Payments Business Magazine JanFeb 2015

Ja n/Feb 2015

The Merchant’s Guide to Transactions, Cards & eCommerce

ABM Report A look at the trends – a lot has changed in the industry

also in this issue:

❱ Payment Trends

What are the trends and what does the m-commerce consumer want?

❱ KPMG Roundtable

Technology and payments: the drivers, the developments, and the value within

❱ Technology Update

The need for a more measured look at the payment terminal PM 4 0 0 5 0 8 0 3

Table of Contents

January/February 2015 Volume 6 Number 1 Editor Karen Treml karen@paymentsbusiness.ca Publisher Mark Henry mark@paymentsbusiness.ca

COLUMNS & DEPARTMENTS 4 News 27 ATMIA Spotlight FEATURES

Contributors Joseph Arrage, Karen Cox, Thierry Denis, Catherine Johnston, Nathalie Reinelt, Robert Phillips

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Best practices for balancing risk and consumer experience

Photographer Gary Tannyan President Steve Lloyd steve@paymentsbusiness.ca

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©2015 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.

Payments trends you can’t afford to ignore

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Maximizing Retail Impact Through ABM Partnership ABM is helping to direct consumer purchases within the store

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The ATM: A Look at the Trends in Canada A lot has changed in the ATM industry in Canada over the last couple of years…

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TECHNOLOGY UPDATE The changing face of the payment terminal

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Staying On Top

For subscription, circulation and change of address information, contact subscriptions@paymentsbusiness.ca

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.

COLUMNS

Authorizing Digital Currency ATMs

Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca

Publications Mail Agreement No. 40050803

29 ACT Canada Update

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m-Commerce: What Does the Consumer Want Convenience, connectivity, and sometimes the cool factor

VERTICAL MARKET Credit unions introduce paperless cheque processing

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PAY CHANNEL The future of bitcoin: much is at stake

KPMG ROUNDTABLE

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Technology and Payments – A Look Behind The Hype The drivers, the developments, and extracting the value for that winning combination

Next issue…

Made possible with the support of the Ontario Media Development Corporation

MARCH/APRIL — The Big Data Report – We will examine the benefits of leveraging big data while also looking at how small data continues to play a role.

January/February 2015

PAYMENTSBUSINESS

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News

Bitcoin has a future in international banking, says SWIFT panel It seems the correspondent banking sector is excited about the potential of Bitcoin to speed up and simply international transactions.

At a panel meeting organized by SWIFT, the transactions processor for the banking industry, industry figures say that they are looking at how the cryptocurrency could open up opportunities to perform payments overseas without having to set up a specific branch in that country.

“We really can’t close our eyes,” says Cheryl Gurz, managing director of the emerging technology department at Bank of New York Mellon Treasury Services. “If we as traditional correspondent bankers don’t keep looking and determining where [cryptocurrency technology] will take us, new entrants will completely take our space. What is the technology that is enabling Bitcoin currency to move effectively with more visibility and at lower costs. How can we take that into our current systems and make them more efficient, faster, cheaper and more transparent?”

Having dominated the market with little competition, SWIFT is now under pressure to innovate and is looking to Bitcoin as a possible route. Political tensions with Russia mean that the country is keen to sever links with the US banking system and, in particular, to cut its dependence on systems such as SWIFT and create its own alternative.

Facebook launches mobile money transfer feature Facebook has unveiled a payments feature for its Facebook Messenger app.

The upgraded Messenger app enables users to connect their Visa or MasterCard debit card and tap a dollar sign button to send friends money on iOS, Android and desktop without any fees.

Facebook has stated that once users add a debit card, they can create a PIN to provide additional security the next time they send money. On iOS devices they can also enable Touch ID. In short, they can add another layer of authentication to their account at any time.

Facebook has been meaning to provide this feature for a while now, especially given the number of competitors that have offered its users a quick money transfer service. Snapchat partnered with Square late in 2014 to enable users to send money to one another.

Facebook has a good share of the mobile messaging market, with around 1.2 billion monthly users using its messaging app.

It also owns WhatsApp, which has around 700 million users.

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Healthcare EFT via ACH increases The Electronic Payments Association announced today that the volume of healthcare EFT transactions via the ACH Network exceeded 149 million transactions, transferring $876.6 billion in claim payments from health plans to providers. Specifically, healthcare EFT transaction volume via ACH in the fourth quarter 2014 increased by approximately 150 percent compared to the fourth quarter 2013, the first period for which transaction volume is available. The CAQH 2013 U.S. Healthcare Efficiency Index estimates an industry savings of $1.98 per claims check converted to an ACH payment. The estimated savings to the healthcare industry overall is approximately $295 million compared to using paper checks.

The volume of healthcare payments made via the ACH Network has grown dramatically since the CCD+ Addenda was named by the U.S. Department of Health and Human Services (HHS) as the EFT standard for healthcare under the Affordable Care Act (ACA). The federally mandated healthcare EFT standard rule, which became effective January 1, 2014, requires that all health plans be able to deliver the healthcare EFT standard via ACH if it is requested by the provider.

“Industry dialogue shows that more providers are receiving healthcare standard EFT transactions via ACH directly deposited into their bank accounts, and more health plans are delivering the healthcare EFT for claim payments,” said Priscilla Holland, senior director of healthcare payments at NACHA. “Case studies of a single provider practice, a multiple provider practice, and a large hospital company published by NACHA demonstrate the value proposition for providers of receiving a higher percentage of their claims payments via ACH and electronic remittance advices (ERA’s).”

By using the new healthcare EFT standard, providers have benefited from both time and cost efficiencies. The transactions are more secure than traditional checks, offer a potential savings of $1.98 per payment, are HIPAA compliant, and allow for automatic reassociation between the payment and the remittance advice.

“The administrative simplification goal of the Affordable Care Act was to create efficiencies and cost-savings for the healthcare industry, and the healthcare EFT standard represents a success story on both fronts,” said Holland. “ACH offers a cost-effective, standardized payment method for all parties, and the re-association capabilities built into the CCD+ Addenda allow for information to travel with the payment, simplifying accounting procedures for providers.”

For the past year, NACHA has focused on educating the healthcare industry about the EFT standard. From speaking engagements at industry events and webinars to articles and newsletter outreach, efforts have centered on the benefits of the healthcare EFT standard to support the industry in making an educated choice on electronic payment options. For example, an upcoming webinar scheduled for February 26, “CAQH CORE and NACHA Webinar: NACHA Case Studies,” details the specifics of how to leverage the EFT standard for healthcare. For additional information or to sign up for NACHA’s quarterly Health ePayments News newsletter, visit healthcare.nacha.org.

January/February 2015

ATM Report

“The right ABM vendor will be a partner for your business, delivering healthy bottom line profitability for years to come…”

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January/February 2015

ABM Report

Maximizing Retail Impact Through ABM Partnership

By Joseph Arrage

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or every retailer, there are critical questions whose answers have an outsized impact on business success.

How do I get more people into my store? How do I maximize my sales once those potential customers walk through the door? How can I cross-sell my customers to generate additional revenue from every door swing?

A seemingly innumerable number of answers are available to these critical questions, but one answer, the ABM, can play a critical role in retail success.

The ABM (Automated Banking Machine), also sometimes referred to as an ATM, is a retailer’s dream machine. It allows customers to avail themselves to cash while in the store, cash that can be spent at the register – quickly and without credit or debit card costs. As a resource that consumers spend every day, there is always the need for more cash, bringing customers back again and again. With new technologies that can dispense coupons and discounts with cash, the ABM is helping to direct consumer purchases within the store. The ABM sounds like a panacea, but as with any product, there can be pitfalls.

January/February 2015

And the question is …

The principal question for any retailer is not “Do I need an ABM in my store?” The answer is a resounding “Yes!” The most important question is “How should I get an ABM in my store?” The answer to this both strategic and tactical question is more important than you might think.

When choosing an ABM provider, a retailer will generally sign a long-term contract, several years in length, so knowing your partner in the ABM business is of the utmost importance. Some important questions to consider: • Is this partner trustworthy?

• Is this partner in it for the long-haul – can I count on him or her for years to come?

• Can I grow with this partner both geographically and in capabilities?

• Does this partner maximize my ability to generate profit from the ABM, both directly and from indirect sales driven by the ABM? • If there is a problem with my ABM, is this partner willing and able to fix the problem quickly, even proactively?

The right ABM vendor will be a partner for your business,

delivering healthy bottom line profitability for years to come.

But there is more to consider than just which vendor is right for you. There is the important consideration of what type of program is most beneficial.

Your ABM vendor will help you answer this question, but at the heart of the matter is whether your company should own its own ABM hardware or allow the vendor to own the hardware and provide a turnkey service. In many instances, the answer depends heavily on the goals for your ABM program and the number of locations you have. If you have a larger number of locations, especially spread over a broad geography, a turnkey solution is probably the way to go. If you would like to work with your ABM partner to ‘brand’ your ABMs, that is to solicit financial institutions to place their brands on your machine and market it to their cardholders, a turnkey arrangement is often a necessity.

If you want to generate the maximum direct revenue from an ABM in one or a handful of locations and don’t mind handling some of your own maintenance, purchasing your ABM will allow you to pocket the maximum amount of ABM PAYMENTSBUSINESS

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ABM Report fee revenue. A good ABM partner will help you make the right decision based on your unique business goals and situation.

Transaction processing ABM operators will work with you to process your transactions through INTERAC, whether you own your ABM or the ABM provider owns the gear. The processing routes transaction information from the ABM, through the networks, to a cardholder’s financial institution, and back again. This transaction processing function is critically important as it helps determine how reliable your ABM is and how profitable your ABM program can be.

When choosing an ABM service provider, there are two basic options as it relates to transaction processing – service providers who re-sell transaction processing from a third-party and service providers, like Cardtronics, who own their own processing capabilities.

Advantages of working with an ABM operator that owns its processing include: • Improved cost control – there is no need to pad the profit margins of a thirdparty providing processing services so costs per transaction may be lower, resulting in higher profits for you • No blame game – when there is a problem with transaction processing, the ABM operator that owns its own processing network is responsible and can correct the problem quickly instead of waiting on a third-party to get around to it 8

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• Innovation – by owning its own processing, an ABM operator can layer on new products or services that ride the processing rails to improve overall program profitability.

Cardtronics provides intuitive access to all of your ABM transaction data and history with easily accessible reports and query tools to give you the information you need how and when you need it.

As with anything in life, there can be pitfalls. An ABM operator running its own processing is only as good as the processing network it has deployed, and deploying a secure and reliable network is not easy. The best processors are those who reliably process a critical mass of transactions every year and have built the infrastructure, logistics, and security to do it reliably and safely day-in and day-out.

Maximizing revenue impact

Monitoring and reporting An integral part of the transaction processing mix is how an ABM operator presents your transaction history.

Do you receive a monthly statement or do you have access to a real-time online interface to track transaction status, and the money you are making? The best ABM operators will give you a clear window into the health of your ABM program at any time.

Of course, not all systems are created equal.

When choosing an ABM partner, you should understand not only what reporting system is available, but how it works. Especially if you will be tracking a large number of locations or transactions, ask for a tour of potential partners’ reporting tools so you know you will get the information you need in a format that is easy to use and accessible.

As an example, the CAMP reporting tool developed by

There are multiple ways to maximize the revenue impact of your ABM, and you should utilize as many as are available from your ABM partner.

Leading ABM operators will help you maximize direct revenue from your ABM program by making available new ways to earn revenue. One example is Dynamic Currency Conversion, or DCC. DCC allows guests from outside Canada, such as American customers, to see their ABM transaction in their own currency. This helps the ABM user understand the financial impact of the withdrawal in terms he or she is familiar with while allowing you to enjoy a portion of the revenue from the exchange rate.

Another important factor is the impact of marketing.

The ABM will draw customers into your store and put cash in their hands. The ABM equipped with marketing will direct those customers to spend more of that cash in your store by incenting them with coupons and offers for products sold on your shelves.

The best way to maximize revenue impact, however, is to have more customers using the ABM. The best ABM operators will offer programs to help you do just that. As an example, in partnering with banks such as Scotiabank and CIBC to put their brands on ABMs, delivers January/February 2015

a tremendous transaction increase from those banks’ cardholders. Additional programs, such as locator apps that bring customers to your store, help deliver more feet through the door. When choosing an ABM provider, understand what options are available to you and how successful the operator has been in deploying those options in real life, not just in a sales presentation.

Making a smart choice No matter who you choose as your ABM partner, an ABM is a smart choice, but to maximize your revenue and your longterm satisfaction, choosing the right partner is the key. Find a partner who will take the time to understand your business and offer a solution that’s right for you, not just a cookie cutter offer. Kick the tires on your provider and make sure they can deliver the best value for your business over the length of your contract. Understand all the ways your provider will help maximize revenue from your ABM program. Finally, enjoy the many benefits of an ABM for the success of your company.

Joseph Arrage is the Vice-President of Business Development for Cardtronics in Canada. As a long-time expert in ABM deployment in Canada, he supports both large retailers and financial institutions across the country. jarrage@cardtronics.com Cardtronics Canada, one of the largest ABM operators in Canada, is part of the global Cardtronics network of over 110,000 ABMs. Cardtronics for short, Cardtronics Canada has its roots in the Canadian marketplace with local offices, management, sales, and support. Cardtronics serves as an excellent guidepost when making a choice of an ABM partner.

ABM Report

The ATM: A Look at the Trends in Canada A lot has changed in the ATM industry in Canada over the last couple of years…

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By Robert Phillips

s with any product or service, evolution is the key to survival. Since the first white label ATM was deployed in the late 90s, we have seen many changes in the evolution of the industry.

What once looked like a generic upright box with a small monochrome screen has been replaced with a sleek modern looking chassis with large HD quality colour screens. Where the original ATM could only dispense January/February 2015

cash, newer ATMs dispense cash and can provide other services including, couponing/advertising, dynamic currency conversion, phone card top-ups, and high definition graphics on the screen to attract customers.

Within the industry, the goals will always be to utilize the ATM to provide cardholders with convenient access to their cash while optimizing the revenue and profits generated by the ATMs. Let’s explore some of the key

trends in the industry that are helping us to achieve these goals.

Surcharge rate increases One key ATM industry trend is the rise of the ‘surcharge rates’ at both white label and financial institution ATMs. The increases in surcharge are largely in response to challenging economics on ATMs on both ends. Revenues, which are driven by withdrawal transactions, have been steadily PAYMENTSBUSINESS

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ABM Report declining year over year as the transaction volumes decline modestly each year. There are a number of contributing factors to these transaction declines: technology, new payment methods, increasing amounts per withdrawal, etc., but the result is lower overall transactions and lower revenue per ATM. At the same time, the costs of operating the ATMs continue to rise.

Wages, fuel, compliance with regulations (EMV), and conversion to accept new currency (polymer bills) have all increased the costs to ATM operation, while revenues and transactions are declining.

This squeeze of lower revenue and higher operating costs per ATM is driving a trend across the industry to increase the ATM surcharges. In the U.S., higher surcharge rates have been a reality for several years and the trend has moved across the border to Canada. Average surcharge rates have been climbing for a couple of years now but still remain below the U.S. levels.

While the majority of ATMs continue to charge in the $1.50-$2.50 per transaction range, there is a continuing trend upwards with some Canadian financial institutions now at $3.00 and even $4.00 for each transaction (for noncustomers).

Increased regulation Another trend over the last couple of years has been the increase in regulation and standardization of the white label ATMs across Canada.

Significant investments were made to ensure all ATMs accepted and processed ‘chip and pin’ or EMV cards. This has 10

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contributed to a tremendous decline in the amount of fraud on cardholders at ATMs. ATM operators have also upgraded their ‘Anti-Money Laundering’ efforts to better match requirements in the financial system and knowing their clients. In addition, all ATMs have been upgraded and updated to properly operate with the new polymer $20 bills released by the Bank of Canada in late 2012. These efforts have made great strides in improving the public confidence in white label ATMs.

able to ping the ATMs for health status, get up to the minute processing reports, and change the promotional screens. Changing ATM communications over to cellular or IP is also good for the environment! Every time we can remotely access the ATM to resolve an issue and don’t have to send out a technician in his vehicle, we play a part in reducing the amount of carbon and pollution we put into our atmosphere.

One area that has been hyped as a trend several times

High speed connectivity

but never seems to live up to its billing is marketing at the ATM. It has been promoted by some as the ‘goose that laid the golden egg’, suggesting that ATM operators could all get rich selling advertising and couponing. There are even ‘free use’ ATMs where the advertising revenue is meant to cover the cost of operating the ATM, but these continue to appear to be more hype than being a viable business model. There is an opportunity to figure out a viable business model for ATM advertising and we look forward to the trend when it emerges.

A third trend is the move away from traditional communication connections for ATMs to high speed data connections. While many ATMs ‘grew up’ communicating on Data Pak lines or telephone dial up, today’s high speed communication rates have fallen dramatically and their security has improved to the point that virtually all ATMs will be on IP communications in the near future. Not only is this change a positive cost reduction in ATM operations, but with the increased speed and reliability of these communications, we are now

January/February 2015

Trend toward co-branding Finally, bank co-branding is now a mainstream business model in Canada with several banks and large ATM operators working together to operate ATMs under bank brands in various market locations.

While these models have been around in Canada for five or more years, the last two years have seen a material increase in co-branded programs as the large white label operators have proven their quality and reliability and the banks are looking for new cost effective ways to deliver cost-effective convenient ATM access to their customers. The decision to co-brand typically results in increased transactions at the ATM and increased foot traffic within the locale of the establishment. Increased foot traffic in store can lead to increased sales and services for the location as customers of the financial institution now make that a destination spot for stopping and accessing the ATM. A lot has changed in the ATM industry in Canada over the last couple of years and these are the key trends that have been driving the change.

While it is difficult to see down the road and predict the future of our industry, there is no doubt that ATMs will be part of that future. How the ATM will evolve over the next decade is unknown, but the possibilities are endless.

Robert Phillips is Vice-President, Sales, Access Cash General Partnership.

Before joining Access Cash, Rob spent twelve years at NCR Canada Ltd. as the Canadian financial channel manager.

Prior to joining NCR he spent three years working at Diebold Canada as a financial sales specialist, with focus on growing the white label ATM business.

ABM Report

Digital currency ATMs and exchanges must be authorized says Quebec financial regulator

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usinesses operating a digital currency automated teller machine (ATM) or an exchange platform in Quebec must obtain the appropriate license from the financial regulator, says the Autorité des Marchés Financiers (AMF).

The AMF has published the amendments to the Policy Statement to the MoneyServices Businesses Act, which intend to reflect the legal framework that governs these particular types of economic activities in the province of Quebec.

While the AMF is oversees those businesses, it is not regulating digital currencies, and warns consumers of the risks – notably volatility and liquidity risks.

The authority says, “Transactions involving virtual currency are not covered by the financial services compensation fund or the deposit insurance fund. Quebeckers should therefore be careful with virtual currency transactions as they may incur losses that are not covered under current compensation or deposit insurance plans.”

The nearly anonymous characteristic of digital currency transactions might incentivize fraudsters and might be used to facilitate fraudulent transactions or investments.

The Money-Services Businesses Act implies that businesses providing money services must acquire the appropriate licensing from the AMF. The Act also stipulates that such enterprises must provide

certain information, notably about their directors, officers, partners, as well as lenders.

Jillian Friedman, a cryptocurrency and

e-commerce lawyer and counsel for the Bitcoin Embassy, says “The AMF announcement allows [us to] have [further] clarification, but I

am surprised that it was issued before publication of rulings from the Financial Transactions and Reports Analysis Center of Canada, the FINTRAC.”

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January/February 2015

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Payments trends

Staying On Top 2015 payments trends you can’t afford to ignore

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By Thierry Denis

he new year is a time for reflections and resolutions – to try new things, or to make better choices. In our daily work with merchants and others, we are often asked, “Which trends and technologies do we need to stay on top of?” With that in mind, we’ve compiled this list of payment trends that merchants and financial services companies can’t afford to ignore.

Security concerns will continue to be a big driver for payment system upgrades.

In 2014, high-profile card data hacks dominated the news.

As a result, Ingenico Group is seeing high interest from merchants for the latest security technology; chiefly, Point-toPoint Encryption (P2PE). Based on current purchase trends we see, we believe that P2PE will be

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adopted by virtually every Tier 1 and Tier 2 merchant in the U.S. by the end of 2015, and most will also implement tokenization in order to help protect consumers’ card data. If you are a merchant, and not already exploring these technologies, you absolutely need to do so.

‘Semi-integrated’ approaches combining EMV with P2PE will dominate in Tier 1 and 2 merchant environments. We are seeing a lot of Tier 1 and 2 merchants pursuing a path we call ‘semi-integrated,’ in which they link their EMV and P2PE planning to optimize security.

Under this approach, card data does not enter the POS; instead, transactions are routed securely through PCI-certified terminals.

The means the merchant POS environment may be removed from the scope of certain PCI January/February 2015

programs, significantly reducing the cost and complexity of PCI compliance.

Many Tier 3 and 4 merchants will be unprepared for the liability shift. Our observation is that many Tier 3 and 4 merchants have not taken steps to upgrade their payment infrastructure for the upcoming EMV liability shift in October 2015. Time is getting short – due to the certification and testing queues already developing with processors, merchants who have not already begun their preparations may not be able to complete their changeover by October. We are, however, seeing high interest from Tier 3 and 4 merchants in upgrading for NFC/Apple Pay, and the good news there is that nearly every terminal system that’s NFC-enabled will also be

Payments trends EMV-enabled – helping these merchants get one step closer to EMV compliance.

Merchants unable to accept EMV will face new pressures to become enable acceptance. Analysts predict that over 160 million EMV cards will be in circulation and every household will have at least one EMV card within 2015. Our experience with relatively recent EMV launches in countries such as Canada and the UK have taught us that once EMV cards are issued, a new pressure emerges for merchants that have not enabled this technology. In our experience, these cards are more expensive and therefore, issuers will be more vigilant to market to card holders the value in using these cards to protect card holders from identity theft. Regardless of the debate about the impact of the liability shift date, once card holders understand what an EMV card is and represents, they will associate brands that accept EMV cards with data security and those brands not able to accept cards will be seen as a risk to the card holder.

EMV and mobile technology such as Apple Pay will ultimately drive efficiency for merchants and consumers. Part of the education from the issuer to chip card holders is that the EMV card should never leave the possession of the card holder. In addition, card holders preferring to pay using Apple Pay will look for a place to tap their phone versus giving up their card. In other EMV countries, merchants

solve this problem by installing portal payment acceptance devices that bring payment to the card holder. In parallel, Apple Pay will solve this by migrating to portable handheld payment devices. Initially, this will create an operational impact for merchants, such as restaurants, that are used to taking the card from the merchant to a back office or to a server station, however, once the migration is complete, the result is faster checkout for the cardholder and faster table turns for the restaurant.

Additional data shows that servers actually receive higher tips because when the point of sale is brought to the point of service, the card holder perceives a higher level of service when the table is closed immediately after the card is placed on the bill.

There will be heated discussions about who owns consumer/shopper data. In a mobile wallet world, retailers often no longer receive details on who is purchasing and what they are buying.

Ingenico Group expects a lot of heated discussion on this issue in 2015, and further predicts that merchants will implement solutions such as iBeacon that will help them keep following their consumer base and better understand and track who’s shopping in their stores.

Cross-channel commerce will become a reality.

Merchants are eager to take advantage of growth opportunities presented January/February 2015

by international markets and mobile commerce. These require more sophisticated payment systems that can accommodate different currencies and that enable merchants to identify customers who shop across different channels (online, in store, mobile, etc.). Many Ingenico Group customers are preparing for this shift by upgrading their software to add data analysis, support for multiple currencies, and loyalty/CRM features to improve the customer experience in a cross-channel world. Once the upgrade is complete, merchants will be able to not only provide services across these channels,

but will allow consumers to begin a shopping experience in one medium and end it in another. A consumer will be able to grab a QR code or find an item online and complete the purchase in their nearest store where an item is in stock.

2015 is shaping up to be one of the most dynamic years we’ve seen in terms of payment innovation. Keep an eye on these trends as the year progresses.

Thierry Denis is President of Ingenico Group North America. He has 20+ years’ experience in the payments technology space. At Ingenico Group, Denis works closely with merchants, processors and acquirers to help them implement secure and seamless end-toend payment solutions.

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payments trends

M-Commerce: What Does the Consumer Want?

Convenience, connectivity, and sometimes the cool factor…

By Catherine Johnston

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hat is the question people are asking in terms of the consumer shopping experience. A very wise person once advised me to ask a variation on that question, “What is the consumer willing to pay for?”

We know from how consumers use ATMs that they are willing to pay for convenience.

From mobile phones we know

they are willing to pay to stay connected. A few are even willing to pay to be at the front of the new technology line.

But back to the “what do they want” question…

Consumers want what they have always wanted when they shop: • great prices • available stock • to spend as little time as January/February 2015

possible choosing and paying for their purchases • an accurate bill and • the ability to get any possible savings.

While technology keeps evolving and influencing the consumer shopping experience, consumers’ basic wants don’t change very much, so the companies that will win the battle of the new

payments trends products and services must maintain that focus.

As we head into 2015, a lot of work has been done and some neat new apps have entered the market, but we’ve yet to see a holistic approach that revolutionizes shopping from the viewpoint of either the consumer or the merchant.

Let’s take a look at some of the progress to date and then we’ll come back to talk about the next steps.

Great prices We’ve seen consumers use smart phone and tablet technology to price compare using their smartphones and tablets. From the merchants’ perspective, what can be done to drive more buyers into the store? The key here is ‘buy’ not just price compare. How can mobile technology help cut costs? App developers and other mobile suppliers who can deliver either or both of these will find willing customers.

Available stock Smart retailers are letting their customers check inventory before coming to the store. But what about letting customers who are in the store find stock without having to flag down a clerk?

Time to shop and pay This may be the area where mobile can really shine.

Consumers could use an app to ‘map out’ their trip through the store, in the same way they map out road trips.

Mobile devices could also be used to keep a running total of purchases, helping consumers budget as they travel through the store.

Today, mobile technology also

allows merchants to ‘cash out’ consumers throughout the store, not just at front of the store lanes. It allows consumers to order and pay in advance then pick up their purchases at the store.

None of this is new, but packaging it together and providing an easy interface for customers would certainly enhance the consumer shopping experience.

When paying, consumers expect their bill to be accurate – that is just table stakes, but they don’t necessarily want to carry the receipt out of the store. E-receipts would seem to be inevitable but there are many stakeholders who have to agree on terms of usage.

How does the store handle returns with an e-receipt? Will payment networks accept them as the equivalent of paper? What about employers and tax agencies? What about the courts when there is a legal dispute? All these can be answered and the motivation to get the answers is higher when e-receipts become part of an m-commerce package, not just a standalone app.

Savings and privacy Coupons may be delightful for consumers but they add complexity at the point-ofsale, slowing down the lane.

How could we use mobile technology to speed things up?

The tricky question is whether consumers alerts (hey, we have a sale! or hey, here is a coupon!) will have a long term appeal for consumers when their mobile phone inbasket starts to fill up. Then there is the issue of how consumers will feel about merchants knowing that they are nearby January/February 2015

or in their store. Recently I was walking behind two businessmen who were talking about their sense of privacy.

They didn’t seem to care that merchants knew where they were, but they didn’t want to be interrupted by incoming texts. Everyone’s sensitivities will be different on this matter and it will be challenging for developers and retailers to find a one size fits all solution.

So, what will consumers pay for?

Convenience, connectivity, and sometimes the cool factor.

Today m-commerce delivers components of these to the shopper. Those and others need to be knit together to make mobile phones an indispensable part of shopping, not just an accessory.

…And then there are the issues of security Any time we talk about convenience, issues of security come to the forefront. With online purchases we know that the more steps consumers have to take to authenticate themselves, the higher the likelihood that they will abandon the purchase. This isn’t likely to change in a positive way when the device is a mobile phone or tablet.

Merchants, issuers, acquirers, consumers, payment networks, and others lose when that happens. If security is reduced to make it more frictionless and fraud increases, one or more of these stakeholders loses money.

So, where do we go from here?

them on the Dragon’s Den, in technology incubators, and in corporate corridors. Left to their own devices, they will move m-commerce into the mainstream, but it won’t be a quick process.

The answer to the question depends on how anxious you are to get to a profitable m-commerce market. We have been talking about mobile commerce for 20 years and as I said earlier, we have made progress, but we are still a long way from a mature marketplace. To get there we need a good understanding of what each stakeholder needs and wants. Instead of talking about the complex ecosystem, we need to move on to talking with those parties.

Instead of having one-on-one conversations, we need to get representatives of each stakeholder group together to answer questions that start with, “what if we…?” Once each group has answered how they would be positively or negatively impacted, real and sustainable progress can be made and schedules accelerated.

The bottom line Stakeholder dialogue helps you make profitable decisions, helping your organization and your career. For 27 years, ACT Canada has championed this dialogue. Talk to us about how we can help you.

Catherine Johnston President and CEO ACT Canada: stakeholders driving the evolution of payment and digital identity. Chairman: ISCAN, the International Smart Card Associations Network ca.linkedin.com/in/ catherinejohnstonact/www.actcda.com.

There are a lot of bright, innovative people. We see PAYMENTSBUSINESS

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Securing Mobile Life.

Creating Confidence. Giesecke & Devrient offers a comprehensive range of payment products and solutions based on the latest EMV, contactless and dual interface technologies. Our smart debit, credit and prepaid products are available on a wide range of platforms based on secure and highly flexible operating systems. Alongside the comprehensive portfolio of easily configurable card products and card solutions, we offer all services related to electronic payments including m-commerce and transit. Our services include personalization, system integration, project management and technical consulting from a single source. For more information, please visit: www.gi-de.com/ca

Key theme

Technology and Payments – A Look Behind the Hype The winning combination

By Karen Treml

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PAYMENTSBUSINESS

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he payments sector is an industry of rapid change, continual evolution, and bleeding edge advances.

Financial services and payment companies continue to make major investments and launch innovative initiatives while jostling for leadership in a dynamic and diverse market.

In a recent roundtable hosted

by KPMG, and facilitated by Payments Business magazine, some key industry leaders came together to discuss what is driving the change, the current developments that hold

promise, and where the true value lies and how can it be best extracted.

Drivers of change For the past several years, there has been considerable innovation and advancement within the payments space, particularly in such areas as digitization and technology.

During this time we have also seen many changes in the expectations and demands of both the merchant and the consumer. But, what exactly is driving the change? Is it the January/February 2015

innovation and advancement that drives the industry, merchant and consumer demand in and of itself, or both?

For David Bolton FCMC, Partner, Advisory Services at KPMG, it is both. He feels it is the convergence between digitization and the evolution of technology and the evolving consumer demand and expectations that drives the industry.

Georges Pigeon, Partner, Advisory Services at KPMG agrees and says that for a period of time, the payment industry was comfortable; credit

Photos Gary Tannyan

Key theme

Clockwise left to right: Georges Pigeon, Paul Gordon, Jeppe Dorff, Tom Pawelkiewicz, Karen Treml, Jeremy Bornstein, Mark Ripplinger and David Bolton.

cards and direct debits were being processed, approved, and settled. Eventually though, merchants wanted their cash more quickly and customers wanted an easier way to settle transactions. So, whether people are taking public transport or going to a restaurant, they are having to carry tickets, cash, credit cards, tokens, etc., and finding a way to combine everything, thereby really making it easier for people, is a big driver. But, says Pigeon, change must also consider the needs of the merchants – it can’t be imposed just for the sake of change. You have to get the buy-in from both sides of the transaction.

On the other hand, Jeppe Dorff, VP of Transaction Services at Rogers

Communications does not see any strong consumer demand for change and he doesn’t think consumers have any inherent need for innovation or technology. In fact, he says, the payments industry has self-imposed an assumed demand as a result of the technology convergence and digitization. This seems to harken back to the sentiment within the industry that current technology solves a problem that – from the consumer’s perspective – doesn’t actually exist.

Mark Ripplinger, President & CEO of Everlink Payment Services Inc. agrees that technology is a key driver, however, he says it is in fact possible for this technology push to actually create consumer demand where it January/February 2015

doesn’t otherwise exist. It is true, he agrees, consumers are not arbitrarily looking for change, but nevertheless, when emerging technology becomes available, they are interested and go through a process of acceptance of the concept, following by adoption. Acceptance is not the determiner so much as is adoption. The key lies in finding the drivers for consumer adoption and for ubiquity.

So, when we look at adoption as being key, what is it that affects and influences that adoption?

Tom Pawelkiewicz, Director of Emerging Payments at Scotiabank, says adoption is influenced by the bigger consideration. It is not so much about digitization or technology, and it lies much

less in delivering the payment experience and more in delivering the ultimate in shopping experience. While the focus is arguably on providing ease of payment, Pawelkiewicz says the true avenue to consumer acceptance and adoption lies in delivering an easier, more convenient shopping experience – delivering the right offer to the consumer, helping them to find the right item, and then providing an easy payment option. Adding loyalty and an electronic receipt adds cachet to that positive shopping experience.

The mobile payments space Whether the drivers are digitization and technology or merchant and consumer PAYMENTSBUSINESS

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Roundtable demand – or both – certainly the last several years have seen a strong focus on innovation and technology in the mobile payments space. Much of the attention and discussion has surrounded issues such as nearfield communication (NFC), the cloud, security, etc., and predications that the adoption of mobile is just two years away. And then just another two years. And another. So, in the interim, can we say that the mobile payments space really advanced?

Paul Gordon, Senior Manager of Payments at Credit Union Central of Canada thinks it has. He points out that a couple of years ago many people were questioning the value proposition of mobile and the rationale for spending the kind of money that was required to bring it to market.

Now, even in the last few months, the technology has changed. Host card emulation (HCE), he points out, has certainly changed the value proposition in terms of how one brings a mobile payment solution to market. He notes there is work to be done with

the consumer in terms of explaining the value proposition beyond just the payment aspect. The bigger question, he says, is really that of what would have the consumer make a conscious decision to use their phone instead of their card – and he’s not sure that question has yet been answered for the consumer.

Agreeing that even a year ago mobile payments was still in its infancy, Pawelkiewicz says that the “infant has now grown into a toddler that is learning very quickly.” A lot of technology has come to market, like HCE, biometric authentication, and different form factors, and he thinks the big year in payments really is two years away. “I know we said that two years ago and four years ago, and nothing came of it, but I think we are at a point where the critical mass is finally being reached – the ecosystem is ready and two years from now, we’ll see a huge movement in the state of mobile payments.”

Questions do remain, such as how to get other participants to add more value through,

“We are at a point where the critical mass is finally being reached – the ecosystem is ready and two years from now, we’ll see a huge movement in the state of mobile payments.” for example, targeted offers, card-linked loyalty, etc., but also on how to really collaborate to move mobile forward. “To get rid of the wallet that we’re all carrying, we need to figure how, for example, we can put a Scotia card into the RBC wallet, how we can get all of our loyalty cards into that single wallet, and how can we make highvalue transactions? How can we put a PRESTO pass, a TTC pass, and our ID into that mobile wallet? Because until those things come into play, which is possible only through collaboration amongst the participants, we will remain in that barely-crawling, barelywalking stage.”

But, for Jeremy Bornstein, Head of Payments Innovation at RBC, little has changed in

two years and the industry, in his opinion, is perhaps only a little bit further ahead. He agrees it is more exciting now with HCE and Apple Pay, but the more interesting aspect for Bornstein currently is the support for contactless payment at the point of sale and the confidence within the industry that this is actually the platform to move forward with. “Knowing that NFC is the platform of choice allows us to build on it with confidence.

In a country like Canada, with 70 per cent penetration of smartphones and 30 per cent penetration of contactless terminals, this is the time to get this technology to roll.”

When looking at the changes from four years ago, two years ago, and currently, in essence the mobile space

Participants

David Bolton FCMC, Partner, Advisory Services at KPMG

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Georges Pigeon, Partner, Advisory Services at KPMG

Jeppe Dorff, VP of Transaction Services at Rogers Communications

Mark Ripplinger, President & CEO of Everlink Payment Services Inc.

Tom Pawelkiewicz, Director of Emerging Payments at Scotiabank

Paul Gordon, Senior Manager of Payments at Credit Union Central of Canada

January/February 2015

Jeremy Bornstein, Head of Payments Innovation at RBC

RoundTable today is little more than a form factor that replicates card-based payments. And, as mobile payment starts to emerge further and further, Ripplinger questions where the value proposition lies.

While there is certainly some value in the convenience that results from the convergence of all the other elements of the payments ecosystem into one bundle, he doesn’t think mobile payment has gained ubiquity. Plastic still wins the day, he says, and for now plastic and mobile will simply coexist.

And, undoubtedly, at least in the foreseeable future, that is so. Still, form factors offer choice. As Bornstein points out, a lot of programs today are governed by giving consumers a choice. There is also the matter of balancing convenience with security. It’s really about figuring out the right options that add that additional convenience. Some consumers only want to carry their phone and therefore, putting that convenient factor of payment on the phone is of interest. But it’s not game changing, and cards will stay around, he says.

Clearly, within the mobile space, we are not “there” yet. But, when we look to whether the industry has in fact advanced, given that HCE has changed how mobile payment solutions are brought to market and the ecosystem seems better aligned, despite the fact that much work needs to be done in illustrating the value proposition, there is a strong sense that the next two years will be the game changing period.

Innovations While the value proposition continues to be defined, technological innovation will continue to advance. The layering of tokenization onto HCE is probably the most recent innovation that is likely to have the biggest impact.

From the perspective of the credit union, in terms of delivering a mobile payment solution into market, the intention is to base it on host card emulation and tokenization, versus the NFC SIM model, says Gordon.

He adds that with respect to the innovations of Apple Pay, what the solution brings to the payment transaction in terms of setting up the mobile payment, is really around the user experience.

That’s something that Apple has perfected over the years. Apple’s technology and its fingerprint scanning – biometrics — is what the company’s true value proposition is. “Really, Apple has inserted itself into the existing payment rails. In terms of innovation, I’m not sure it’s really all that innovative. But, the fact that it’s been able to bring a user experience that’s going to resonate with people with their iPhones, that will help to drive adoption.”

Offering another perspective, Bolton says that Apple has in fact done what they are really good at – creating a lot of media attention and creating a lot of buzz around a topic. Apple has proven that it influences consumer trend. It does not drive it, but it does have a way of getting in front, or at least in front enough, to help influence direction. In January/February 2015

that regard, says Bolton, the level of attention to Apple will in and of itself drive activity. “Like most things, there’s often not one item that you can say is really innovative or has really caused a major change. It is typically more the culmination of a number of smaller improvements or changes across a variety of elements.

Innovation here is from all of the pieces, all the building blocks being in place. It lies in all the pieces moving at pace, staying connected, and going forward in a somewhat reasonable fashion to support consumer demand when consumer demand increases.”

One very big area of innovation within the mobile space is that of payment apps. There are currently more than 2,500 and as Bornstein points out, clients can’t possibly manage or handle that many apps – nor are they going to try.

Financial institutions are making it as easy as possible for their clients to choose their specific payment product.

According to Bornstein, the major

David Bolton

Georges Pigeon, left. Paul Gordon, right.

Jeremy Bornstein, left. Mark Ripplinger, right.

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Roundtable payment schemes will endure, not because of the value proposition for consumers, but because of the ubiquity of acceptance, which he points out is the number one factor.

Dorff agrees. “If we just look at the ecosystem, we’ve certainly added to the complexity in Canada because everybody is actually collaborating. So, we can have Google Wallet, a Scotia banking app, a payments dual-purpose app, an RBC dual-purpose app, or a CIBC standalone payment app – it is very diverse and we’ve actually added to the complexity because we believe in an open ecosystem where consumers have the choice to pick what they want. As more and more apps eventually come to market, it will be increasingly complex for consumers.”

And undoubtedly that complexity will grow, says Pigeon, who points out there is another aspect of that complexity to consider.

When we look at the various technologies and other

Tom Pawelkiewicz

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solutions that are being introduced, he says we have to consider who is behind the solutions, their motivation, and their source of funding. In the end, only a few of them will survive. In some cases, it will not necessarily be the greatest, most convenient, or easiest to use. Instead, it could be the ones that have the most money backing them, enabling them to stay in the game long enough. And although any solution ultimately has to meet the touch points of being easy to use, ubiquitous, and secure, that doesn’t guarantee the surviving ones will be the ones that score 10 out of 10 on all of those points.

One must also consider whether the success of any app is driven by the voice of the consumer based on what it offers in user experience.

It is likely that of those 2,500 payment apps, consumers will decide which ones they’re going to use based on which ones provide the value proposition, says Gordon.

Using the Starbucks app as an example, its success is owing to the fact that the consumer can use it not only to pay, but also to, among other things, track and redeem their loyalty points. While from a security perspective it is very unsecure, it offers great user experience and gives the customer what they need. It’s reliable. It works. And so, it is popular.

Ripplinger, on the other hand, says it will not be the consumer that makes

the decision, but rather, it will be made based on meeting the five must-haves that a successful payment method requires. “First and foremost, it has to be secure and private; second, it has to provide absolute payment finality, including being auditable and verifiable; third, it has to comply with payments rules and regulations, from legal, regulatory, and compliance perspectives; and finally – must-haves four and five – it has to be both convenient and ubiquitous. And, if a payment solution doesn’t meet those five must-haves, ultimately and inevitably, it’s going to be exposed. The small, closedloop solutions don’t necessarily meet all of those criteria, and that’s why they’re going to stay closed-loop. Of those 2,500 apps, a very large percentage don’t and won’t meet the must-haves. Therefore, they will not prevail; they will not exist into the future.”

But in an era where user experience is all important, although technological innovation is a big part of uptake of any solution, it cannot be overlooked that greater success may well go to any solution that delivers to the entire shopping experience.

The shopping experience is what will ultimately prove defining, says Pawelciewicz, who points to Big Data as being what will deliver that enhanced experience. In order for mobile payments or the ecosystem to build, and what in fact is driving some of the change, is the availability of Big Data. “We have the ways now, if we do choose to collaborate, to make use of that data, to make that customer experience January/February 2015

better. I would say that analyzing and applying big data is one of the major factors that will drive innovation forward.”

Through analyzing that data, ultimately the needs, desires, and habits of consumers can be better targeted, and the customer experience can in turn be more beneficially defined and delivered.

The winning combination Indeed innovation continues to move forward, technology is ever evolving, and opinions are varied and diverse on what the ultimate answer is. Is there any innovation or solution currently available that offers enough of the value proposition to hold the greater promise?

For Bolton, that answer is no. He says there is no one answer but in striving for it, the industry should keep the consumer first and foremost. Notwithstanding the complexity of the technology and process behind the scenes, he feels that keeping it simple for the consumer is the direction the industry needs to go. Inevitably, there will be a lot of consolidation, and there will be solutions that emerge industrial strength.

Pawelciewicz agrees there is no one answer. “I don’t really think it is that important which of our wallets will emerge as victorious, because I don’t think any particular one will. And, I wonder if it matters at all what any wallet is like. What matters to the consumer and to the banks is which card is being used, not which wallet it is in. The way that most customers will make that choice is through the card features themselves. And what is of primary importance for

Roundtable the banks is that their cards appear in those wallets and that they are top of wallet.”

Conversely, from another perspective, Bornstein says that while top of wallet is important, it is not the single primary concern. “As an issuer, we care very deeply where our card is, and what wallet it’s in.

Security is incredibly important and from a security standpoint, it is not in the best interests of the consumer to have their credentials propagated into hundreds of different wallets.

We care very much about the conversation that we’re having with the consumer at checkout. We care very much about branding, and what that looks like. We want consumers to know exactly that they’re earning four times the points in this environment, versus another. We want to be able to talk to them.”

And that dialogue with the customer is what Bolton says is important. Communicating and educating the consumer is a key element particularly because today and over the coming years, the consumer will be faced with a number of choices. As a result, the industry needs to collectively find ways to make sure that consumers are making informed choices and that they know where the risks are and where the risks aren’t.

In the end, it comes back to the earlier point of a relatively small number of solutions, because those established, trusted relationships will carry the day. Bolton points out that there is an obligation on the part of everyone to make sure that consumers are making the right choices.

When looking at the value

Georges Pigeon, left. Paul Gordon, center. Jeppe Dorff, right.

proposition, there must also be consideration for the under-banked, the un-banked, says Pigeon. “With all these technologies coming, how can they also be a part of things?

There may be reluctance with certain players in the whole industry to tap into the underbanked, or the un-banked, and for different reasons.

But, they are a real segment and the regulatory bodies will also want us to consider how we are dealing with them. It may have some very simple solutions but they have to address the five must-haves that Mark was mentioning. So, the solutions will probably be eights out of 10 across all five, but likely are the only ones that do that well and consider the consumer, the merchant, the financial institution, the government, and the consumer advocacy groups, who are looking out for the average consumer – and the ones who are less privileged. And, they could be great solutions to the January/February 2015

people who are less fortunate, and be ways to collect welfare or other types of government services that they benefit from or are entitled to, and making sure that they’re not falling between the cracks.

When looking at the payments space and all that it entails and offers, identifying and extracting the inherent value can be the biggest challenge to realizing it and delivering the winning combination. “When you converge the multiple elements of a payments ecosystem into something that is convenient and ubiquitous, that is what provides real value to the end consumer,” says Ripplinger, adding that “the real magic is when a payments solution provides clear consumer value and you can see a line of sight to value for the merchant, and a line-of-sight to value for the issuer, to the financial institution. That’s a win-win-win.

We started with the question of what is driving

the change within payments – innovation and technology, merchant and consumer demand, or both – and what will ultimately result in the winning combination. At the end of the day, there is a general consensus that a combination of factors drives the industry and therefore the winning combination will come down to the innovation and technology that delivers the overall value proposition – the solution that offers the consumer more than just the ability to pay. Mobile commerce is certainly the broader picture and so from there it will be a matter of which solution(s) provides that wholesome mobile commerce experience for the consumer, the one that delivers the payment, the loyalty, the couponing, and the e-receipts.

Bolton does not think that anyone is there yet, but says it is ultimately “where we’re probably meeting at.”

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Technology Update

The changing face of the payment terminal “The growing relevance of mobile and increase in the number of industry disruptors with a customercentric approach to payments, has forced us to take a more measured look at the terminal …”

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By Karen Cox

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he technology behind payment acceptance has undergone dramatic change since the days of the first terminal. When we consider the variety of electronic payment options available today, it’s hard to imagine a time when the hand-to-hand transfer of money was our only means of making a sale. Payment innovation has removed the need for customers to carry cash and even the requirement for buyer and seller to be in the same room. From the rise of mobile payments to self-serve kiosks, convenience and flexibility are driving the newest generation of payment offerings.

Today’s payment terminals bear little resemblance to the devices first introduced to merchants in the 1970s. With the arrival of the magnetic stripe card, merchants were given their first glimpse into automated transaction technology capable of logging customer card information and transmitting it for immediate authorization – a far cry from the manual card imprinter and a hot list of

stolen cards. Although a big improvement, dial-up phone connections and slow networks created lengthy transaction response times and opened up an avenue for card fraud. Bulky and large, early terminals were more reminiscent of industrial equipment than in-store fixtures.

Drivers of change Concerns over fraud and decisions from the major card brands drove further changes in terminal design and functionality. The issuance of debit cards and Personal Identification Numbers (PINs) in the 1990s prompted the need for terminals with integrated keypads for customer handover.

As security concerns grew, industry regulations tightened.

Once the responsibility of card issuers, PIN security became the concern of a number of industry stakeholders under the purview of the card brands.

The PCI council was created to oversee regulations for secure transactions and compliance by device manufacturers, acquirers, and merchants.

January/February 2015

Growing rates of consumer fraud led to the mandatory migration to EMV chip-based payments in the early 2000s, which started in Europe and moved across the globe. To accommodate the latest EMV specifications, payment device manufacturers began to deploy chip terminals able to perform card authentication and PIN verification. This introduced yet another regulatory body into the payments space; EMVCO, responsible for the physical and logical security of EMV and global interoperability.

The invention of high speed internet, Bluetooth, and Wi-Fi, and the rise of integration to cash registers saw the move away from pure transaction authorization solutions to full point-of-sale solutions for retail, hospitality, and mobile businesses. Smaller footprints, colour screens, and various communication options allowed for PIN pads to connect directly to registers and terminals, removing the need for separate printers. Although not as compact as the smart phone,

Technology Update they looked better, cost less and supported more holistic business solutions.

Over the last five years, near-field communication (NFC), SAAS, and cloud-based technology led the evolution of change. NFC, the technology behind contactless acceptance, facilitates the exchange of data between two devices in close proximity. It has made for the very real possibility of a future dominated by mobile payments. Most of today’s terminals have been certified to contactless specifications, supporting payment acceptance from NFC-enabled smart cards and consumer mobile phones, and offering enhanced encryption technologies.

Disruptors The growing relevance of mobile and increase in the number of industry disruptors with a customer-centric approach to payments, has forced us to take a more measured look at the terminal.

With the simple download of a payment application, merchants can now turn everyday handheld devices into payment solutions in their own right. Software platforms for tablet-based acceptance integrate cash register, payment processing, and business management features into attractive, allin-one business solutions and have reduced the terminal to a peripheral device that reads and encrypts card data.

Apps have not only changed what these solutions look like – from peripherals handling the reading of cards to clouds storing the credentials – they have taught businesses to

look for solutions that both accept payments and run their business. These forces have led to the evolution of complete solutions that compartmentalize functions and allow businesses to grow.

However, the pain of security has not gone away. Further regulatory change, concerns over data breach, and the cost to merchants of achieving PCI compliance, have increased the need for secure solutions that remove readable cardholder information from the merchants’ tablet or point-ofsale environment. Merchants today never have to see card data as it is being transmitted.

Mobile-based payments On the consumer side, today’s customers have a choice from the hundreds of mobile apps on the market. In addition to securely storing payment and banking information, these apps communicate store offers and enable coupon redemption and the management of gift and loyalty programs. The use case for omni-channel retail and its ability to streamline customer experience across all channels has not quite tipped over into mainstream acceptance yet.

Innovations such as beacon technology and full cardlinked offers require further work before we begin to see widespread adoption.

Many consider the announcement of Apple’s mobile wallet service, Apple Pay, to be a firm proclamation that mobile technology is here to stay. Apple Pay leverages the existing rails of the card brands and issuers for tokenization, and leans on acceptance from the acquiring January/February 2015

community. Once the user’s credentials are loaded, it solves the issue of consumer usability elegantly. An important, but under-discussed part of the Apple Pay solution is how it changes the security around in app payments. As consumers transact more and more on mobile devices, the security and ultimately economics of this channel are destined to change.

Mobile device-based payments are not the only solutions offering the latest in consumer convenience.

The advantages of customer self-service have been widely discussed. Speed, security, and reduced friction have made unattended payment kiosks a popular checkout alternative in verticals such as gas, vending, parking, and grocery.

Consumers are increasingly looking for tools that empower them to complete tasks autonomously. Self-checkout may take longer in certain instances, but customers are nonetheless satisfied simply by having control of the process.

Unattended payments More recently, unattended payments are moving into new verticals, largely due to added features beyond bill payment. In-store kiosks now house a digital catalogue of retail items, check stock on products, and suggest similar products at lower price points to customers. More and more merchants are evaluating their service environments and leveraging kiosks to remove unnecessary customer touch points. The travel and hospitality industry is utilizing kiosks to facilitate customer check-in, while restaurants are

looking at the implementation of fast-lane kiosks for ordering ahead.

From where we stand today, consumers are being given more decision-making power when it comes to how they pay for goods and services.

The ubiquity of any acceptance form or offer is always the challenge of this industry – who can use, who can accept, and how many will compete for attention from consumers who have grown up on immediate gratification are factors at play. What we know for certain is that merchants of all sizes will be forced to accommodate an industry shift toward consumer-led transactions, especially as innovation continues to place payment tools directly into the hands of consumers.

As Vice-President of Payments and Retail Solutions at Moneris Solutions, Karen Cox oversees Moneris’ product delivery and end-to-end processing technologies across all merchant segments.

She joined Moneris in 2000, following operational roles with the Bank of Montreal. She has held responsibilities for new product introduction and system deliveries for integration into the business.

In 2005, she became Moneris’ director of new market solutions and led the delivery of analytics for new market opportunities. As director of POS devices and merchant certification, Ms. Cox brought new POS technologies to market and led consulting initiatives as the payment industry underwent tremendous change. Ms. Cox uses her extensive knowledge of the technical, operational, and regulatory drivers of the industry to introduce optimized solutions and process engineering avenues to clients.

Over the course of her 20 year tenure, Ms. Cox played key roles in the development of Moneris’ major brand programs, including EMV, NFC, and mobile enablement. She currently sits on the Board of Advisors of Advanced Card Technologies (ACT) Canada and acts as a Technical Associate Member at EMVCo.

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Vertical Market

Credit unions introduce paperless cheque processing

I

n recent months several credit unions across the country have introduced a paperless cheque processing system in their branches.

The system was developed and implemented by Central 1 Credit Union, the group clearer, payments processor, financial facility and trade association for credit unions, and is jointly owned by Central 1 and Credit Union Centrals of Alberta, Saskatchewan, and Manitoba. The system was rolled out in all provinces except Quebec and the territories.

The framework of rules and standards developed by the Canadian Payments Association changed in 2013 to allow Canadian financial institutions and their processing centres to capture and electronically exchange images of cheques instead of the original paper items.

Taking the lead The opportunity to streamline operations, reduce costs, and offer a broad range of image-based services to their members prompted Smiths Falls Credit Union and Central 1 to take the lead on image solutions.

Smiths Falls introduced cheque deposits using image processing in September, becoming the first financial institution in Canada to fully convert to cheque image processing. The change 26

PAYMENTSBUSINESS

reduced paper handling and sped processing, which cuts costs.

“We are pleased that Smiths Falls was the first of our credit unions to pilot the use of capturing cheque images,” says Oscar van der Meer, chief payments and technology officer for Central 1. “We know that branch capture, will be a major improvement for our members.”

The new system allows credit unions to end the use of couriers to deliver cheques to a central office for processing, saving time and money.

Central 1 is piloting branch capture of images with other credit unions and expects a full rollout to begin in 2015.

Branch capture involves using a secure scanner to scan all cheques and transmitting the data to Central 1 for processing.

Pilot success Central 1 is also working on implementing solutions for the items that still remain in courier bags such as Canadian Savings bonds, ICBC deposits, chargebacks and unqualified items.

The overwhelming feedback from credit unions has been positive. The training is straightforward and the branches are welcoming the product. Branches are saving time and improving their processing techniques.

Some pilots have faced

unusual challenges beyond just processing cheques. For example, one issue that Central 1 ran into with the Northern Savings’ branches on Haida Gwaii was the limited Internet bandwidth capacity, which is shared by the entire island.

Several times service was delayed because the Internet to the island was overloaded.

Central 1 solved this problem by causing the software to slow the capture speed when a slow link was found, and adjusting the scanner speed to more closely match the expected bandwidth.

Branch capture provides significant benefits to the credit union system.

“Because courier service for remote communities is expensive and can be affected by weather-related delays, Northern Savings opted to send their island in-branch deposits weekly and therefore would end up carrying a float for an extended period of time,” said Belinda Perkins, a Central 1 business analyst who went to Haida Gwaii to oversee the implementation. “With branch capture, they can scan their cheques on deposit daily and the items will clear in a much timelier manner.”

Dramatic savings The time and staff savings can be dramatic. A Central 1 study of how a paper cheque was processed and cleared showed that up to January/February 2015

33 people, five couriers, and five companies or financial institutions would handle the physical cheque during the clearing process. Carrying out the same processes with imaging involves two people, no couriers and just one institution.

The new system has real benefits for credit union members. “Since cheques aren’t required to be couriered across the country they can be cleared faster, and any dishonoured items processed faster,” says Doug Pearson, product manager at Central 1.

Credit unions have been paying several hundred dollars per month per branch for courier services, Central 1’s research shows, so the system will save several million dollars a year once it is fully implemented.

Central 1 calculates most credit unions will recover the cost of the scanners needed for branch capture within one year. As well, credit unions will reduce their financing costs.

Credit unions, particularly rural ones, will be able to deliver images to Central 1 later in the day than is currently done, which will minimize the amount of float a credit union will incur between the date that a member account is credited and the date that the credit union account with Central 1 is credited.

Association spotlight

ATMIA increases valueadded member services for an expanding global ATM industry T

he global ATM installed base increased to 2.8 million by the end of 2013 with a record number of 205,000 units according to RBR’s new report, ‘Global ATM Market and Forecasts to 2019’. To serve this rapidly growing industry, ATMIA, the only international ATM trade association, has introduced new benefits and initiatives.

• ATMIA Academy, www. atmia.com/training. The world’s first online training provides on-going, certified education and training on a global level while adhering to all industry best practices. This program is for all ATM operators/ owners irrespective of which regional, national or global markets they operate ATMs in. This International ATM Operators certification will increase the individual’s credibility, visibility and professionalism within the industry. In our competitive market, it’s important for professionals to showcase their knowledge.

• Business Empowerment Program, https://www. atmia.com/business-

empowerment/. The Portal will serve as an access point for information and resources to assist ATM operators. It features an interactive regional map that links users to ATM industry facts and figures from across the globe. New committees include the Bitcoin ATM Forum, https://www.atmia. com/committees/. This committee brings together numerous subject matter experts, manufacturers and operators of the growing number of Bitcoin ATMs, to gather intelligence and promote industry best practice for these new kinds of ATM. ATMIA committees work on several topics of importance to Canadian/Global members and has maintained a rigorous schedule over the past year. If there is one thing that can be said about our industry, it is that “we are never fully in a state of equilibrium”, as evidenced by the numerous issues which arise continuously through our various committees. A full listing of ATMIA Committees January/February 2015

can be found on our home page, atmia.com. To mention a few: Public Affairs and industries committees, Global Benchmarking, Innovation & Technology, and a broad spectrum of industry reputation protection.

From a high lever perspective, ATMIA also provides benefits to members in the areas of Education, Committee inputs, Event information, Advocacy, Media forum covering all industry related activities, consulting services, and Global Benchmarking information.

For more detailed information about ATMIA, please visit our website at ATMIA.COM

or contact Executive Director Canada Region, Curt Binns, at 416-970-7954

About ATMIA The ATM Industry Association is a global non-profit trade association with over 5,000 members in about 65 countries. Its mission is to promote ATM convenience, growth and usage worldwide, protect the ATM industry’s assets, interests, and good name and public trust; and provide education, best practices, political voice and networking opportunities for member organizations. Our member composition is as follows:

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Financial Institution

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IAD

1031

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12

Legal

8

Marketing & Advertising

3

Maintenance

5

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2037

Media

76

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Network Processor

177

Other

250

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January/February 2015

Association Spotlight

ACT Canada 2015 A busy year lies ahead…

I

nnovation is the focus of the association and our members for 2015. We will be looking at new mobile apps, the mobile point of sale, and other hardware and card innovations, but from a special viewpoint. Rather than look at things in isolation, we will view them within the context of the consumer experience. This is to help members identify gaps where they can add value or where they need to foster innovation. Understanding payment and identity from the users’ perspective also aids in the development of successful marketing plans. It is fair to say that we have the building blocks for m-commerce, but they still have to be put together to build something that consumers will pay for, thus driving profit for other stakeholders.

We will deliver this value to our members through our spring and fall Cardware Connections networking events, our Strategic Leadership teams (Mobile and Customer Authentication) and Cardware 2015: Payment and Digital ID Insights. For more information on the SLTs and meeting dates, please go to www.actcda.com/teams/.

Website launch We are very pleased to announce the launch of our newest website; www. cardware.ca. Drop by to find out more about this year’s event and watch a video of last year’s. This year Cardware will look at payment from the viewpoint of customers, merchants, and the financial sector and will feature innovation. “365” is our main track where we will examine the top challenges and opportunities for payment and digital identity in the coming year. Our speaker agenda should be available by midFebruary. Join us in Niagara Falls, ON, June 16th and 17th.

An anniversary!

The biggest news of the year for ACT Canada is that we will enter into our 27th year in March. To commemorate our anniversary, we are planning a gala evening in October where we will celebrate successes at our annual Innovations awards ceremony.

Last year sold out so we are looking for a larger venue.

Where we’ll be In February, you can find us at the Payment Summit in Salt Lake City, UT where we will be happy to discuss EMV, January/February 2015

m-commerce, and digital ID. We will also be at the MAG (Merchant Advisory Group) mid-year conference. For merchants, the MAG is the very best place to be to discuss and impact payment strategies.

March also sees us on the road at the Mobile World Congress and connect:ID. At home we will be putting the final touches on both the Cardware 2015 conference and the spring Cardware Connections networking event. We’ll be busy facilitating Strategic Leadership Team meetings, publishing our monthly ACTion e-news and delivering other member benefits. In April we’ll be speaking at ETA’s Transact 15. We’re excited about their program. It is very relevant since October is the EMV liability shift in the U.S. On April 2nd we are partnering with Payments Business magazine to present a one day seminar on mobile, “How to Make the Mobile Future Work for You”. Market announcements over the past six months have some stakeholders considering course corrections, so this material is very timely.

On the secure ID front, we have now published our report that supports the use of secure

ID by all levels of government.

It also provides best practices to help governments move quickly and cost effectively. For a copy of the report, please go to www.secure-gov-id.com/ PDF/act/Secure%20ID%20 Report.pdf

Our team On the association front, Andrea McMullen, VicePresident, enters her 18th year with ACT Canada. Britteny Blackman, our Association Co-ordinator, enters her third year, and Michelle Weir, our Executive Assistant and Joanne Vallat, our Director of Member Relations both enter their second. Catherine Johnston, our president, celebrates 26 years of service.

We have a new board of directors and a new Board Advisory Committee to help guide us through 2015. They are listed at www.actcda.com/ about-us/.

Join our market shaping members to advance your goals.

ACT Canada Insights • Networking • Visibility Since 1989, ACT Canada has been internationally recognized as the stakeholder association that drives payment evolution and digital identity.

Stakeholder dialogue drives profitable decisions. Join us. For information, please visit www.actcda.com.

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29

Pay Channel

The Future of Bitcoin

By Nathalie Reinelt

A

s the bitcoin industry turns to a new year, questions are emerging as to the viability of bitcoin and the industry’s ability to break down barriers in traditional finance. There has been a lot of ink spilled over this very innovative industry and the various movements toward legitimizing itself as a mainstream alternative, but as 2014 unfolded, bitcoin’s price plummeted from 2013 peak of $1,242 to under $300 by the end of 2014. The industry also found itself in the crosshairs of government regulators around the globe, potentially threatening the start-ups’ ability to sustain themselves under heavy regulatory scrutiny.

There is a lot at stake for bitcoin investors given that over $430 million in venture capital funding is tied up in bitcoin based businesses trying to make a go of it. While the industry continues to promote announcements of mainstream merchant adoption and wallet creation numbers, it is also plagued with volumes of bad press and the volatility of its cryptocurrency.

Bitcoin in 2015 This year that ultimately decide bitcoin’s fate. A primary key to success that bitcoin start-ups have yet to resolve is probably the most important – mainstream consumer adoption. While bitcoin wallet companies continue to report growth in wallet creation, growth could 30

PAYMENTSBUSINESS

easily be attributed to curious one-timers who just want to see what all the hype is about.

Those numbers mean very little if they are not backed up with data on the frequency of use per wallet and how much fiat money each user is converting to bitcoin per month. It makes it very difficult to determine if the industry is actually experiencing any traction beyond its core user base.

Why is this important? The population using bitcoin today is simply not large enough to sustain the vast number of companies trying to break into this emerging industry. Their only hope for survival is to grow their user base beyond the fringe, which is why so much focus has been placed on enabling acceptance of bitcoin as a payment method by mainstream merchants.

What value?

Trouble is, while mainstream merchants continue to add bitcoin to their checkout pages, mainstream consumers are still failing to see the value proposition. Holding bitcoin still comes with considerable risks for consumers who have little protection in the event of a hack – on a bitcoin platform or their own computers – and consumers still have to absorb all losses due to the volatility of the cryptocurrency.

Furthermore, for the average shopper, bitcoin is not solving a problem consumers are actually having. In the era of one-click online checkout

options and mobile payments at physical merchants, the consumer friction issue is being thoroughly addressed by incumbents in the payments industry and bitcoin promoters have failed to provide a compelling reason for mainstream consumers to abandon traditional payment methods for bitcoin.

Admittedly, consumers who engage in frequent crossborder remittances, reside in countries with struggling economies where bitcoin is actually more stable than their local fiat currency, or have a strong desire to protect their transactional privacy (whether it be legitimate shoppers or criminals), bitcoin offers valid use cases for its enablement.

Beyond that, traditional e-commerce remains somewhat of a miss.

Without a mainstream user base, bitcoin will remain a fringe technology.

Highly unregulated Government regulations will also continue throughout 2015, especially in the wake of yet another hack on one of bitcoin’s larger exchanges, Bitstamp, in early January.

Although Bitstamp’s 2015 loss of $5.2 million is a mere fraction of what was lost in the Mt. Gox breach in 2014 (where approximately $500 million was heisted), it serves as a reminder that this highly unregulated industry is still a bit of a crapshoot.

If the bitcoin industry wants January/February 2015

to be regarded as a reputable partner in the global financial ecosystem, it has to accept the responsibilities that come with it, which include antimoney laundering (AML) and know-your-customer (KYC) regulations. Once AML and KYC programs are required, the libertarian and criminal segments of the bitcoin populous will slowly migrate to other altcoin currencies – since government oversight undercuts their entire reason for using bitcoin – and it will be the nail in the coffin for many bitcoin start-ups that do not have a contingency plan.

Ultimately bitcoin as an industry will have to focus on evolving its innovations in order to break into mainstream finance. What it lacks in consumer appeal, it makes up for it in its cryptorails and it has established that moving money can be faster and more efficient with newer technology. Whether bitcoin or another platform that builds on bitcoin’s innovative concepts, the idea that cryptographic technology can improve payments is sound and here to stay.

For more information on bitcoin, see Aite Group’s Bitcoin: The Napster of Finance, December 2014.

Nathalie Reinelt is an analyst within Aite Group’s Retail Banking & Payments practice, focusing on the global payments ecosystem, including alternative payments, crossborder remittances, and emerging technologies complementary to payment processing and commerce.

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