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

Industry disruptors

❱ Beyond Bitcoin ❱ Priming acquirers for omnichannel play ❱ Three payments trends to watch in 2018 PM 4 0 0 5 0 8 0 3

TableKey of Contents theme

January/February 2018 Volume 9 Number 1

Industry disruptors

Editor-in-Chief Steve Lloyd Managing Editor Sarah O’Connor


Publisher Mark Henry

Beyond Bitcoin Blockchain will transform the payments industry

Contributors Chris Chandler; Anil Das; Ed Jordan; Chris Mathers; Jason Mugford; Suresh Rajagopalan; Daniil Saiko


Three payments trends to watch in 2018

Creative Direction Jennifer O’Neill Photographer Gary Tannyan


President Steve Lloyd

Priming acquirers for omnichannel play

For subscription, circulation and change of address information, contact


B2B payment shifts to transform bank and FinTech collaboration

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Reassessing risks of money laundering at white-label ATMs



B2B payments


Industry News

2018 Industry Events

Taking the pain out of B2B payments Made possible with the support of the Ontario Media Development Corporation

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MAr/Apr International Payments • Issuers • POS & mPOS • Cards january/February 2018



Industry Disruptors

Beyond Bitcoin

Blockchain will transform the payments industry

By Daniil Saiko


s the dramatic rise in the price of Bitcoin and other cryptocurrencies grabbed media headlines in 2017, blockchain became something of a buzzword in financial circles. Companies who claimed to be pivoting to the technology saw their stock price explode. My favourite example came from an unprofitable Chinese juice company—when SkyPeople Fruit Juice changed its name to Future Fintech Group, shares surged as much as 220 per cent. It didn’t make any changes to its business model or sign up any new customers. It just said it was going to use financial technology to help the business in some way. And the stock more than tripled. The gaudy numbers surrounding the crypto space obscured a more important fact: the underlying blockchain technology has very practical applications that could potentially revolutionize many different industries. One sector ripe for disruption: global payments. 4


Before we get to the payments aspect, we should step back and explain how blockchain works. It’s a distributed ledger technology that creates a public record of transactions by adding a block of data that is sequentially linked together, hence the name blockchain. The ledger is maintained by a network of users, rather than one central entity. More simply, it’s like a shared document that everyone can update at once. Think of it like Wikipedia versus an old physical encyclopedia. This can either be public, like Bitcoin, or a private blockchain created within an organization or group. Because the updates are visible to everyone and verifiable by anyone, it creates transparency and eliminates the need for blind trust among parties. That visibility is the main benefit of blockchain. It’s like having a package delivered. The courier provides a tracking number, so the buyer can go online to see where the package is every step of the way. It’s the same as making a payment on the blockchain. When payment is made, it is done on the network right away with a January/February 2018

Industry Disruptors before reaching the intended recipient. Every one of those middlemen takes a cut. With blockchain, it’s possible to pass over some of those intermediaries. There are also new companies in the space with different business models. Instead of taking a fee on every transaction, they look to process as many transactions as possible and make profit from foreign exchange spreads. The economic viability of this model still has to be proven but, for now, it will drive down processing fees to help keep volumes high. This eliminates any surprises once a payment arrives. In a time-sensitive situation, payments could fall short because of unexpected intermediary fees. This eliminates that concern.

Blockchain has the potential to disrupt payments in a way that hasn’t been seen since the Internet revolution.

traceable ID. That ID can be given to the beneficiary and used by the sender. Unlike the existing corresponding bank network, where you must use intermediaries, blockchain payment does a direct transfer. This reduces costs. This carries massive implications for the payments space. It allows for safe transactions, even if the party on the other end isn’t a trusted partner. Currently, sending money to an unknown bank may expose the transaction to hidden fees. But the transparency of blockchain eliminates the need for a formal relationship. It is possible to follow the payment every step of the way. If the money doesn’t arrive as expected, it’s evident where things went wrong. The ledger keeps track of every movement. There are also solutions that allow for bad actors to exist in the network, with no harm to it. That’s unfathomable in most existing networks. The transparency also reduces transaction costs. In the current system, payments can pass through several intermediary banks january/February 2018

Finally, blockchain vastly reduces transaction time. Depending on where the payment is going, sending money can take hours or even days. But on blockchain, the process doesn’t have to be linear—it’s decentralized. All parties involved can see what’s happening so the transaction time can fall from hours to minutes. In business, that can make all the difference. The benefits of blockchain are clear, but that doesn’t mean the technology is the right fit for every organization. Before moving ahead with a blockchain project, there are a few questions that should be asked. Is a database with shared access necessary? Are some of the users unknown or not trusted? Is it cheaper to avoid using a trusted third-party intermediary? If the answer to those questions is yes, a blockchain-based payment rail may make sense. Then a decision needs to be made whether the rail should be public, private or a hybrid model. Organizations also need to decide if they should build their own blockchain program, or partner with a more experienced firm, like Ripple, to leverage their expertise and network. If the answer to some or all of those questions is no, development money may be better spent on other projects. Whether Bitcoin will really change the way we think about currencies is still a mystery but it’s clear the underlying technology is here to stay. Many of the blockchain payment projects in the pipeline are still in beta testing. As more of these projects come to market in 2018, we’ll get a better sense of the technology’s full potential. But one thing is clear: blockchain has the potential to disrupt payments in a way that hasn’t been seen since the Internet revolution. Every company needs to be thinking about how it could affect them and decide whether they should be getting on board. Daniil Saiko is director, product and implementation at Cambridge Global Payments, where he leads a global team across Australia, Europe, and North America. Based in Toronto, Daniil works closely with his sales teams, prospective clients and partners to provide technical consultation and expertise for integrating international payments and hedging strategies. He is also responsible for managing Cambridge’s leadingedge integration solutions products. Daniil is a member of the Toronto blockchain community and frequently attends sessions to keep up-to-date on the latest industry trends and best practices. PAYMENTSBUSINESS


Industry Disruptors

Three payments trends to watch in 2018 By Anil Das


apidly developing technologies and increasing forays into payments by non-banking entities are driving banks and payments service providers (PSPs) to rethink their business models, add value to current offerings through innovation and pursue collaboration with other parties in the payments value chain. Heading into 2018, a trio of trends will be instrumental in shaping the marketplace that PSPs have to navigate.

Demand for frictionless and faster payments experiences will keep growing Real-time payments processing, wide penetration of connected smart devices and advanced technologies will support the increasing demand for frictionless and faster payments across retail and corporate customers. For corporate customers, payments transformation opportunities will include integrated B2B platforms leveraging cognitive accounts payable and receivable systems, e-invoicing and cash management operations. For retail customers, embedded payment options will transform connected devices into “commerce capable” devices, enabling anytime/anywhere commerce. Niche technologies that will play key roles in the realization of a frictionless and faster payment experience include interfaces with emerging payments infrastructure, such as The Clearing House, Visa Direct, MasterCard Send, Zelle and others to enable a wide range of real-time payment use cases across various customer segments—P2P, P2B and B2P. They will also enable new revenue streams through value-added services. Additionally, opportunities will arise for enabling real-time payments in nontraditional environments, such as gig economies, with the demand for real-time payment acceptance. Tokenization enables secure storage and access of payment credentials across mobile devices and channels, enabling a secure and seamless commerce experience. Recent industry developments provide multiple technology options for implementing tokenization, providing the opportunity for banks and PSPs to gain full control in the payment ecosystem. Artificial intelligence (AI) and machine learning are widely used by banks and PSPs to efficiently harness the power of data and increase contextualization of commerce experiences. Other emerging 6


applications of AI in a fast and frictionless payment ecosystem will include fraud detection, AML sanctions screening, payments optimization, and product design and recommendations. GPII by SWIFT and blockchain will enable frictionless and costeffective cross-border payments addressing current challenges such as increased time and costs. Interest and participation in distributed ledger technology (DLT) deployment increased significantly among banks, PSPs and technology firms in 2017. Typical DLT applications in the payments lifecycle include digital identity verification, customer onboarding, trade finance and value-added services such as loyalty programs.

Open banking and collaboration with FinTechs will continue to foster innovation and drive new business models Open banking initiatives enabling data sharing facilitate collaboration between banks and third-party payment service providers. Such alliances hold promise to help banks deliver a differentiated, technology-driven customer experience tailored to the demands of digital natives, open new revenue streams and stay relevant by expanding their role in the payments ecosystem into a payments platform provider. Incumbents are employing open application programming interfaces (APIs) to launch new business models, such as developer exchange platforms and banking marketplaces, thereby creating a linkage between existing banking infrastructure and FinTech innovations Banks and PSPs can increase their preparedness for an open and competitive payments ecosystem by addressing some key imperatives: • Undergo end-to-end digital transformation, including revitalization of legacy systems, to deliver a differentiated customer experience. • Expose core services and establish partnerships with industry participants. Selective bets on FinTechs, either through investment stakes or participation in joint go-to-market initiatives, can help incumbents deliver best-of-breed products and services to end consumers. • Extend market addressability. Banks can deepen customer relationships, leveraging the digital banking platform as a touchpoint for payments in adjacent non-retail market segments, such as transit/toll payments, healthcare bill payments and January/February 2018

Industry Disruptors insurance premium payments, among others, through strategic partnerships with key participants, including transit operators, healthcare providers and insurance agencies.

Risk and regulations will be a growing focus of banks and PSPs Regulatory bodies will continue to increase their scrutiny of risk and compliance exposures as new market entrants and advanced technologies impact the payments ecosystem. Regulations such as the Consumer Financial Protection Bureau’s Consumer Protection Principles: Consumer-Authorized Financial Data Sharing and Aggregation and the European Union’s revised Payment Services Directive 2 (PSD2), Fourth Anti-Money Laundering Directive (AML4D), and General Data Protection Regulation (GDPR), among others, aim to foster innovation while managing risk, with a focus on liquidity and prevention of inadvertent access by bad actors. As payments get faster and more appliances become commerce enabled, the risk of breaches and compromise of personally identifiable information (PII) increases dramatically. Payment providers are implementing advanced techniques of security such as tokenization, biometrics and AI and machine learning-based fraud detection to secure and protect payments data from rogue actors.

Banks and PSPs can address and overcome the barriers to digital transformation Emerging digital technologies are playing a growing role in payments and awareness of potential implementation roadblocks can help banks and PSPs navigate the transition. Large, monolithic legacy systems can create a major burden for incumbents, limiting their ability to undertake end-to-end digital transformation and thus impeding agility, product innovation and collaboration. Slow adoption of standards such as ISO 20022 payments messaging could create interoperability issues and introduce new complexities across the value-chain. Finally, the majority of customers have yet to experience a compelling value proposition to switch from cash to digital payments. Banks and PSPs can better position themselves to overcome these barriers and thrive in the new era of payments by developing a differentiated product and service value proposition. Anil Das is a managing partner – payments for Cognizant Banking and Financial Services. He is responsible for growing the footprint of the payments practice and expanding service offerings while keeping up with market demands and trends. Anil has over 21 years of industry experience in consulting and information technology, and has worked closely with customers in the financial services and specifically in the payments domain.

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Industry Disruptors

Priming acquirers for omnichannel play By Suresh Rajagopalan


n interplay of factors, including competition from non-traditional players, constant margin pressure and the ongoing shift to digital consumerism and omnichannel commerce, is having a significant impact on the merchant acquiring business. Merchants, increasingly, are partnering with acquirers, who can manage the complete payment process and better navigate the omnichannel payment landscape. Established acquirers need to engage with merchants in innovative ways. Effective service management is now the key to sustain growth and capture new opportunities. In most acquiring organizations, the underlying business support infrastructure comprises discrete payment processing systems, having been assembled in response to specific service needs. Many channels simply operate under a unified brand, but with a completely siloed view of external merchants. As a result, acquirers are struggling to keep pace with market-driven changes. For instance, merchants across markets have a fragmented channel experience, as acquirers rely on transaction processing systems dedicated to specific payment channels. Traditional POS transactions originating from brick and mortar stores are processed by a separate switch, compared to transactions originating from digital channels. This also requires merchants to install separate software integrated with the merchant’s IT systems. Likewise, multiple systems result in duplication of critical functions and workflows—for example merchant accounts need to be created on each payment channel. The infrastructure is inefficient, expensive to maintain and provides limited operational and business visibility, impeding ability to service merchants efficiently.

How can acquirers respond? To be competitive and improve top-line, acquirers need to strengthen backend service capabilities. With a large base of merchants and a proliferation of channels and systems this is a challenging task. A Merchant Services Hub will centrally manage key functions, enabling acquirers to deliver an integrated payment processing and service experience across all touch points. Overall the solution aims to simplify business operations and brings significant advantages. It can slash OPEX by eliminating duplication of work process, accelerate time to market and improve merchant satisfaction. The complete breadth of capabilities includes: Unified transaction processing: Omnichannel is a macro-trend 8


defining the retail payments world. With the emergence of new payment instruments and the blurring of lines between in-store, online and mobile commerce, acquirers need to offer integrated payment systems for physical and digital transactions. The unified transaction processing layer rests between the front-end channels (e.g. POS, UPI in India, mobile wallets, online channels) and the traditional interchange and bank payment networks. This single integration point replaces the multiple interfaces required by the conventional approach and flexibly enables payment acceptance for merchants, regardless of payment type or channel of origin.

Powered by technology, analytics, mobility and flexible marketing operations, acquirers can deliver innovative experiences in ways that bridge marketing and service interactions. Shared back-office: The merchant services hub provides a shared repository of common business service functions across channels. These include merchant onboarding, accounting and settlement. As an example, a centralized Know Your Customer process, as opposed to verifying the merchant for each payment channel that needs to be activated, can save onboarding costs and improve time to market. Likewise, settlement processes can be automated across multiple transaction channels and accounts, eliminating the need to manually aggregate transaction data from disparate systems. This significantly improves the acquirers’ ability to offer innovative settlement terms. For instance, acquirers settle accounts of large merchants’ n times a day as compared to end of day, improving merchant stickiness. Analytics layer: Underlying the unified approach is the ability to have a holistic view of the business. Empowered by advanced analytics, acquirers can generate actionable insights on the overall profitability and performance of the merchant portfolio across channels. A broad view of the merchant relationship allows acquirers to enhance merchant engagement, optimize quality of portfolio, improve merchant lifetime value and make intelligent pricing decisions based on performance. January/February 2018

Industry Disruptors Ancillary services: The hub also aggregates data that can be fed into ancillary systems such as services monitoring and CRM, significantly improving quality of service offered to merchants. With a single view of the merchant network, acquirers can take immediate action in case of network events, ensuring high throughput and availability a key service quality element. Likewise, CRM departments can be proactively informed of issues enabling quicker resolution of merchant queries.

The choice of the most appropriate model depends on several factors including whether the acquirer is driven by technological business or strategic innovations.

Making the vision a reality Powered by technology, analytics, mobility and flexible marketing operations, acquirers can deliver innovative experiences in ways that bridge marketing and service interactions. And they can do so by integrating across all functions, products and services. Creating and implementing an integrated merchant services hub is, however, a multi-year journey. Most acquirers will need to deploy the merchant services hub in stages and there is no single implementation blueprint. Some acquirers may favour a front-end overhaul where the objective is to simplify merchant onboarding. Other acquirers may want to improve business efficiencies and integrate back-end functions, for example settlement or accounting CRM, typically driven by a desire for efficient IT operations. The choice of the most appropriate model depends on several

factors including whether the acquirer is driven by technological business or strategic innovations. Achieving an omnichannel reality requires executional courage to move forward, the right organizational structure and a partner who can bring global experience to get things done. FSS is helping acquires to make the transition to a more integrated services approach. Suresh Rajagopalan, president – products business at Financial Software & Systems Private Ltd., is an accomplished professional with over two decades of experience in financial technology. Suresh has held several management positions in leading banks throughout his career, has a proven track record in building, strategizing and transforming the IT landscape for medium to large financial institutions and has directed large scale technology-led end-to-end transformation projects covering core banking, digital channels and enterprise risk management solutions.

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january/February 2018



Industry Disruptors

B2B payment shifts to transform bank and FinTech collaboration By Jason Mugford


018 is the year we put to rest the idea that financial institutions and financial technology (FinTech) startups are foes instead of friends. Incumbent banks and digital disruptors need each other to survive in an increasingly competitive landscape. Incumbent banks face difficulties in accelerating innovation in-house due to legacy infrastructures that prevent the agility and flexibility needed to effectively scale in the digital space. However, while lean FinTech startups offer the latest digital functionalities at breakneck speed, the fact remains they cannot offer the package of services that a financial institution can. The corporate payments sector is a clear case for collaborative partnerships to thrive between banks and FinTechs. Business-tobusiness (B2B) payments have been overlooked as a market for both FinTechs and banks for far too long. Fortunately, thanks to the consumerization of technology, this market is undergoing a radical rejig when it comes to streamlining user experience. Compared to peer-to-peer (P2P) and consumer-to-business (CBP) payments, B2B payments seem stuck in the Stone Age. But my outlook on B2B payments focuses on the key trends that are driving businesses and FinTechs closer together as they pursue a way of sending and receiving payments that is quick, convenient and low cost.

Open frontiers By 2020, 99 out of 100 payments executives plan to have made major investments into Open Banking initiatives. Open banking is an emerging service model that allows customers who opt in to share their financial data to non-banking third parties and we see this happening in the European Union, primarily in the regulatory space. The Payments Service Directive (PSD2) came into effect on January 13th, 2018 and it mandates that all retail banks in Europe provide open access to payments and account information to regulated third parties, providing customer consent. Unlike banks in Europe, in North America the open banking trend is a burgeoning one driven by market demand and competition. It allows banks to own their customer relationships while leveraging FinTech developers and for many financial institutions this means there will no longer be a need 10


for multiple entry points—integration is the way forward. As a consequence of regulatory compliance, market competition and technological breakthroughs, open banking is challenging the traditional banking model and creating a world of possibilities when it comes to facilitating a simple and intuitive payments experience. Banks are in a position to increase customer engagement by harnessing data through application programming interfaces (APIs). As banks move from private to open APIs, they have the opportunity to gain new customer insights and offer an improved user experience. However, in opening up customer banking data to third parties, financial institutions need to ensure it remains protected as they make strategic collaborations with FinTech firms.

Cybercrime on the rise The World Economic Forum ranks cyber attacks as one of the greatest technology threats facing the world and, with the number and scale of cyber attacks expected to grow, the financial services industry is taking note. In 2016, the financial services industry was attacked 65 per cent more than all other industries, according to IBM Security, and that resulted in over 200 million records breached. Financially motivated attackers may use stolen payment information to open new accounts or access existing ones, and the potential ramifications of an attack (loss of money and public trust) has banks and FinTechs determined to do more to prevent and detect cybercrime activities. Banks and FinTechs in Canada are also spurred to action by data privacy legislation such as the General Data Protection Regulation (GDPR) that will come into effect on May 25, 2018. Any company that provides products and services to EU residents or monitor their online behaviour will be subject to comply even if it has no European arm, and can include provisions such as reporting data breaches to authorities within 72 hours. For mid-size banks, the countdown is on to be compliant and establish a cybersecurity strategy that mitigates the risk of stolen data and reduces the likelihood of it happening in the future. Moving forward, FinTech firms that emphasize technology development that meets legal and compliance requirements will have a competitive edge in the marketplace. Continued on page 17

January/February 2018


Reassessing risks of money laundering at white-label ATMs By Chris Chandler and Chris Mathers


TMs provide convenient access to cash and other banking services. In the 50 years since the first ATM was installed in London in 1967 ATMs have become ubiquitous, with over three million ATMs installed worldwide, including in extremely remote places, such as research stations located on Antarctica and in desert communities in Western Australia. Located not only at banks, ATMs are conveniently located in airports, train stations, convenience stores, gas stations, pharmacies, bars, hotels and many other locations. While many ATMs are filled with cash directly from the sponsoring bank, a number of countries, such as Canada, U.S., Mexico, UK, Germany, Poland, South Africa, New Zealand, Japan and Australia, make provisions for non-bank ATM operators, who deploy what are sometimes called white-label or convenience ATMs. White-label ATM operators often cashfill their ATMs directly from a bank (similar to bank ATMs), but they can also cash-fill ATMs from operating cash, the same way they fill the store’s cash registers. Importantly, whitelabel ATMs do not accept deposits at the ATM. Over the last few years, various media stories have reported the potential risks of money laundering in white-label ATMs, making sensational claims that it is easy for criminals to launder money in white-label ATMs and implying links between ATM operators and criminals. These stories often quote so-called experts and make inferences without tangible supporting information. All of these 12


reports appear to be based on anecdotal evidence. What is real is that exaggerating the risk that criminals are using white-label ATMs for money laundering is hurting thousands of small business owners, convenience stores, gas stations, pharmacies, bars, hotels and other businesses that have white-label ATMs in their stores. These unsubstantiated stories scare customers and reduce ATM usage, which hurts sales and reduces the revenue generated from the ATM. The ATM industry takes the risk of money laundering seriously and works with regulators and government agencies to help ensure appropriate procedures and safeguards to mitigate the risk. For example, in Canada, a number of recently-opened marijuana shops have ATM machines. Normal, licensed businesses, compliant with Interac Anti-Money Laundering regulations, can load cash into their ATMs as they do their cash registers. However, under

Exaggerating the risk of criminals using white-label ATMs for money laundering is hurting thousands of small business owners that have white-label ATMs in their stores. January/February 2018

Bill O'Neill


current Canadian law, not all marijuana shops are legal and licensed; therefore, business receipts from marijuana sales in these unlicensed shops are considered crime proceeds and should not be loaded into the ATMs. The cash in the ATM must come from a legal source. The ATM Industry has been proactive in reminding ATM operators of this unusual situation and has urged them to be diligent in not permitting marijuana sales proceeds to be loaded into ATMs.

White-label ATM facts Canada deregulated ATM operations and allowed white-label ATMs in 1996. Since then, there has been only one criminal case involving white-label ATMs in Canada. A white-label ATM owner/operator in Winnipeg was accused of loading her machines with cash from her brother’s drug sales. Their activities were detected and the case is currently before the courts. Since 2009, white-label ATMs are subject to specific anti-money laundering regulations that require every ATM owner to provide a significant amount of information, including information about themselves, the source of the cash used in the ATM, the location of the ATM and details about the Canadian bank account to which the ATM will deposit funds withdrawn. If a business owner has multiple ATMs or high volume ATMs, he is also required to provide criminal background checks. The owner must file all of these documents with the regulators for an ATM to be operational. Regulations also require annual audits of the documents. january/February 2018

To date, there is only one case before the Canadian courts regarding money laundering through the use of a white-label ATM. Authorized third parties, independent of the ATM cash owner, record and retain information about every dollar that passes through a white-label ATM in Canada. The information recorded by third parties includes a transaction record number, the amount withdrawn, the date and time of the withdrawal and the Canadian bank account to which the funds withdrawn are electronically settled. There are no white-label ATM withdrawals and settlements of any amount, at any time, that are anonymous. Independent third parties clearly record and retain the details of the money flow. Misuse of white-label ATMs for the purpose of money laundering is not part of the national high risk priority list. Criminal Intelligence Service Canada has not identified or formally reported misuse of whitelabel ATMs for purposes of money laundering or terrorist financing. Over the 20 year history of white-label ATMs in Canada, the industry has been diligent in supporting law enforcement in trying to keep criminals out. To date, there is only one case before the Canadian courts regarding money laundering through the use of a white-label PAYMENTSBUSINESS


ATMs & ABMs ATM. There have been no convictions for money laundering using white-label ATMs in the 20 year history of the ATMs.

Media reports of potential money laundering Given the facts, why are there media reports concerning potential money laundering in white-label ATMs? Reports about white-label ATMs as a potential vehicle for money laundering seem to have originated from several sources: a 2006 criminal case in New York City linking ATMs to organized crime using a technique called microstructuring; a 2007 Canadian FINTRAC report outlining a hypothetical scenario involving criminals laundering money by filling an ATM with criminal proceeds; and exaggerated perceptions of white-label ATMs and money laundering by experts and law enforcement agents. Reports and expert opinions concerning white-label ATMs and money laundering may have originated as a result of a 2006 case in New York City linking ATMs to organized crime. In 2006, U.S. law enforcement agents observed two well-known criminals, Luis Saavedra and Carlos Roca, traveling from ATM to ATM in Queens, New York, depositing cash into bank accounts held by a network of other criminals. Typical of money laundering, they kept their deposits small, never depositing more than $2,000, with most deposits ranging from $500 to $1,500. On the first day, they placed more than $111,000 into 112 accounts. Bridget Brennan, Special Narcotics Prosecutor for New York City, estimated that at the height of the activity, the organization was moving approximately two million dollars a month. The indictments against Saavedra and Roca stated that they were laundering the profits of a Colombian drug-trafficking organization. Prosecutors say the men engaged in a laundering

Canadian white-label ATMs because they do not accept deposits; therefore, they cannot be used by criminals for anonymous microstructuring. practice called microstructuring, a money laundering scheme known for its simplicity. To evade suspicion by banks, the criminals always made small deposits. Detecting microstructuring is challenging for law enforcement because the deposits and withdrawals are typically so small they usually pass for ordinary ATM transactions and are hard to identify as unusual or suspicious. This type of money laundering cannot be accomplished in Canadian white-label ATMs because they do not accept deposits; therefore, they cannot be used by criminals for anonymous microstructuring. The 2006 case in New York involved bank ATMs that accept deposits. We believe the details of the 2006 case have been lost over time, but the perceived connection between ATMs and organized crime has remained, implicating white-label ATMs despite their inability to accept deposits. 14


In 2007, Canadian financial tracking agency FINTRAC prepared a draft report outlining a hypothetical scenario involving white-label ATMs not owned by a specified bank, located in convenience stores, airports and bars. In the hypothetical scenario, FINTRAC described a technique used by criminals to launder money by filling an ATM with criminal proceeds and then allowing unsuspecting individuals to withdraw the cash, completing the money laundering cycle. The premise was that the criminals would continue to replenish the ATM with illicit funds. The scenario did not address the fact that such funds would accumulate in a known Canadian bank account with clearly documented third-party records of each deposit from the ATM. Importantly, based on their own reporting, FINTRAC believed that, at best, the exposure to this risk was fairly limited. We believe that some consultants have promoted this hypothetical white-label money laundering scheme to bolster their businesses and provide forfee solutions to the problem, which they claim is real and significant. While this hypothetical scenario is simple and easy to imagine, it ignores the facts. The steps FINTRAC did not include in the scenario help ensure that this hypothetical, simple money laundering scheme cannot be achieved without leaving a clear, detailed paper trail that cannot be tampered with or altered. Such detailed, transparent third-party record keeping of every dollar of every deposit is hardly an attraction for criminals determined to stay in the shadows and out of jail. Our research and interviews also show that the perception of money laundering in white-label ATMs has been exaggerated well beyond what is warranted by the facts. Each expert or law enforcement agent we interviewed initially held a negative view of white-label ATMs and believed that money laundering could be occurring. However, in each case, when pressured to present the actual details, there was no factual evidence of money laundering in white-label ATMs in any of these cases. Situations in which organized crime figures were in a bar that had an ATM, or in which a criminal who laundered money in other ways also happened to operate an ATM, were remembered and recast as money laundering in white-label ATMs. It stands to reason that if these memories had been actual instances of money laundering in ATMs, we would have expected more than one charge of money laundering in white-label ATMs in the last 20 years. In summary, the facts do not support the exaggerated risks of money laundering in Canadian white-label ATMs. These ATMs do not accept deposits (the source of U.S.-based money laundering), are regulated, have third-party data transparency, are not identified in law enforcement national high risk priority industries, and are not subject to rampant criminal activity, as evidenced by only one set of criminal charges in the 20 years of white-label ATM operation in Canada. The ATMIA will continue to work with the regulators and governments to diligently mitigate the risk of criminal activity in the ATM sector. This article was adapted and edited for length. Chris Chandler is president of ATMIA and CEO of Access Cash Holdings Limited. Chris Mathers is a former member of the Royal Canadian Mounted Police and a crime and risk consultant. January/February 2018

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Industry News

Small World Financial Services expands global payment processing footprint with Ingenico Group SAN FRANCISCO -- Ingenico Group has announced that Small World Financial Services has selected Ingenico as its trusted payment processing partner to help expand its global footprint. By leveraging Ingenico’s comprehensive suite of online and mobile payment processing technology, Small World is wellpositioned to further grow its operations and offer its services to consumers in previously untapped markets. In addition, Ingenico’s omnichannel solutions, such as biometric terminals and unattended Kiosk solutions, will provide an even more convenient and seamless payments experience for Small World’s customers. Small World offers consumers a number of fast and inexpensive methods to send and receive money around the world. The company enables people to send money to family, friends and other beneficiaries around the world within minutes via a delivery method of preference: cash pickup, bank deposit, home delivery, mobile

top-up and mobile wallet. Through its partnership with Ingenico, Small World can now provide consumers peace of mind that each transaction is secure thanks to an integrated fraud protection tool. “When it comes to sending money to friends and family abroad, today’s consumers want the best prices as well as the safest and simplest solutions,” said Nick Day, founder and CEO at Small World Financial Services. “Ingenico offers new scalable solutions and alternative payment solutions for our customers, to add to our existing technology platform. This partnership will give Small World a further competitive advantage and allow us to exceed our business goals as we continue to grow and expand our global footprint.” Ingenico will begin processing payments for Small World in 18 countries, including the United States. The company’s fullsuite of payment offerings enables Small

World to elevate its money transfer experience for consumers because it reduces overall processing costs. Small World will also benefit from access to Ingenico’s business intelligence tools and consolidated reporting capabilities, which help streamline business processes and identify new market opportunities across the globe. “Ingenico is thrilled to partner with a leading challenger in the global retail payments market,” said Joseph Leija, general manager, North America, global online business at Ingenico Group. “Just as payments are evolving, so is the nature of transferring money and Small World understands this seismic shift among consumers. It is clear that Small World is dedicated to diversifying its international payments platform to provide a service that leverages the latest in payment acceptance and secure processing technology for the benefit of its customers.”

ATMIA publishes compilation e-book honouring the people behind the ATM SIOUX FALLS, SD -- The ATM Industry Association (ATMIA) has published “Meet the People Behind the ATM You Use Every Day” to commemorate the 50th anniversary of the ATM as well as ATMIA’s 20th anniversary. The e-book is a compilation of the dynamic stories told by a variety of people and companies active in both ATMIA and the ATM industry which were published by the association throughout the year. “One of our association’s founding values is humanity—relationships based on respect and trust within our worldwide industry,” said Mike Lee, ATMIA CEO. “These are true stories of industry connections, friendships, romances and even marriages which were born in our industry over the years.” The publication displays the respect, support, relationships and fun on which the ATM industry has thrived and grown over the past 50 years. ATMIA members share stories of the shoes they have worn, the ideas that have worked, advice they wish to share, the strange circumstances that led them to ATMs and much more. Like the ATM industry, the stories span across the globe, from the U.S. to Canada, Austria, Spain and beyond! “The next generation of ATMs,” said Lee, “will be built, like the first 50 years, not on technology alone but on technology AND humanity working side by side. In the future, we will need an even more networked industry as we seek new global standards to increase interoperability.”



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January/February 2018

Industry News

B2B payment trends to transform bank and FinTech collaboration Continued from page 10

Smarter and faster payments Faster payments systems that deliver B2B payments almost immediately will continue to drive innovation when it comes to global transaction banking. For businesses that trade internationally or send payments to countries around the world the costly delays that are associated with the payments experience can be a headache to deal with, and has deterred some businesses from extending their operations across borders. The difficulties arise when payments are sent without complete or accurate beneficiary information, which can result in longer processing times. An invalid account number and/or account name are often why payments are delayed, returned and cancelled. As cross-border B2B payments are estimated to grow by seven per cent through to 2019, effectively navigating payment instructions the first time every time will be pivotal as the industry moves toward smarter and faster payments. The current model for cross-border transactions must evolve in order to align digital capabilities to customer expectations and we can see this happening with UK Faster Payments as well as Swiss SIC. Thus, faster payment initiatives around the world are addressing the need for speed in addition to 24/7 accessibility and fast settlement times. Blockchain developments are facilitating shorter processing times, from weeks to a day, and banks need to leverage the wherewithal of FinTech firms in order to improve their existing business and reach new customer segments. As banks and FinTechs join forces to collaborate on delivering the banking experience that their business clients want, corporate payments will be an exciting space to watch in 2018. Jason Mugford is the president and chief executive officer at AscendantFX, a technology-based payments solutions provider. AscendantFX marries the worlds of technology and international payment delivery to provide award-winning, technology-based solutions for your business. For more information, visit:

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January/February 2018

Canadians are ready to say goodbye to passwords: Visa survey Consumers welcome the use of biometrics as faster, easier, more secure alternatives to passwords

TORONTO -- A new Visa survey of 1,000 Canadians exploring awareness and perceptions of biometric authentication confirms that consumers continue to have a strong interest in new biometric technologies that make their lives easier. New forms of authentication, such as fingerprint, facial and voice recognition, can make unlocking accounts and payments much easier and more convenient than traditional passwords or PINs—which are difficult to type onto tiny keyboards, easy to forget and can be stolen. “Advances in mobile device technology is increasing the speed and accuracy of biometrics, such that they can be used for financial transactions,” said Gord Jamieson, head of risk services, Visa Canada. “This makes it the ideal time to integrate biometric technology into payments experiences for customers. At Visa, we are investing in the best ways to add these emerging technologies to our products and services.”

Authentication survey findings According to the Visa study conducted by AYTM Market Research, 85 per cent of Canadian consumers are interested in using biometrics to verify identity or to make payments and six-out-of-10 (59 per cent) consumers are already familiar with biometrics. Findings from the survey illustrate consumers’ desire to see the implementation of biometric tools in payment authentication processes. Highlights from the survey include: • Canadian consumers were most familiar with fingerprint recognition, with 57 per cent having tried fingerprint recognition and 25 per cent using it regularly. By comparison, 39 per cent have tried voice recognition in the past and only 10 per cent use it regularly. • Sixty-five per cent of respondents find biometrics easier than passwords and 57 per cent consider it faster. Fewer than a third of consumers (31 per cent) use a unique password for each of their accounts. • A third of Canadians (32 per cent) have abandoned an online purchase because they couldn’t remember their password. • Nearly fifty per cent of consumers responded that the top benefit of using biometrics is eliminating the need to remember multiple passwords or PINs, followed by 44 per cent who said that biometrics is more secure than passwords or PINs for verifying identity. • Forty-four per cent of consumers are concerned both about the risk of a security breach of sensitive biometric information and 43 per cent are concerned that biometric authentication won’t work well/will take multiple tries.



Industry News

CGI survey findings confirm urgency for banks to deliver value-add services and evolve their business models One in two bank consumers are open to sending their business to non-bank service providers MONTRÉAL -- CGI has released a new report, Today's Financial Consumer: Open for Business, covering the results of its 2017 Global Financial Consumer Survey. Now in its fourth year, the survey assesses and provides insights into how consumers view their primary financial service providers, along with what consumers want and expect from their providers in the future. This year's survey includes the views of 2,250 respondents across nine countries. Overall, the survey's findings show an increasing willingness amoung consumers to move to financial service providers that offer more value-add services, such as advice, rewards and personal finance management. The findings highlight the urgency for traditional banks to accelerate their service and innovation agendas to retain and grow profitable customer relationships in the face of increasing competition from nimble and innovative bank and non-bank competitors. Incumbent banks have an opportunity to accelerate innovation through partnerships with third-party providers, including FinTechs, as well as established technology firms, to take full advantage of new opportunities and rising consumer expectations. Security remains a top concern for consumers, creating a competitive advantage for banks that invest in greater protection capabilities, as well as in building a reputation for security. Further, the survey confirms the growing opportunity for banks to provide a holistic channel strategy that brings together digital and personal services. Consumers remain interested in receiving new, innovative digital services,

ranging from 33 per cent who perceive value in robo-advice to 80 per cent who are interested in services that enhance protection from fraud and identity theft. However, provider preference is shifting among consumers. While a majority of consumers still prefer to receive new services from their current primary bank, in just 12 months there has been up to a 15 per cent decline in the number of consumers who prefer to receive new services from traditional bank providers. More strikingly, the survey confirms that over half of respondents are open to using third-party service providers for everyday banking services such as "looking for advice on financial products" or "resolving a fraud or security issue." Consumers continue to put a great deal of trust in traditional retail banks, with 61 per cent holding them ultimately accountable for moving, storing and protecting their money. However, traditional banks face challenges as the banking marketplace becomes more open to new competitors, enabling non-bank financial providers to compete directly with incumbents. Incumbent banks face the challenge of protecting their margins from non-bank competition that operate with new business models, while bearing the costs of maintaining their traditional banking infrastructure. Further, survey findings indicate that consumers continue to hold traditional banks responsible for anything that goes wrong, even when they are using a third-party service provider. Other key survey findings include: • 73% of consumers are open to using a single bank account for all payments linked with a mobile app without having the option of using alternative

accounts. • 40% of consumers don't mind where their money is stored as long as they have access. • 43% of consumers would rather have a single mobile payments service across accounts rather than one per account. Two out of three consumers feel they have lost a personal connection with their bank, yet two out of three consumers also feel long-term relationships with their banking partner is important. This dichotomy creates a significant opportunity for banks that are ready to pursue customer-centric strategies—strategies that combine relevant and personalized digital services with personal services through both inperson (branch) and remote channels (phone, video, and chat). The opportunity and urgency to respond is especially pressing given that more than half of consumers are willing to switch to new providers for value-add services. "With the advent of open banking fast approaching, leading banks are leveraging their strengths in terms of customer access and trust while pushing into new innovative services through partnerships with third-party providers, including both FinTech startups and established technology firms," said CGI's Kevin Poe, vice-president, global retail banking. "Banks are increasingly relying on CGI to help them prepare for a digital-first future. Through partnership, innovation, and service excellence, CGI transforms legacy technologies and operations and supports bank in embracing the exciting opportunities that are revealed as they move towards truly customer centric strategies."

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January/February 2018

Industry News

Canadians motivated by convenience and rewards when it comes to payment choices Payments Canada's 2017 Methods and Trends Report shows credit cards leading the pack, the rise of mobile/online banking and the advent of social media payments OTTAWA -- Convenience and rewards are the dominant themes in this year's Canadian Payment Methods and Trends (CPMT) report by Payments Canada. Credit cards are clearly paving the way for friction-free payments and luring new customers with lucrative rewards programs. Online and mobile banking are gaining the trust of Canadians as electronic finally overtakes paper, and social media payments are just around the corner, thanks to new partnerships in FinTech. "There were more than 21.3 billion consumer and business payments made in 2016 worth more than $9 trillion, so even small changes in behaviours can have a big impact," said Anne Butler, vice president policy, research, legal and general counsel. "The annual analysis of how these payments were made provides important insights for Payments Canada and our financial institution participants as we collaborate on the ongoing modernization of Canada's payments architecture." This year's analysis shows the continued dominance of credit cards at the pointof-sale, totalling more than $462 billion in 2016. In fact, Canada has become a global leader in credit card use as growing numbers of Canadians—including businesses—use their credit cards for larger portions of their monthly spending to earn rewards. Credit cards experienced growth as more transactions shifted to online and in-app channels—such as the friction-free payment experience of Uber or iTunes—where more than 90 per cent

of transactions are completed via credit cards. At the same time, more Canadians are choosing to tap their cards or phones at the point-of sale in lieu of cash or chipand-PIN. This growing trend, since the introduction of mobile wallets to Canada in 2016, has served as an added boost for both credit and debit cards. Another intriguing area of change is with transactions made online, including online banking, where user confidence is clearly building. Online transfers, such as Interac e-Transfer (which accounts for about 90 per cent of the volume in this category) and PayPal, topped all payment methods in rate of growth. In 2016, transactions were up by nearly 48 per cent to 177 million and value increased by 51 per cent to $68 billion. Also noteworthy is the growing use of online transfers by businesses. About 10 per cent of online transfers were made by businesses, compared to fewer than five per cent in prior years. At the same time, electronic funds transfers (EFT), often associated with payroll and consumer bill payments, surpassed cheque value for the first time in 2016. Despite hitting this milestone, EFT use declined overall as more and more Canadians set themselves up for recurring bill payments—such as car insurance and utility payments—on their credit cards to earn rewards. If China's Alipay and WeChat Pay are any indication, a trend to watch is the rise of social media payments. While they have yet to hit the mainstream in Canada, the increased collaboration between

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January/February 2018

new-entrant FinTechs and Canadian financial institutions suggests a new level of convenience for banking and payments is on the way. Current pilot projects are leveraging traditional payment methods such as credit and online transfers on social messenger services. It is likely the use of the more ubiquitous Facebook, Google, and Apple messenger services will hold the most promise for social media payments in Canada. Other noteworthy data points from the 2017 Canadian Payment Methods and Trends report include: • Cash continued its decline but remains the most widely used payment method, making up more than a third of the total volume at the point-of-sale. Interestingly, in 2016 cash showed signs of stabilizing (or at least declining at a slower rate) than in the past. • Debit use at the point-of-sale grew by five per cent and is the second most widely used payment method in this space, followed closely by credit cards. In 2016, debit represented $226 billion or 28 per cent of all point-of-sale value. Both debit and credit card growth was lifted by the increasing convenience of being able to tap a card or phone at the point-of-sale. • Cheque use continues to decline slightly but the total average value of cheques remains on an upward trend. Fewer cheques are being written but for increasingly higher amounts. In 2016, the 798 million cheques written totalled almost $4 trillion.



2018 Industry Events

January 2018 January 14-16 National Retail Federation Retail’s Big Show 2018 New York, NY January 28–31 Retail Solutions Providers Association INSPIRE 2018 Hawaii, USA January 29-31 American Conference Institute 18th National Forum on Prepaid Card Compliance Washington, DC PrepaidCard January 29-31 Northeast Acquirers Association NEAA 2018 Uncastville, CT

February February 6-7 ATMIA ATMIA US Conference 2018 Las Vegas, NV February 26-March 1 WB Research eTail West 2018 Palm Springs, CA February 26-March 1 GSMA Mobile World Congress 2018 Barcelona, Spain

March March 1-2 Conference Board of Canada Cyber Security 2018 Ottawa, ON March 18 InfoTech Canadian Financing Forum 2018 Vancouver, BC March 26-29 ICMA

2018 Card Manufacturing & Personalization EXPO Orlando, FL March 26-29 Smart Card Alliance Payments Summit 2018 Orlando, FL

April April 9-12 NAPCP Commercial Card and Payment Conference 2018 San Diego, CA April 17-18 BDC Canadian FinTech 2.0 Summit 2018 Toronto, ON April 17-19 Electronic Transactions Association TRANSACT 2018 Las Vegas, NV April 23-24 Grocery & Specialty Food West Vancouver, BC April 24-25 ATMIA Canadian ATM & Payments Summit 2018 Toronto, ON April 25-28 Central1 Momentum 2018: Annual Summit for Credit Union Leaders Toronto, ON April 29-May 2 NACHA Payments 2018 San Diego, CA April 29-May 1 Canadian Credit Union Association 2018 National Conference for Canada's Credit Unions Toronto, ON

April 30-May 2 ACT Canada Cardware 2018 Niagara Falls, ON

May May (TBD) Finovate FinovateSpring 2018 San Jose, CA May 8 Canadian Prepaid Providers Organization Prepaid Symposium 2018 Toronto, ON May 9-11 Payments Canada 2018 Payments Summit Toronto, ON May 14-17 Reed Expositions CNP Expo & Conference 2018 Orlando, FL May 29-30 Retail Council of Canada STORE 2018 Toronto, ON May 15-17 WB Research eTail Canada 2018 Toronto, ON

June June 5-7 Canadian Venture Capital & Private Equity Association Invest Canada Conference 2018 Calgary, AB June 5-8 Internet Retailer IRCE Conference + Exhibition 2018 Chicago, IL June 13-15 FEI Canada 2018 Annual Conference Halifax, ON Conference

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September/October January/February 2017 2018

June 18-20 CUCA National Credit Union Treasury and Finance Forum 2018 Toronto, ON

August August 2018 (TBD) FinTech Canada FinTech Canada Conference 2018 Toronto, ON August 21-22 The Prepaid Press tppEXPO’18 Las Vegas, NV

September September (TBA) NAPCP Commercial Card and Payment Conference 2018 Toronto, ON September (TBA) Western States Acquirers Association 2018 Conference Rancho Mirage, CA September 3-4 (TBC) InsuranceNexus 4rd Annual Insurance Analytics Canada Summit Toronto, ON canada

October October 5-6 BAI BAIBeacon18 Orlando, FL October 14-17 CUCA National Credit Union Lending Conference 2018 Victoria, BC October 23 & 24, 2018 Grocery Innovations Canada Toronto, ON

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B2B Payments

Taking the pain out of B2B payments By Ed Jordan


anaging cash flow may be an ongoing struggle for your business customers. The process of receiving and making payments tends to be both time consuming and inefficient, especially as diverse payment methods and channels enter the space. Couple that with an inability to handle unique requests, a resistance to process changes or having accounts receivable (A/R) and accounts payable (A/P) systems that don’t integrate easily, and you have an uphill payment battle. Not only can these roadblocks add up to even bigger inefficiencies, they also create frustration for businesses trying to make and receive payments in a timely manner. Impacts to cash flow can quickly put both the short-term and long-term success of a business on the line—but it doesn’t have to be this way. Start breaking down the pain points in B2B payments by changing your focus so businesses will not only get paid, but will get paid faster. If you consider these four important factors, you can learn how to address inefficiencies and set up your business customers for improved cash flow with more streamlined processes.

Going digital New technologies and automation continue to change the ways in which traditional A/R and A/P departments operate. By implementing a digital solution, like an online portal, you can provide your business customers with convenient access to their invoice and payment information. Features such as 24/7 customer service support, self22


service capabilities, invoice tracking and electronic payments help to reduce friction and simplify the payment process for both sides of the transaction.

Staying flexible Keeping business customers happy requires truly understanding—and hopefully exceeding—their needs. And part of that is accepting that there’s no one-size-fits-all payment process. In some cases, a supplier may deal with one customer who can’t make payments during normal business hours, another who prefers dealing with paper checks and a third who operates in multiple time zones. Any (or all) of these factors can lead to complications in the payment process, especially when issues arise and customer service is more than a phone call away. Make sure you have a clear understanding of how business customers operate. Being flexible enough to adapt to what works best for them can help build lasting relationships with the business customers served.

Expanding options Offering a more efficient payment process for your business customers can be supported through an effort to include multiple payment options. Both suppliers and buyers can appreciate the convenience and flexibility of having various ways to get paid and make payments. By introducing new payment options, such as SingleUse Accounts (SUA) or virtual cards, you can establish more visibility, control and automation in the invoice-to-cash process. The popularity of these innovative payment methods shows no sign of slowing down. In fact, SUA or virtual card usage is

growing almost 10 per cent annually. And by 2021, virtual card spending is expected to surpass that of traditional credit cards. Being open to new payment options is a great way to keep the payments process fresh with new options and accelerate cash flow.

Pleasing customers Providing an improved payment experience for businesses takes more than simply moving money. Invoicing and payment requests come in all shapes and sizes, which requires a tailored focus on enhancing the process in ways that are meaningful to your business customers. Whether they prefer consolidated invoices or that all payments are delivered and tracked individually, there are various systems available to make customizing invoices easy. With the help of back-end software integration, payment pain points can be eased with the introduction of customization in the preferred methods of delivery and format. Though there may be challenges in trying to integrate with the necessary A/R systems, having a focus on customer satisfaction can help your business customers get paid faster. The bottom line is that even with new innovations that may add more complexity to the invoice-to-cash process, you can help your customers improve their B2B payments without sacrificing cash flow. Simply focus on delivering a payment process founded on flexibility, customer satisfaction, payment variety and the latest technologies. Ed Jordan is the chief financial officer at Billtrust where he leads the finance and administration functions. He has more than 35 years of experience in finance, having worked as CFO across numerous public and private companies in his career.

January/February 2018

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