics will impact the payments industry?
Agreed—we will see continued analytic innovations in the payments industry. For example, one area that I am really excited about is the application of advanced analytic models to anti-money laundering techniques. Today this area is largely driven by Know-Your-Customer (KYC) strategies and transaction rules based on KYC. We’ve developed new predictive analytic models in this space, focusing on identifying real-time learning of behavioral archetypes, and changes in these behavioral archetypes that may indicate subtle money laundering activity. Coupled with a behavioral analytic model looking for similarities of account transaction profiles to past filed SARs, I expect that this new approach to AML will really revolutionize how AML is tackled in the years to come.
Trends driving transformation in global payments & regulation P By Stephanie Zee
eer-to-peer payments, faster payments, enhanced data, straight through processing and straight through reconciliation—the expectations and demands of today’s corporate clients simply can’t be met by the legacy infrastructure we are still using today. Consequently, we find ourselves witnessing extensive change across all aspects of the payments ecosystem. Four key trends are driving transformation in global payments and regulation: infrastructure modernization, cyber security, new entrants and technology and regulatory diversity.
The risk of cyberattacks continues to increase, with the estimated global cost of cybercrime at $445 billion. 12
Infrastructure modernization is occurring across the value chain, not just within banks, and is all encompassing. It is truly end-to-end, stemming from both push and pull market activity. Clients are actively updating internal enterprise resource planning (ERP) platforms, payment systems and processes; in many cases centralizing accounts payable and creating a payments hub that often includes several or all countries. Clients are insisting on enhanced data, transparency and ubiquity of process and file type across their payment providers, while new entrants are challenging banks to abandon legacy systems and undertake their own infrastructure transformation to keep up. At the same time, financial market infrastructures are adopting the new messaging standard (ISO 20022), enabling the transfer of richer data, launching faster payment schemes and opening access to non-bank organizations adding to the pressure on banks. As payment infrastructures are being modernized in the domestic landscape, these solutions are creating momentum for neighbouring jurisdictions to also change and impacting cross-border schemes. Infrastructure modernization and faster payment systems have proven to be an enabler of business growth
in such countries as the United Kingdom, Singapore and Australia which have already gone live with these faster systems. Many other countries including Canada are in the planning/ exploring phase. Payments Canada (formerly known as Canadian Payments Association) is currently undertaking a multi-year initiative to modernize Canada’s payment infrastructure utilizing ISO20022 as the de facto standard. At the same time, the banks have come together to overhaul the cross-border payment experience. SWIFT’s Global Payments Innovation Initiative (GPII) is one of the ways that banks are collectively responding to improve cross border payments and address key client pain points. Launched in January 2016, the goal of GPII is to modernize the messaging system and improve transparency and predictability of fees, end-to-end payments tracking and transfer of rich payment information. More than 70 banks channeling payments into 227 countries have signed up. The results of a small pilot are expected in the coming months with a broader roll-out in 2017.
Cyber security The World Wide Web is now 25 years old and has transformed consumers’, businesses’ and governments’ approaches to shopping, procuring and paying. It has opened new markets and trade near and far, and has made a massive amount of information and data accessible to anybody and everybody. Global systems have been integrated and have enabled straight-through processing. At the same time, we have created the perfect environment for pseudo-anonymity and cyber-attacks. A cyber-attack is an attempt by criminals to access or damage a computer network/system in order to cause disruption or for monetary gain. The risk of cyber-attacks continues to increase, with the estimated global cost of cybercrime at $445 billion, as of February 2015 according to
Fintech Computer Weekly. In 2016 we have seen a marked rise in attacks targeting financial institutions, with the payoff in the millions of dollars for each attack. The rising financial impacts, the pace of change in the payments industry, and local and global system interdependencies have put cyber security high on the agenda of banks, financial market utilities and regulators. Implementing robust practices for system access such as multi-factor authentication, use of biometrics, and segregation of data and information are important elements of a security program. But cyber security is not just about technology. Investment in and execution of an organization-wide strategy to understand and combat cyberattacks is critical. Effective strategies include governance combined with a culture of prudent business control and risk management, including training, communications, documented business processes and being vigilant over different infiltration points such as email or access to company WiFi.
New entrants For several years FinTechs have been quietly and now loudly and explosively leading the charge to address the gaps identified by our clients to capture market share. New entrants and technology developments are driving business model disruptions where VBProfiles found that investments in FinTech reached more than $38 billion in 2015. The extensive scope of activities across the new entrants makes it difficult to know what to focus on and where the greatest threats or opportunities may be. Small but successful startups can pose legitimate threats to even the strongest companies by disintermediating the banks or relegating them to being the “dumb pipes.” Further, non-traditional financial services companies like PayPal, Google and Apple are leveraging cloud and mobile technologies as well as viral distribution to quickly start and scale business at low cost to address the friction clients experience. New technologies like distributed ledger or blockchain enable new paradigms for exchange of value and create new “rails” that sit outside of the traditional bank to Financial Market Utilities (FMU) payment infrastructure. Banks have stepped off
the sidelines with many having set up innovation centres to experiment with new business models and technologies. Some banks have invested in a range of different startups, and are collaborating and partnering with FinTech players.
Regulatory diversity As if infrastructure transformation, cybersecurity challenges and FinTech disruption were not enough, the industry continues to experience an amplification of regulatory oversight with increasing requirements aimed to protect the payment ecosystem, build resiliency of payment providers and utilities, and encourage innovation and competition. Multiple layers of governance over the ecosystem are in place from global oversight bodies such as the Bank of International Settlement, the Basel Committee on Banking Supervision, and the Financial Stability Board, to regional and local oversight such as Office of the Superintendent of Financial Institutions (OSFI), The Bank of Canada, The Department of Finance, The Canada Deposit Insurance Corporation and the Office of the Privacy Commissioner of Canada. The regulatory environment is complex with new requirements emanating from the different bodies to revitalize and address outdated legislation and regulation, and to address the payment market conditions. Heightened capital and liquidity requirements through BASEL III, operational resiliency and “living will” requirements, ongoing anti-money laundering and terrorist financing efforts, and cyber risk management controls are just a few of the topics impacting the payment world. To address the rise of cybercrime in particular, in 2016 The European Union adopted the Network and Information Security (NIS) Directive and General Data Protection Regulation; and in the U.S. the Cybersecurity Information Sharing Act was signed into law December 2015. In Canada the Government has articulated a cyber-security strategy and has created the Canadian Cyber Incident Response Centre (CCIRC) and is also considering legislation. For regulators and banks a conundrum exists with respect to FinTechs: Is a FinTech a technology company or is it a
payment provider that should be governed similar to a bank? If so, which regulations apply and which ones do not and what falls under the regulations? In the case of new technologies like Blockchain or virtual currencies like Bitcoin who do you regulate (FinTechs, exchanges, programmers, originators, beneficiaries)? How should they be regulated (legislation, acts, common law, civil law, codes of conduct, and what jurisdiction)? Many of these questions have yet to be answered. Regulations on FinTechs are nascent and vary greatly creating uncertainty for financial institutions that bank these firms and this uncertainty may constrain innovation among FinTechs. Various jurisdictions have introduced “regulatory sandboxes,” relaxing some of the regulatory requirements to encourage exploration and innovation in a flexible environment in which FinTechs can test technology and business models. Once the application has reached defined thresholds, commercialization generally requires full adherence to regulatory obligations. In some cases new regulations may be needed to ensure safety and security that reflect the unique characteristics of the new technology or business model. Examples of regulatory sandboxes include the United Kingdom’s Financial Conduct Authority, the Monetary Authority of Singapore, and the Australian Securities and Investments Commission. Systemic infrastructure change, new risks, new entrants and heightened regulatory pressure… it’s a frenzied pace but payments is the most exciting business to be in. Opportunities are everywhere to innovate, to deliver greater value to our clients, to enhance the client experience, create efficiency, effectiveness and transparency, reduce costs, drive new revenue, and enable a stronger, safer and more secure operating environment. Partnership and collaboration between the banks, FinTechs and regulators are the best way forward through these unprecedented times of change. As TTS payments regulatory head, Stephanie Zee leads a team responsible for creating and driving Citi’s strategy to meet regulator expectations and is responsible for the management of emerging risks across global payments.
The pulse of FinTech in Canada T
By Lian Zerafa
It's an instant, mobile, cashless world and FinTech companies are its architects. 14
hese are transformative days for the world of financial technology. With echoes of the dotcom era, the FinTech market is filling quickly with innovative players intent on changing the industry or helping the industry change itself. Canada is emerging as an important player in the space, but it is not alone. This last year saw venture capital (VC) investments remain steady in FinTech companies in markets across the globe; most notably in Asia, where FinTech startups saw funding totals of $1.2 billion in Q3, up from $800 million in Q2. This total represented nearly half of global FinTech investments and has positioned the region as a leader in the FinTech space. Closer to home, FinTech investments in the U.S. and the UK have remained equally promising, albeit tempered in the latter half of 2016 by reservations over the latest U.S. election and UK Brexit vote. Nevertheless, these markets are expected to remain FinTech powerhouses as doubts subside and the competition for VC dollars intensifies with more smaller sized deals in play. Canada is also making its mark. In KPMG and H2 Venture’s 2016 FinTech 100, two Canadian companies were listed among the top 50 established FinTechs from around the world and four were listed as emerging stars. This is an improvement over 2015’s results, which
found Canadian companies listed only twice each among the top 50 and the up-and-coming startups. It’s an impressive standing, to be sure— especially considering our relatively small market size, heavily regulated environment and the competition our startups face worldwide. For the record, Chinese FinTech ventures represented four of the top five companies, once more signaling a clear leader in the FinTech industry. Driving Canada’s momentum in this space are the “herbivores” of the FinTech community. These are the players who are not as much interested in carving off a piece of the market for themselves (aka the “carnivores”), but eager to have their technologies become part of a financial institution’s ecosystem. Granted, it’s the carnivores who typically dominate the headlines, but it’s the herbivores working in quieter partnerships with financial institutions that continue to fuel the FinTech sector’s momentum, perhaps more so in Canada than elsewhere. We’ve already seen a number of collaborations between FinTech companies and the big banks. High-profile examples include the partnerships between CIBC and Thinking Capital, RBC and League, or TD for Me and Flybits—partnerships that have succeeded in giving banks instant access to greater efficiencies and modern solutions, while exposing their FinTech collaborators to an established customer base.
Fintech These partnerships are also proof that banks are not only noticing the FinTech industry, but actively supporting it and working with its innovators. This May, for example, TD Bank entered a collaboration with Plug and Play Tech Center, a California-based FinTech accelerator, to provide mentorship and development support to 23 FinTech startups. Elsewhere, a number of Canadian banks have created highly speculative investment funds for FinTech, patterned largely off the risk return profile of the dotcoms. The appetite for new and innovative financial technology is no doubt strong; and one need only look to the FinTech clusters forming in hotspots like the Greater Toronto Area, Waterloo, Vancouver and Montreal to see that there is no lack of players. Yet as promising as Canada’s FinTech market may be, there are challenges ahead. Working within one of the more regulatory controlled regimes in the world means Canada’s startups face more restrictions than their international peers. For example, requirements laid out in Investment Industry Regulatory Organization of Canada (IIROC)’s CRM2 regulations set a regulatory bar that impedes our industry’s ability to enter the wealth management services space as opposed to players in the U.S. who are not beholden to the same rules in their market. Even with these restrictions, Canada’s FinTech players are holding their own. This is despite an overall drop in VC funding across the globe owed to a mix of political shifts and the natural ebb and flow of the FinTech hype cycle. Certainly, while there was once a day when the pool of VC investments was big enough for every FinTech startup willing to take the plunge, the rising tide of market entrants is creating a new era of intense competition. That said, while the volume of available deals may be down, opportunities still exist for herbivores and carnivores alike.
Evolving the standards It’s an instant, mobile, cashless world and FinTech companies are its architects. Nowhere is this more apparent than in the realm of payments, where the likes of PayPal, Apple Pay, Stripe, Square and
Amazon (which is itself large enough to be a bank) are reshaping established systems and consumer expectations. The result is a movement toward real-time payments and a strong desire to reduce existing friction which impedes participating parties’ ability to execute payments efficiently. That movement, however, is being hindered by current legacy platforms that were never designed to handle real-time demands. Herein, countries are undertaking modernizations of their payment systems with help from innovators in the FinTech space. This includes Payments Canada, which recently began a modernization journey to rethink the fabric of payments in Canada to accommodate a mix of faster, more agile and real-time payment schemes that not only work together but with the world. For payment modernization to occur, we must all be on the same page. That’s why moving forward, it will be solutions like the emerging ISO 20022 standard that will help establish a common ground between the current and incoming wave of different payment models. For its part, Payments Canada announced it will be adopting ISO 20022 as part of its modernization; and while it will require significant replatforming in the years ahead, those efforts will open up a wealth of new possibilities in terms of how differing transaction parties will be able to interact. On a related note, it would be unwise to underestimate blockchain technology. With the potential to bypass central monitoring and control mechanisms, blockchain has the potential of circumventing current financial systems and changing the relationship between the consumer and bank. For this reason, payment authorities are now working to create a supportive ecosystem which will allow for alternative payment technologies such as blockchain into the mainstream environment. No one has the answer yet, but it won’t be a one-size-fits-all solution. It will, however, allow for multiple payment schemes to coexist in a controlled way. With the FinTech industry growing and new innovations entering the market at faster speeds, the question moving forward will be how to balance the need to innovate against the very real risks of cybercrime and online vulnerabilities. Do we wait until one
FinTech solution causes an incident, or do we tighten down the industry now and risk suffocating the next big idea? These are the questions regulators are asking as solutions like blockchain present great potential, and corresponding risk, to deal with some of the crime elements from a payment ecosystem, but can also facilitate crime in cases, as in the case of using bitcoin to make illegal and untraceable purchases on the now dismantled Silk Road. It’s a doubleedged sword and one that will challenge stakeholders to balance the need for protection against that of innovation. Regulatory apprehensions notwithstanding, it’s a good forecast for the FinTech market. The appetite for innovation among banks, insurance, and wealth management players is high; as is the appetite to engage differently with customers directly and provide services and products that offer an alternative from the norm. It may be crowded, and there may be speed bumps, but if 2016 is any indication both Canada and the world are on track to bring the FinTech industry into the fore. Lian Zerafa is the national consulting financial services industry leader at KPMG in Canada. He is a senior advisory leader in banking and securities with three decades of experience helping over 30 global financial institutions navigate through complex technology, strategy and regulatory issues.
2016 FinTech milestones
◉◉ Global investment in FinTech reached US$17.8B billion in funding by Q3 2016 ◉◉ North American FinTech companies raised more but smaller late-stage deals: median late-stage FinTech deal size in North America dropped to $21.9M, the second lowest quarter in the five-quarter trend, and a 73 per cent drop compared to the same quarter last year ◉◉ FinTech funding fell below $1 billion in North America in Q3 ◉◉ Corporates participate in more than half of all deals to VC-backed FinTech startups in Q3 2016
Canada among leading digital payments markets worldwide T By Sanjay Tugnait
he World Payments Report (WPR) is the leading source for data, trends and insights on global and regional non-cash payments and the key regulatory and industry initiatives (KRIIs) that govern them. Co-developed by Capgemini and BNP Paribas, the WPR 2016 explores how digital innovation is infusing the corporate world and its implication for banks and corporates. In this article, we focus on the data provided by Canadian participants in the global survey on which this primary market research is based and its significance for financial institutions in this market.
Digital payment transactions on the rise Global digital payment volumes continue to increase, with annual growth projected to be more than 10 per cent for the first time since the report was first published to reach 426 billion transactions in 2015, up from 8.9 per cent growth in 2014 (387.3 billion transactions). Overall, North America recorded a decelerated, but positive, year-on-year growth rate of 4.4 per cent in 2014 for the total digital payments volume for the region. Cards continue to remain the fastest growing digital payments instrument since 2010, while cheque usage continues to decline. In Canada, digital payments volume grew by a CAGR of 5.2 per cent from 2010 to 2014. This growth was driven primarily by the increase in card transactions. Technological enhancements related to security and infrastructure—and also innovations in consumer convenience such as tap-and-go credit cards—supported this growth. Consequently, Canada also is now among the top 10 markets in digital payments growth (Figure 1). The number of non-cash transactions per inhabitant for Canada also grew significantly at the rate of 5.5 per cent as compared to the CAGR of 3.7 per cent during 2010-13. While growth in digital payments occurred across all regions, developing markets experienced the highest rates of 16.7 per cent with
mature markets growing at six per cent, although mature markets—including Canada—still account for 70.9 per cent of total global volumes. Immediate payments, enabled by wireless mobile payments networks in geographically remote/isolated regions, have the potential to drive growth in digital transactions as an alternative to cash and cheques, but efforts are needed to educate stakeholders, provide more value-added services and upgrade infrastructure at merchants and corporates.
Banks everywhere need to ‘think digital’ to compete for market share The core theme for World Payments Report 2016 is the challenges and opportunities that exist in transaction banking. Amidst multiple internal and external challenges, including those from FinTech players, banks face increasing demand for seamless, secure digital transaction services for digital products and services (such as support processes of account management, compliance tracking and fraud detection and prevention) from corporate treasurers. This will require banks to accelerate investments and adopt a collaborative mindset with FinTechs to thrive in the increasingly digitized transaction banking environment. Adding to this context is the fact that transaction-banking revenue is under pressure from a multitude of internal and external challenges such as lower fee income, lower interest income, pressure on foreign exchange service fees and corporate demand for digital payment services. Finally, FinTechs have raised the standard for retail-payment services and therefore corporate treasuries now expect similar digital products and services for their transaction-banking operations. Banks have multiple levers they can use to close the ‘digital capabilities gap’ that FinTechs have created. These include the development of application program interfaces (APIs) that
Fintech Figure 1: Number of non-cash transactions in the top 10 markets (billions) 2013-2014
open up their ecosystem in order to take advantage of the innovation of FinTechs, which builds their credibility as customerfocused businesses as it supports their market continuity. A number of banks have started to adopt this ‘digital-first’ mindset, leveraging the requirements of the Payment Services Directive II (PSD II) in Europe with a view to improving and enlarging their value proposition. PSD II also provides focus for the development of the technology infrastructure needed to make immediate payments a reality.
International regulatory environment pressuring all banks The multiple new and existing regulatory initiatives have added considerable operating complexity for banks and there are two key themes emerging in regulatory compliance around payments. First, the increased use of technology to ensure compliance and second, a facilitation approach that is being adopted by some regulators to enable businesses to accelerate their time-to-innovate within a ‘safe’ environment. The use of technology in support of regulatory compliance is being advanced by a niche set of FinTechs (aka “RegTechs”). They are making use of emerging, advanced technologies by
providing services to automate more tactical compliance tasks and to help reduce operational risks associated with regulatory compliance. At the same time, the innovation environment is being developed through initiatives such as that of the UK Financial Conduct Authority’s Project Innovate. This initiative introduced the concept of a Regulatory Sandbox where the businesses can test their products and services in real-world scenarios without being subject to the usual regulatory consequences. In response, banks are taking steps toward holistic compliance; however, to date the implementation of these applications remains tactical rather than strategic and progress is often slow. In the U.S., several banks are adding “open APIs” to their existing systems for payment processors and RegTechs. They are also working with the Open Financial Exchange (OFX) standard. A transformative approach to holistic compliance will help banks to implement best practices, mitigate the threat of heavy sanctions-related fines and provide the value-added services demanded by corporate treasurers.
The way forward: Collaboration and innovation Canada is on the verge of ‘catching up’ in
terms of payment infrastructure in the move to instant payments (initiated by Payments Canada). As a result, banks need to upgrade their payment rails, which will allow innovative payment solutions provided by banks or in partnership with FinTechs. According to the first World FinTech Report (WFTR), published by Capgemini and LinkedIn in collaboration with Efma, half of banking customers across the globe are using the products or services of at least one FinTech firm. The WFTR found that traditional firms are increasingly pursuing a wide range of strategies in response to FinTechs. A majority of financial institutions (60 per cent) now view FinTechs as potential partners, but nearly the same percentage (59.2 per cent) are also actively developing their own in-house capabilities. To help traditional firms accelerate innovation and address current and future market disruptions, the WFTR has defined a fourstep framework to assess and respond to a growing number of prospective threats to the financial services business. Traditional FS firms can unlock innovation by: discovering new technologies, devising ideas and insights into business models, deploying aligned executives to support Continued on page 21
The new normal How to prepare for a data breach
By Ryan Wilson
hree words that most strike fear into the hearts of any IT worker and, increasingly, into the hearts of anyone in the c-suite of any organization: “We’ve been hacked.” Today the chance of a breach or hack is greater than ever—creating a unique challenge for any company, in nearly every industry. In the last year alone the increasing majority of Canadian organizations have seen an increase in the severity, sophistication and frequency of attacks on their business. Properly planning for an inevitable data breach is a critical consideration for many organizations when looking at business priorities. The numerous emerging threats and widespread outcomes of a breach can be overwhelming even before an incident happens—but nowhere near as overwhelming as dealing with the negative impact on reputation, customer retention, sales, share price and countless other business priorities that can be affected. Take, for example, the situation Yahoo! is currently facing. Shortly after Verizon agreed to purchase the long-time internet giant for U.S. $4.8 billion, news came to light that the
organization had suffered one of the single largest data breaches of all time—losing customer records of more than a half-billion people, including names, email addresses and passwords. Beyond the considerable damage to its brand reputation, Yahoo! now stands to lose as much as $1 billion of that original $4.8 billion as Verizon considers its options to deal with the potential fall-out of its newest acquisition target. So what can companies do to effectively defend—and in the worst case scenario, manage—a potential breach/hack?
Prepare. Prepare. Prepare. It can be difficult to dedicate time to an issue that hasn’t already happened, but one of the biggest factors in successfully defending or managing a data breach is being properly prepared. Dedicating the time to the creation of a thorough and detailed plan for a breach scenario can be the difference between effectively managing a breach or being caught off-guard and unprepared. The reality is that IT departments face a grim reality each day, in terms of potential data
Managing Risk breaches: to breach an organization, a hacker or bad actor only needs to get it right once. To protect a company, an IT department at an organization has to get it right each and every day. If and when a breach does happen, its impact extends far beyond IT and in to most other areas of the business. Additionally, the new Digital Privacy Act which was brought in to action in June of 2015 includes breach notification regulations coming into effect in 2017 that require companies to maintain a crisis communications plan in case of a data breach.
Bring everyone to the table early While security responsibilities ultimately reside with an organization’s IT department, a data breach creates a ‘perfect storm’ across an organization— with nearly all departments impacted. The possible range of outcomes from a breach are numerous and will require attention from multiple departments, meaning that a large number of people need to be engaged immediately. For instance, if a breach were to occur and result in the loss of customer and employee data, not only would IT need to be involved, but numerous others. Were employee SIN numbers or payroll information stolen? HR needs to be involved immediately. Customer credit card information stolen? Customer care and finance need to be involved a.s.a.p. Potential class action lawsuits and regulatory fines stemming from claims of mismanaged data? You better believe legal needs to know pronto. Are the media looking for confirmation and quotes about the breach? Communications needs to know yesterday. All of this is to say that while IT security may reside under the IT department on a normal day, data breaches make for anything but normal days and the sooner that all areas of the business potentially impacted by the breach are engaged in the response, the better. One best practice for all organizations to consider is to identity a data breach ‘go’ team. This team acts as the first contacts in each area of the business to be notified of any breach situation, in order to respond accordingly. By ensuring that
there is someone identified in each area of the business that could be potentially impacted ahead of time, an organization is in a position to ensure that immediate attention is being paid from every department that will be affected.
Consider all of the angles For years it was considered that customer financial information, things like bank account and credit card numbers, were the top target for hackers when attempting to steal information from an organization. But since 2014, a new and potentially even more damaging type of threat has emerged: organizational doxing. This type of breach has little to do with stealing financial data, and everything to do with acquiring and leaking sensitive and embarrassing information to harm an organization. Think about the hacks of Sony, Ashley Madison, Mossack Fonseca (Panama Papers) and the Democratic National Committee—in each instance customer financial records were, if included, a minimal target of the breaches. The goal was to acquire sensitive information like executive emails and corporate secrets to publicly embarrass each organization, as opposed to directly profit financially. But, while the hackers themselves won’t specifically profit, there will remain a very real cost to the affected organization, in terms of poor brand reputation, potential negative impacts to share price and possible fines and lawsuits brought on by regulators and affected parties. As the type of information that hackers target starts to shift, so too should the security priorities within an organization. Ensuring that securing all systems—both operational and financial—is a focus can help to reduce the ability of suffering a breach.
Budget accordingly The rule in security is that 15 per cent of an overall annual IT budget should be allocated towards security, yet many companies’ actual spend tends to be considerably less than that. While it can be difficult for some companies to justify added expenditures for a preventative measure that does not drive day-to-day revenue, the reality is that the typical
company loses roughly $7 million annually to dealing with cyber attacks. Organizations need to look at IT security not as an overhead expense, but as a strategic investment in the operation— one that can save the organization millions of dollars each year.
Work with trusted experts No matter how advanced a company’s IT department is, odds are that the requirements of ensuring an entire operation is running smoothly day-in and day-out means that there is little time for in-house professionals to keep up with the myriad of training requirements and new threats needed to truly be ‘ahead of the game’ in IT security. In fact, our recent study with Ponemon Institute showed that insufficient numbers of in-house personnel, along with a lack of in-house expertise, were two of the primary challenges faced by Canadian organizations. That’s why working with trusted external partners can make all of the difference during a breach incidence. Many organizations—especially those that don’t have the resources to employ thousands in their IT departments (see: most)—need to rely on qualified experts and partners to ensure they are able to improve their security posture. Whether your security operations are partially or completely managed by a partner, it’s important to remember that there’s no one single way to approach security—each organization has different needs. Because of this, it’s important to work with a partner that can customize a solution and approach to IT security to your specific operation not just from a technological standpoint, but from a strategic one. Today, the reality is that when it comes to data breaches, the question isn’t so much “if” as it is “when.” The companies that stand to be most able to weather the inevitable storm will be the ones that plan thoroughly and invest early in both their security posture and response plans. Ryan Wilson is the chief technology officer, security at Scalar, Canada’s leading IT solutions provider, focused on security, infrastructure and cloud.
Enhance risk management with advanced location analytics By Robert Szyngiel
inancial institutions rely on effective data governance to ensure the success of their risk management efforts. Unlocking new insights by combining business analytics with relevant and accurate data supports the constant quest to mitigate significant risks and gain a competitive advantage. One way financial organizations can enhance their risk management is by incorporating advanced geo-data and location analytics into their operations. While robust geographic data has been largely absent from business analytic solutions previously, many organizations are now looking to intensify their use of this important data source to improve decision making.
organizations grow through mergers and acquisitions, the problem is compounded by inconsistent data entry and data definitions between various systems. All of these ambiguities potentially impact a financial organization’s ability to mitigate and manage risk. For example, in the case of a mortgage loan, it may be difficult to answer essential questions such as: ◉◉ Does the property actually exist? ◉◉ Is it identified consistently? ◉◉ Is everyone in the mortgage ecosystem referring to the same property? ◉◉ Is the property subject to any environmental or demographic factures that require further risk assessment or result in greater assumption of risk?
Location intelligence solutions are designed to overcome these kinds of obstacles.
Relying on standard address data impedes data quality
The benefits of geo-coding for accurate location analytics
Forward-thinking financial institutions are recognizing that standard systems of identifying addresses, such as those based on municipal registries or postal addresses, introduce inherent ambiguities into their databases. For example, many streets have multiple valid names, such as Highway 48, a roadway that runs north/south in Ontario. This roadway begins in the south as Markham Road changes to Highway 48, becomes Main Street as it runs through Markham, then switches back and forth as either Highway 48 or Markham Road as it continues northwards. The ambiguity created by these multiple names is complicated even further by the fact that there is also a Main Street in Unionville, which is a suburban village of Markham. Another hurdle in location analytics is ensuring data quality. For instance, a city name might be spelled in multiple ways, or different abbreviations may be entered for the same location. Additionally, as
Reliability: At the core of location analytics is geo-coding, an identification method through which location data becomes geoenabled. Unlike standard address systems, geo-coding identifies a precise location through geographic coordinates (latitude/ longitude) with rooftop-level precision. The location data can be further verified through various external means, providing a high degree of reliability. Addresses can be assigned a unique address identifier that eliminates the risks of misidentifying the property. This approach, for example, enhances the effectiveness of collaboration among disparate parties in a property-based lending system by giving them a common denominator in the form of a unique ID to refer to a property. There is no possibility of an address mismatch, enhancing the decision-making process. Using geo-coding when referencing a property will overcome the ambiguities and inaccuracies of standard address
systems, providing the reliability that financial institutions need to achieve seamless coordination and transitions among all those parties involved in financial transactions involving a location. Enhancing risk assessment: In addition to the benefit of enhanced data reliability and coordination, precise geo-coding can also improve risk analysis and management. Clean, accurate location data can be enriched with demographic data and displayed on maps to enable visualization of risk concentrations, trends and patterns that might otherwise be difficult to discover. Once the precise location identification of a given property is determined, location analytics can layer critical data to that property. By overlaying available data; past, present and predictive information can be incorporated into the analysis. Environmental, weather and demographic data can all provide insight into the potential risks from events such as floods, earthquakes, railways, pipelines, weather events, crime and more. Financial institutions can also incorporate risk mitigation/risk diversification strategies by infilling (or adding) addresses with specific territories that are not in their current database. Improving fraud management: Another advantage of location intelligence and its geo-coding capability is the ability to improve fraud management. Fraud management represents a multi-billion dollar issue for the banking and insurance industries in Canada. Geospatial analytics tools can provide access to a rich library of address-related content relevant to fraud management, including names and phone numbers, demographics, firmographics, flood data, environmental risk information, land use data, earthquake boundaries and more, helping to unlock useful information that allows financial organizations to connect the dots on
VendorRegulatory Classified news previously hidden fraud schemes. For example, accurate geo-coding can help verify property and casualty insurance claim locations, identifying whether a claim has originated in an area where a stated loss event, such as a flood or hail damage, actually occurred. Geospatial data can be used to identify the exact area affected by a natural disaster, which helps determine the aggregate amount of risk to insured properties and weeds out claims that are filed from areas not located in the affected zone.
The bottom line With the inherent accuracy provided by geo-coding and the analytic capabilities afforded from a vast number of related data inputs, location intelligence is a power tool for risk mitigation. Whether for data governance, risk assessment, fraud management or identifying and mitigating risk exposure, leveraging highly visual, interactive and user-friendly geo-location tools holds a host of potential benefits for financial organizations. Ultimately, building location intelligence into existing analytics will help organizations realize a competitive advantage through better decisionmaking informed by a wealth of location-based information.
Canada among leading digital payments markets worldwide
Integrated Payments Solutions
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Continued from page 17
PRINTING innovation, and sustaining innovation by improving efficiency and implementing best practices. The primary market research published in the annual WPR and this new WFTR speaks to the ongoing Capgemini commitment to serve the business-information and technology needs of the financial services industry and its constituencies. Leveraging its network of Applied Innovation Exchange locations, Capgemini is also working with traditional firms and FinTechs to support individual company initiatives, advancing digital payments capabilities to help them better serve their customers in Canada, North America and around the world.
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Sanjay Tugnait is the CEO for Capgemini Canada and the Chairman
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has 24 years of experience in global leadership roles in strategically transforming leading corporations and is recognized as an industry leader for his professional contributions.
Robert Szyngiel is the director of product management at DMTI Spatial. Szyngiel has 15 years of experience in the architecture, design and development of enterprise datasets for Canada. For more information, visit www.dmtispatial.com.
Your Business Regulatory news
How to fuel business growth with working capital By Paul Roman
ike a plant needs water, every business requires a great deal of working capital to grow; however, getting access to capital isn’t always easy nor is finding the time within an ever growing to-do list to prioritize it. To create the cash flow necessary to fuel growth and capitalize on the next big opportunity the market affords, forwardthinking businesses must be resourceful. They also must recognize that how they manage their capital today will define their competitive position tomorrow. With that said, here are three smart steps companies can take to manage their cash flow and fuel their growth:
Eliminate operational inefficiencies The first step is to take a close look at your specific business—what are your cash needs and what is your current cash position? Will certain vendors offer you extended terms, volume discounts or early pay discounts? How are you paying for your business expenses and is there a more efficient or advantageous way to do so? Take a holistic look and explore ways to streamline
your processes, create efficiencies and maximize cash flow. Switching from paper cheques to electronic payments is one significant way to eliminate inefficiencies. With digital payment solutions, you can pay suppliers directly while getting a consolidated statement at the end of each month. In addition to reducing inefficiencies associated with cheques, your employees will be freed from cumbersome, time-eating manual calculations. You’ll also reduce your risk of fraud and gain better payment tracking and control. Keep in mind, having greater visibility into your business expenses will really help if you’re looking to renegotiate terms with your bank or lender.
Restructure payables and receivables Next, you need to reexamine how your business is distributing payments to merchants and vendors. Prioritizing them by due dates and interest rates and structuring your payables accordingly can add flexibility to your cash flow. Also think about utilizing a program or service to help your accounts
payable department make the process more efficient. Finally, make an effort to invoice quickly when pursuing receivables and consider offering incentives for faster payment. Be cautious, however. For companies with small margins, discounts for early payment may not make sense. Make sure your margin can cover it.
Create a mutually beneficial relationship with suppliers Taking advantage of available credit is an excellent way for your business to take greater control over your accounts payable, maintain liquidity and improve cash flow without negatively impacting your relationships with banks, lenders and suppliers. New working capital management solutions, such as American Express Buyer Initiated Payments, can act as a bridge, taking responsibility for financing your company’s payment terms with suppliers. Once you receive an invoice for the services/products, you can use the payment solution to settle up with your supplier immediately. Not only will the quick payment strengthen your relationship with your supply chain, you will then
receive an additional 58 days (or more, depending on the date the supplier submits the charge) to settle the payment. Essentially, this gives your business access to an alternative funding source that allows you to cover your payables while improving operational cash flow. And suppliers get paid sooner, so it’s a win-win. By following these simple steps, you might be surprised by how much additional cash flow you can create for your business. Organizations that focus on improving working capital can almost immediately lower borrowings, boost customer service levels and supplier relationships, increase profitability and, most importantly, free up cash for new initiatives/projects. Make no mistake, working capital is a competitive advantage that all Canadian businesses should be looking to capitalize on, and there’s no easier way to start than by setting up electronic payments. Paul Roman is vice president and general manager, global commercial payments, American Express Canada.
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