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Mar/apr 2016

The Merchant’s Guide to Transactions, Cards & eCommerce

Parking Systems Inside the changing infrastructure

How Banks Will Address FinTech ❱ E-gifts move to

the mainstream

❱ Nefarious nine

Adam Lloyd

security threats

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EPSON is a registered trademark and EPSON Exceed Your Vision is a registered logomark of Seiko Epson Corporation. Copyright 2015 Epson America, Inc.

TableKey of Contents theme COLUMNS & DEPARTMENTS March/April 2016 Volume 7 Number 2 Editor-in-Chief Steve Lloyd Managing Editor Sarah O’Connor Publisher Mark Henry

4 6 8

10 Stewardship 28 2016 Industry Events 30 Resolutions

Starting Points Patterns Security

FEATURES Cover Story

Contributors Bob Cohen; Juanita Gonsalves; Gord Jamieson; Diane Kazarian; Krista Lee; Dustin Lewis; Bill McFarland; Michael Tompkins; Brent Warrington Creative Direction Jennifer O’Neill Photographer Gary Tannyan


The Crumbling Infrastructure Behind the On-Demand Economy A series of speed bumps are threatening the growth of on-demand services in the ground transportation industry

President Steve Lloyd


A Vision of the Canadian Payments Market from a World Payments Leader

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Next issue… May/June

Made possible with the support of the Ontario Media Development Corporation march/April 2016

How Will Banks Address the Challenge of FinTech?

Cards, Cards, Cards… We once again take a look at what is new in cards. We also explore the payments industry as it relates to events and entertainment, and look at the evolution of biometrics. PAYMENTSBUSINESS


Starting Points

From Millennials to Boomers, e-gifts become mainstream By Krista Lee, Manager of prepaid product marketing at First Data, working on thought leadership and B2B marketing for gift cards to large retailers and SMBs, as well as Gyft, First Data’s mobile gift card app solution. You can find her on Twitter @knoelee.


s technology continues to advance and touch every aspect of our lives, the mobile payments industry is taking note and advancing at an equal pace. First Data’s annual Prepaid Consumer Insights study reveals consumers are embracing mobile payments, specifically when it comes to e-gift cards. The report, which includes findings from two U.S.distributed online surveys conducted in September, examines consumer behavior and spending on traditional plastic gift cards and e-gift cards among shoppers aged 18 and older. One of the biggest takeaways from this year’s report is that e-gifting has become mainstream. Fifty per cent of consumers are purchasing e-gift cards and more than half are looking to store them on their mobile devices. Surprisingly though, Millennials aren’t the only ones purchasing e-gift cards: 42 per cent of respondents over the age of 4


54 have purchased e-gift cards. In some instances this group even outpaces other generations, picking up more fast food and department store e-gift cards than other age ranges. But, don’t count out plastic just yet. Although there has been a two per cent drop in the number of purchasers and receivers of plastic gift cards in 2015 (77 per cent to 75 per cent), the survey shows that those purchasing gift cards are purchasing increased quantities of them. Consumers buying gift cards aren’t just buying larger quantities though—they’re spending more, too. Consumers are spending an average of $58.95 on physical cards (up from $57.64 in 2014) and $56.98 on e-gift cards, up from $54.90 last year. So what can retailers do to take advantage of consumers’ increased appetite for spending, especially around the holiday season? Issue small incentives to drive ROI. According to the report, consumers shopping with a gift card spend on average $27 over the original card balance, up from $23 last year. In addition, 39 per cent of participants reported spending more than they had planned because of an incentive. For online retailers, a small shopping credit delivered via email can give shoppers a

push to spend more and halt shopping cart abandonment in its tracks. Retailers should also work to build loyalty to drive repeat sales. Loyalty and rewards programs continue to be the top motivator for 55 per cent of consumers to purchase cards for themselves, while 37 per cent are driven by discounts. Brick-and-mortar and online-only stores alike can see increased traffic by incorporating digital gift cards into customer loyalty programs. As shoppers hunt for holiday sales, the majority (64 per cent) report they prefer to receive a gift card over any other type of incentive and 39 per cent of those report spending more than they planned because of an incentive. As mobile payments and e-gifting continue to grow, retailers should keep them top-of-mind this holiday season and well into the New Year. However, it’s still too early to count out plastic gift cards: although retailers need to keep pace with new ways to attract customers to e-gifting, they cannot forget to cater to those who have not yet adopted mobile. What remains clear for now though is that both mobile and plastic gift card solutions continue to provide retailers with excellent opportunities to tap into all generations of the American consumer audience. march/April 2016

impossible Innovating in the financial services space is complicated. We just make it look easy.

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World ATM market will reach $21.9 billion USD by 2020


new report published by Allied Market Research titled World ATM Market Opportunities and Forecasts, 2014-2020 forecasts that the world ATM market is expected to garner revenue of $21.9 billion by 2020, registering a CAGR of 7.7 per cent from 2015 to 2020. Integration of wireless communicating devices (smart phones) with ATM machines has reduced ATM frauds arising due to card skimming. This factor has significantly fostered the adoption of smart ATMs, which has consequently fuelled the growth of the world ATM market. According to the Federal Reserve System, the ATM market in developed countries, such as Canada, the U.S., the U.K., and France has attained maturity, while the Reserve Bank of India forecasts a rapid growth of the ATM markets in the emerging countries. The wide range of financial services offered by the new age ATMs is a key driving factor for the world ATM market. Further, the deployment of ATMs at convenient locations and the easy accessibility to mobile ATMs facilitate round-the-clock availability of banking services to customers. However, thefts, online frauds and network connectivity issues associated with ATMs are some of the major threats to the growth of the market. Increase in use of solar-powered ATM machines for reducing the operational cost of ATMs has boosted the growth of the 6


market. Similarly, brown label ATMs allow banks to focus on their core business, as the hardware and its lease is owned by third party vendors, whereas the cash management & network connectivity are managed by the bank, eventually reducing the operational cost of ATMs. The introduction of white label ATMs in developing countries would boost the ATM market in the future. For instance, an independent ATM deployer (IAD), Tata Communications Payment Solutions Limited, has launched a white label ATM— Indicash—to provide better banking services to customers. In North America, IADs account for more than 50 per cent of overall ATMs. This per centage is quite low in Western Europe, Asia Pacific and LAMEA, where IADs account for about 12 per cent of the overall ATMs. Large-scale installation of ATMs around the globe has increased the need for managed services. Therefore, several market players, such as NCR Corporation, Wincor Nixdorf, Fujitsu, and Diebold Incorporation, focus on capitalizing on the prevailing market opportunities by offering managed services for ATMs. ATM manufacturers and managed service providers are inclined towards white label ATMs and smart ATMs to provide secured ATM transactions and improve the efficiency of ATMs to facilitate faster transactions. In 2014, Fujitsu introduced a smart ATM in the European market, which

facilitates operational efficiency. In August 2014, NCR Corporation, one of the leading global ATM manufacturers, partnered with ING-DiBa to provide enhanced security for performing financial transactions.

Key findings of the study: • The growth of the world ATM market would primarily be driven by their increased installation in the markets of APAC and LAMEA, with LAMEA expected to witness the fastest growth during the forecast period • The market for smart ATMs, followed by white label ATMs, is expected to register the highest CAGR during the forecast period • Asia-Pacific is the most lucrative market in terms of deployment and revenue generation The report outlines the competitive scenario of the world ATM market and provides a comprehensive study of the key strategies adopted by the companies operating in the ATM market. Prominent companies profiled in this report are Diebold Incorporation, NCR Corporation, Fujitsu, Wincor Nixdorf, Euronet Worldwide Incorporation, Triton Systems of Delaware LLC, GRG Banking, Nautilus Hyosung, Hitachi Omron Terminal Solutions, and Hess Cash Systems GmbH & Co.

march/April 2016

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

Sign up NOW for a free subscription to Payments Business magazine. Visit our website at and learn more about the magazine Payments Business is a Lloydmedia, Inc publication. Lloydmedia also publishes Financial Operations magazine, Canadian Treasurer magazine, Canadian Equipment Finance magazine, Direct Marketing magazine and Contact Management magazine.


Card-not-present: Growing risk threatens a bright opportunity By Gord Jamieson, Head, Canada risk services & North America acquirer risk services, Visa Canada.


cross Canada, we are spending more time online than ever before. According to a recent ComScore study, Canadians spend an average of 36 hours a month browsing the interneti. Further, Cisco estimates that by 2020 there will be 50 billion internet-connected devices globallyii. With the increase of new, innovative devices integrating payment capabilities, e-commerce is becoming a preference for shoppers worldwide. We are no exception —82 per cent of Canadians have made a digital purchaseiii. And in an increasingly omnichannel world where consumers shop when they want, where they want and on multiple devices, the shopping experience needs to be seamless – and secure.

GROWING OPPORTUNITY Card Not Present (CNP) transactions, payments that are made without the retailer interacting with a physical card, are becoming increasingly common. Market research firm eMarketer notes that global online and mobile CNP transitions totaled $1.7 trillion in 2015, and this is projected to grow to $3.5 trillion by 2019.iv With such projections, businesses are realizing that they have to jump on the e-commerce bandwagon in order to be successful in today’s marketplace. Not only are traditional companies building an online presence, but this digital explosion has led to the creation of new companies that are dominating the online space – think Netflix 8


and Shopify, for example.

GROWING THREAT However, as the CNP market grows, so too does CNP fraud while Card-Present (CP) fraud rates continue to decline, thanks to the successful deployment of EMV Chip and PIN technology in 2008. Canada’s EMV adoption rate sits at 90 per cent as of December 2015, which has helped cut the dollar losses from CP fraud in half. However, the CNP channel has attracted fraudsters who are taking advantage of retailers who may not be aware of the warning signs or steps they can take to protect themselves. Not surprisingly, the majority of fraudulent transactions in Canada today—a full 80 per cent of total fraud—are CNP transactionsv.

MULTI-LAYERED SECURITY Fraud is a threat that every participant in the payments ecosystem, including retailers, needs to take seriously; fortunately, there are a number of tools, processes and services that can help. At Visa, we believe that implementing a multi-layered security strategy greatly limits the risk of CNP fraud. Visa has developed tools to help retailers validate a card and authenticate a cardholder when processing CNP transactions. Together, these tools can help retailers reduce their exposure to fraudulent transactions. Some of the most widely utilized tools are Card Verification Value 2 (CVV2), Address Verification Services (AVS), and 3D Secure—Verified by Visa (VbV). This Fraud Prevention Month, Visa Canada hosted a series of webinars for online retailers with the Canadian Anti-Fraud Centre and our acquirers. The goal of the webinars was to share best practices around protecting the CNP environment, creating

an effective fraud management strategy and exploring globally available tools for online retailers to help combat CNP fraud. Through informal polling during the webinars, we found that CVV2 was the most used anti-fraud tool among participants. CVV2 is the three-digit security number printed on the back of a Visa card that can help validate that a customer is in possession of their card at the time of purchase. Second to the three digit code was AVS, which was also widely reported to be in use. 3D Secure, also known as Verified by Visa (VbV) technology, was not as widely deployed by our webinar audience. Verified by Visa has reduced the potential for online fraud and helped instill greater consumer confidence in online shopping, demonstrating the benefit of continued roll-out and adoption worldwide. However, as much as consumers want online fraud protection, they are becoming less tolerant of time-consuming security measures, such as the use of IDs and passwords. In short, they are looking for a secure way to shop online that is fast and easy. To help address consumer demand for reduced friction during the online checkout process, and the critical need for effective fraud management, Visa created Visa Consumer Authentication Service (VCAS). As criminals become more technically savvy and as new payment methods emerge, the key to effective fraud risk analysis is in the data elements used for scoring. VCAS captures critical information about the device from which the payment is being requested. This information can then be used as a predictive characteristic of the transaction risk. Using accrued data and Continued on page 27 march/April 2016


The “nefarious nine” data security threats to your business By Dustin Lewis, director of network operations at Forte Payment Systems, where he architects highly available, secure and performant systems.


ata theft is a constant threat to companies that do business of any kind online and despite the fact that the threat landscape is always evolving, security experts say digital crimes are largely predictable. Year over year, most breaches and security incidents fall into nine categories and different industries tend be the targets of just two or three of those types of threats, according to the analysts who compile the annual international Verizon Data Breach Investigations Report (DBIR). Data breaches can involve human error, crime ware, insider theft, physical loss, web app attacks, espionage, point of sale intrusions and payment card skimming. Denial of service (DoS) attacks are included although they’re not breaches, because they increasingly serve as a distraction while criminals steal data or install malware. The DBIR calls these common threat categories the “nefarious nine.” Learning which threats are most dangerous to your business can help you develop better prevention and response programs.

Point of sale system breaches lead incidents in hospitality, entertainment, retail More than 90 per cent of the hospitality industry incidents reported in 2014 involved POS system compromise, along with 73 per cent of entertainment and 70 per cent of retail incidents. In order to reduce the likelihood of a march/April 2016

POS intrusion, update and strengthen your POS device passwords; eliminate remote access to your POS software; ensure that all employees, vendors and partners with access to your company network adhere to strict password guidelines; limit internet access via your POS system; and keep your POS software patched and protected with antivirus and firewall software.

Payment card skimmers affected financial services, retail, mining ATMs, fuel pumps and retail checkout POS devices are frequent targets and experts say that both large and small retailers can become skimming victims. Merchants who handle card-present transactions must familiarize themselves with the PCI-DSS guidelines and Visa’s best practices on tampering prevention. These include locating POS terminals where employees and security cameras can monitor them, using PCI-DSS compliant equipment and installing data cables and power supply cords in a way that makes them inaccessible and/or hard to identify.

Human error is a big problem for many industries A surprising amount of data theft is opportunistic. DBIR researchers found that 60 per cent of the reported 2014 incidents in this category were down to human error. The IBM 2014 Cyber Security Intelligence Index attributed a remarkable 95 per cent of all data-security incidents to human error. Miscellaneous errors, a broad category that includes human mistakes and system glitches, was the leading cause of data theft in healthcare, the second-largest cause in entertainment and education, and the third-largest cause in retail and hospitality. The three most common types of mistakes

were sending sensitive information to the wrong recipients, placing information that was supposed to remain private on public web servers and improper disposal of private data. Experts recommend that all employees use extreme caution with autofill email address forms, data disposal and web publishing protocols. POS breaches, skimming and human error are the most common threats to merchants in retail, hospitality, and entertainment. The remaining categories in the “nefarious nine” are less likely to affect merchants and more likely to impact heavy industry, government and professional services including finance: • Insider misuse of data was the primary cause of loss in administrative and mining sectors. • Digital espionage was the biggest threat to manufacturing and professional services. • Crime ware unrelated to espionage or POS hacking was responsible for the majority of confirmed 2014 incidents in the educational, public and financial services sectors. • Web app attacks, many using stolen credentials, were the second-largest threat within the financial services and information industries, but they didn’t lead in any industry’s threat landscape. • Physical loss or theft of devices containing valued data was the third-highest loss vector for the healthcare industry, fourthhighest for education and the secondhighest for other services. • Denial of service attacks did not directly cause any data theft, although the retail and hospitality industries were frequent victims of attacks that disrupted service for legitimate users. Continued on page 27 PAYMENTSBUSINESS



New payment initiatives keep your cash flowing By Bob Cohen, Vice president, North America for Basware, a leading provider of networked purchase-to-pay solutions, e-invoicing and financing services that enable organizations around the world to grow their businesses and unlock value across their operations. For more information, contact or call 203-487-7900.


aying suppliers up to 60 or 90 days late has unfortunately become business as usual for many organizations around the world. This practice not only impacts buyer/supplier relations, but it is also wreaking havoc on supplier cash flow and hitting SMBs particularly hard. It reduces their working capital and financial stability, which in turn can cause supply chain risk for buying organizations, as well as a more sluggish B2B marketplace. According to a survey Basware conducted with more than 1,000 corporate decision makers around the world, 84 per cent noted that they pay their suppliers late, even though an overwhelming majority (88 per cent) recognizes the importance of paying suppliers on time. More than half of these companies have used payment delays as a way to manage their own working capital over the past year. And the repercussions this causes are huge. In the UK, for example, the cash trapped in supply chain is 1.2 times greater than the amount being lent by banks. All of this cash held by companies is creating barriers to global trade. In addition to using late payments to manage working capital, there are technology issues causing late payments since many companies lack the necessary systems and automation to facilitate timely payment. When companies automate invoice processing they are able to keep track of their invoices and process them faster to 10


avoid late payments and associated fees. In addition, invoice automation gives companies visibility into every invoice, so they can accurately assess their outstanding liabilities and better manage their working capital and cash flow. By knowing where finances and receivables are at any point in time, companies can gain more certainty, flexibility and agility. Invoice automation also gives companies visibility into spend for more effective spend management and enables them to reduce processing costs and benefit from other costs savings, such as early-payment discounts. A recent study by consulting firm Ardent Partners, ePayables 2015: Higher Ground, found that accounts payable (AP) executives around the world are focusing on improving operations and analysis, technology and collaboration to achieve the next level of operational excellence. The top four goals of AP organizations over the next two years include: automating more processes (53 per cent), improving collaboration and process linkage between AP and procurement (37 per cent), reducing operational costs on AP-related processes (33 per cent) and transforming AP into a more strategic and agile business function (30 per cent).

E-invoicing gains traction Companies are beginning to embrace e-invoicing and business commerce networks so they can more effectively conduct business with their trading partners. By implementing e-invoicing, companies are able to preclude

the need for time-consuming manual processes, such as sending, receiving and printing invoices and keying in data, which can be prone to error. It also enhances visibility and enables real-time transmission of invoices to expedite processing and payment. Business commerce networks provide the infrastructure that enables e-invoices to be transmitted, making it easier for companies everywhere to conduct global transactions online. Companies aren’t the only ones recognizing the value of e-invoicing. Governments around the world are enacting legislation and the supporting infrastructure to promote e-invoicing for reasons ranging from increasing efficiencies, decreasing costs and tracking invoices for tax compliance to reducing fraud. To promote borderless commerce, the European Union has been focused on making e-invoicing mandatory for government procurement this year and soon after for companies as well. Closer to home, the U.S. Federal government has begun implementing the Invoice Processing Platform (IPP) to reduce waste and is mandating business to government e-invoicing by 2018. While Canada hasn’t joined other countries yet in mandating e-invoicing, Canadian companies doing business in regions that mandate march/April 2016

Stewardship e-invoicing will likely have to comply with their regulations.

Expediting payment Governments are not only mandating e-invoicing, but they are also addressing the issue of extended and late payments. There is an effort underway in Ontario to enact prompt payment legislation to help ensure that construction contractors are paid on time. President Obama’s Supplier Pay Initiative in the U.S. asks companies to pledge that they will pay small suppliers faster or provide a financing solution to help them access working capital at a lower cost. The UK, which has a large number of small businesses, has adopted a Prompt Payment Code, a voluntary agreement promoting good payment practices to help ensure that small businesses get paid in a reasonable time frame. In addition, there are a number of e-payment solutions and services underway

to transform payments from a process that favors buyers to a mutually beneficial arrangement. For example, solutions that enable real-time e-invoicing, along with worldwide payment networks are enabling suppliers to get paid with favourable terms when the invoice is approved, while buyers have the option of extending their payments. Suppliers can also encourage early payments through discounts. There are solutions that allow buyers and suppliers to optimize invoice payment terms in real time for better working capital management. These dynamic services offer payment terms on a sliding scale so the earlier the buyer makes a payment, the bigger the discount. Buyers can benefit from bottom-line savings, while suppliers can get better control over their receivables, boost their cash flows and lower their Days Sales Outstanding (DSO). Alternative financing offers another way to expedite payment and boost cash flow.

Traditionally, B2B financing has been costly —with traditional credit cards charging a per centage of the transaction’s value— and factoring companies typically giving suppliers about 80 per cent of receivables. New alternative financing options are leveraging business commerce networks and e-invoicing to enable lenders to offer financing at the very granular, invoice level and allow borrowers to get paid quickly at competitive rates. Late payments are negatively impacting cash flow, buyer/supplier relations and B2B trade. Fortunately, government regulations and supporting infrastructure are promoting e-invoicing and prompt payments. These initiatives, as well as new solutions, are changing the payment paradigm to become a win-win proposition for buyers and suppliers alike. They are helping to free up cash flow and keep payments flowing throughout the supply chain.

Securing Mobile Life. Creating Confidence. Giesecke & Devrient offers a comprehensive range of secure payment products and solutions based on the latest EMV, Mobile and Cloud technologies. The G&D solutions portfolio includes state-of-the-art operating systems for secure elements and payment applications for m-commerce and transit. G&D provides personalization services, system integration, project management and technical consulting from a single trusted source.

march/April 2016




Now your business can save time and money by sending payments easily and safely to your customers and employees. Introducing Scotiabank Bulk Interac e-Transfer* service. Simply generate a payment file and upload it to Scotiabank. It’s the perfect business solution for refunds, claims, or other non-recurring payments. For more information, visit






® Registered trademark of The Bank of Nova Scotia. * Interac e-Transfer is a registered trade-mark of Interac Inc. Used under licence.


The easy way to send payments New service helps customers drive business forward This past October, Scotiabank® and Interac Association/ Acxsys Corporation (“Interac”) announced the launch of Bulk Interac e-Transfer* for business. Scotiabank was the first Canadian bank to introduce this service, which allows companies to send non-recurring Canadian dollar payments to recipients who bank with a Canadian financial institution. Companies no longer need to issue, track and reconcile cheques or handle cash payments. Unlike traditional electronic payments for businesses, there’s no need to obtain the recipient’s bank account number or other confidential information – only an email address is required.

Simplified payments If you’re looking for an efficient way to send payments, this service is the perfect solution for your business. Whether you’re managing payroll for temporary staff, or regularly refunding customer overpayments, Bulk Interac e-Transfer service can simplify your payments process. Insurance companies can also streamline administrative procedures when refunding customer premiums or when sending small claims pay-outs. Manufacturers can easily fulfill their after-purchase rebate programs. And it’s a game-changer for universities, too – simplifying reimbursements to students.

Easy to use First, you generate a payment file, which includes the recipient’s email address and the payment amount, as well as a security question and answer. Then the file is uploaded to Scotiabank for onward submission to Interac. The recipient will receive an email notification with instructions on how to deposit the funds.

With the Bulk Interac e-Transfer service, recipients can securely deposit their funds into an account at a Canadian financial institution. Each payment is password-protected with a security question that the recipient must correctly answer in order to receive the funds. With a cap of 100,000 payments in a single file, there’s no minimum payment value and the expiration dates can be set for up to 364 days in advance. Businesses will also receive status reports, including a listing of completed and cancelled transactions. Basically, any infrequent or non-recurring payment can be sent using this innovative new service.

A university could write as many as 500 cheques per month to students, with most of these refund cheques being written during peak periods. Bulk Interac e-Transfer payments can save time and remove issues such as lost or stale-dated cheques, or even locating a student’s current address to mail the refund—now all you need is their email address. With this innovative service, cash-strapped students can have their refund within one day, not weeks.

What it means for your business You will find this service to be fast, safe, cost-effective and convenient. Plus, you can save time and money by eliminating the need to mail, process, and track costly cheques.

Go paperless and discover how Bulk Interac e-Transfer service can streamline your payments process. Visit

A series of speed bumps are threatening the growth of ondemand services in the ground transportation industry

Adam Lloyd

The Crumbling Infrastructure Behind the On-Demand Economy

Trends & Disruptors

By Brent Warrington


ber. It began in 2009 as a luxury car service for the Bay Area’s growing millennial population. Today, it’s valued at $62.5 billion and operates in hundreds of cities around the world. One of the original multi-sided marketplace platforms, Uber has become the darling of the on-demand industry and a model to emulate amongst next-generation transportation platforms. But early success doesn’t always guarantee long-term sustainability, especially for fast-moving transportation platforms. Institutionalizing operations atop quickly built and thus ill-equipped startup infrastructure—especially on the earnings distribution or outbound payments side—is creating supply-side speed bumps on the road to international scalability and success. From ride-sharing and ride-hailing apps to parking valets and on-demand chauffeur services, the ground transportation industry has seen a consistent proliferation of disruption, investment and adoption over the past five years. Lyft, SpotHero, Vatler, Luxe, RelayRides, BlaBlaCar—these are just some of the innovative marketplaces that have cost effectively and efficiently proven early stage scalability. However, maintaining this high growth curve is proving difficult for many transportationfocused marketplaces.

“Payments to supply-side drivers remain fraught with detours, potholes...” Planning for payment infrastructure Roads are a critical component of any city’s transportation infrastructure. Their placement, development, maintenance and ongoing rehabilitation ensures the effective and efficient movement of people, goods and services. Lay the foundations for a road in the wrong place, and your city’s long-term prosperity could be in jeopardy. Payment rails provide platforms with the infrastructure necessary to quickly, efficiently and securely facilitate the transfer of value, first through a purchase transaction and then again through the distribution of earnings to a driver, valet, rental agent, etc. Like roads, their placement, development, maintenance and ongoing rehabilitation ensures the effective and efficient movement of people, goods and services. Up until now, transportation platforms have been pioneers in innovative inbound transaction management. The birthplace of the “invisible merchant payment,” on-demand driving services handle all passenger transactions seamlessly through their mobile apps. Riders simply sign up for the service, enter their preferred March/April 2016

credit card information once and the next time they exit a vehicle their card will automatically be charged the appropriate amount. This friction-free user experience is achieved thanks to the ubiquitous card networks (and the many software and processing solutions built on top of them) that have simplified how businesses receive credit card payments from consumers. These merchant payment platforms have created a virtual autobahn for inbound payments, upgrading our expectations around how commerce is and should be conducted in the future. On the surface, the result is somewhat trivial; how difficult is it really to hand your credit card to a driver? But the overall usability of this payment enhancement is inarguably profound and effective. Unfortunately, payments on the other side of the transaction, the ones that are used to transfer funds to supply-side drivers, remain fraught with detours, potholes and dead ends. The reason being is there is no equivalent rail-like solution for distributing earnings to a global workforce that’s made up entirely of independent contractors. For example, if a car-hailing app contracts drivers around the globe, one driver might want a direct payout to her bank account in Sweden while another prefers a payout to his existing debit card in Atlanta. These two means of payment are completely different use cases and thus will require different infrastructure, different compliance and different payment terms with their payees in order to execute. That’s a huge undertaking for an on-demand platform to manage. However, just as riders have come to expect seamless payments, drivers and supply-side providers are now demanding this same level of personalized usability. It isn’t enough to simply pay your drivers quickly; now you must pay them quickly, in the currency they prefer, using the acceptance method that they’ve deemed most convenient and in a manner that requires minimal effort from the driver. Fail to do so, and your transportation platform will pop a tire.

“...Riders have come to expect seamless payments... drivers are demanding the same.” Short-term solutions are now causing long-term problems Transportation platforms have thus far managed to solve for these payout requirements by simply avoiding them. This is because the easiest and most efficient way for platforms to pay drivers is through a direct bank deposit in USD; existing ACH payment rails are capable of handling this requirement. As illustrated in the example above, this is not necessarily the best or most efficient method for drivers to receive their funds. PAYMENTSBUSINESS


Trends & Disruptors Earnings acceptance has become a primary determination of driver eligibility on transportation platforms. At this point, a bank account with a financial institution is pretty much required to join the independent workforce; without one, most of transportation platforms won’t even permit a person to join the service, let alone accept jobs. This is partially because platforms see bank accounts as a quality filter of sorts; individuals who possess a bank account are considered upstanding applicants. The basis for this assumed credibility is questionable (some of the best criminals have the biggest bank accounts, but perhaps that’s not the best example). A more viable situation would involve a household where there is only one bank account shared jointly between two or more people. Requiring one of these individuals to deposit her earnings into this shared account, since it’s the only account available, could cause her to reconsider her application. Requiring a bank account is arguably an unnecessary barrier to entry, as well as a factor that has contributed significantly to the creation of a homogeneous supply-side population. In multi-sided marketplaces, the supply-side represents liquidity. In the evolving on-demand transportation economy, this liquidity is represented by drivers. Without drivers, riders cannot consume and revenue cannot be generated. Thus, requiring a bank account be provided during driver signup only creates friction and stunts supply-side growth. However, removing the requirement for drivers to provide bank accounts removes considerable friction from the process and materially increases the addressable population given that there are more than 16.7 million unbanked or underbanked adults in the U.S. and more than two billion in the world. Transportation platforms will greatly increase in profitability when the supply side is more diverse and reliable. More liquidity on the supply side incentivizes drivers to drive more often and more consistently, which in turn increases the consumer side’s faith in the marketplace. Finally, a balanced supply side further ensures optimal consumer-side consumption, a crucial competitive advantage.

Stability control and sustaining driver satisfaction Driver retention is another area of extreme interest for maturing transportation startups. Once onboarded and active, drivers need to be properly engaged and incentivized in order to be retained in the marketplace’s ecosystem. A variety of earnings-based value-add programs, from loyalty to expense management and tax preparation, can effectively increase driver satisfaction. Every organization encounters institutionalization roadblocks. And, just as a city must have a comprehensive and strategic program in place to assess, repair and maintain its roadways, transportation startups must make a point of regularly reviewing and upgrading the structural integrity of their platform’s payment infrastructure in order to ensure steady growth. As the chief executive officer, Brent Warrington is responsible for setting the strategic direction of long-term initiatives and market growth at Hyperwallet. Brent has more than 20 years of experience in the financial services industry building and leading companies that have been transformational to the industry, most recently as the chief executive officer at SecureNet Payment Systems (now Worldpay).



A Vision of the Canadian Payments Market from a World Payments Leader Recently, Toronto-based Rakuten Kobo Inc., one of the world’s most innovative e-reading companies, cut a deal with global payments provider Worldpay to manage its online payment processing and acquiring in Canada. Rakuten Kobo had been working with Worldpay in the U.S., Europe and Japan. The contract brings WorldPay’s portfolio, including acquiring, gateway, alternative payment methods, fraud and risk management services, to the Canadian market. The partnership is supported by Peoples Trust Company, Worldpay’s Canadian banking partner. Payments Business magazine talked exclusively with Worldpay’s Casey Bullock, SVP, Relationship Management, North America about his view of the Canadian market, why they are moving into the country, and how his world vision of the payments landscape now includes a Canadian perspective.

PB: What particular challenges do you anticipate in the Canadian market? As Canada’s e-commerce market grows steadily the dominance of credit cards is expected to weaken significantly. Like many other markets around the world, the rise in smartphone adoption and m-commerce means consumers are starting to use digital wallets in place of credit cards when shopping online. This isn’t necessarily a challenge for us, but it does mean our customers need to consider the changing consumer preferences and adapt their e-commerce experience accordingly. There are a growing number of players entering the e-wallet space from tech companies, banks and even individual retailers like Starbucks, but consumers are more concerned with convenience than choice. People don’t want to have to keep switching between different e-wallets, and are unlikely to have more than two different types. The next few years will see consumers dictate which players come out on top and they are likely to be the ones that offer the most convenient experience with smooth authentication and wide acceptance from retailers.

PB: How does the Canadian market compare with other international countries and their payments culture? While Internet penetration is high in Canada, the e-commerce market here remains relatively small compared with similar countries. E-commerce is growing slowly and steadily at around 12 per cent per year, and interestingly we see an emphasis on mobile usage rather than desktop from Canadian consumers. Continued on page 27

March/April 2016

Trends & Disruptors

Canadian Payment Methods & Trends 2015 By Michael Tompkins


raditional forms of payments still occupy the largest segments of Canadian payments. Cash and cheques are still prominent and established electronic items including EFT, credit and debit card network payments have become hallmarks of the Canadian payments market. It means incumbent payment providers and bankled networks are at the centre of almost all Canadian payments volumes. However, the latest research shows a payment system in transition. There is fast growth in transaction volumes using newer initiation and delivery channels. Here the existing networks are providing different avenues to the use of deposit and credit card account funds, through the use of e-wallets, contactless technology, and e-commerce portals and applications. Additionally, EFT growth shows that businesses and governments are reducing their use of cheques and are beginning to better leverage online banking, invoice and treasury management tools to send and receive funds. Taken together the trends have resulted in a high proportion of electronic payment use in Canada. Additionally while traditional paper payment methods are prevalent in the 2014 data, the data reveals that paper forms of payments have been outpaced by the volumes of card payments and payments initiated online. As these trends continue, Canada is poised to reach significant milestones in its displacement of paper forms of payments. As a result, Canada (and the CPA) are facing important challenges to prepare more end users to accept and originate payments in online environments (online banking, e-commerce, e-wallets) and manage the migration away from the remaining bastions of paper payment use. Canadians also continue to widen their appetite for credit card use. Credit card payments are becoming dominant in the new payment March/April 2016



Trends & Disruptors channels and are continuing to take a greater share of the payments made to merchants. This trend might be of particular interest to policy makers, as credit card use has created considerable policy friction in the past, such as during the Senate and House of Commons hearings on credit card use and fees in the development of the Credit Card Code of Conduct in 2009, and subsequent Department of Finance consultations and updates in 2013 and 2015. The modernization of the CPA’s systems, including the adoption of ISO 20022 messaging standards, is an important step forward in supporting and enabling the continued migration to the new electronic payment channels. In the meantime, continued research into the future impacts of credit cards and new disruptive players and payment types is needed. New players and payment niches might take hold quickly and the trends observed in 2014 might takeoff in new directions, impacting existing payment instruments and the payment environment. As part of its second Payment Methods and Trends Report, the Canadian Payments Association (CPA) gathered 2014 retail payments data from payment service providers, consultants and researchers from the Bank of Canada. This data helped form a complete picture of the most common consumer and business payments in 2014 and gain insights on emerging payments.

“...A complete picture of the most common consumer and business payments...” Major insights on the Canadian payments market include: • The most common consumer and business transactions included in the 2014 study totalled 20.7 billion transactions, worth $8.6 trillion. • Cash accounted for nearly a third of all payments made (payment volume). • Credit and debit card transactions combined to account for more transactions than cash. • Electronic Funds Transfers (EFT) are challenging cheques, which have traditionally dominated the total value of transactions. • Two payment channels emerged in the 2014 data: 1) contactless payments accounted for over half a billion transactions at the point-of-service (POS)—equivalent to about seven per cent of all debit and credit card payments; and 2) online transfers (online e-wallets and electronic P2P), grew to account for over 80 million payments. To assess how the Canadian payments market has evolved, the 2014 data was compared to historic data, revealing several interesting Canadian payment trends: 18


• Between 2011 and 2014, the total transaction average annual growth was two per cent in volume terms and five per cent in terms of value. • While still the most widely used type of payment, cash use was down markedly in 2014, compared to volumes in 2011. • Credit card growth was strong, particularly in POS environments. This is mostly attributable to credit card rewards and a head start in the contactless channel. • EFT volume has grown and cheque volume has declined. • Online transfers, involving online e-wallets and electronic P2P transactions, were the fastest growing payment type. The value of the transactions cleared through the CPA’s Automated Clearing and Settlement System (ACSS) have ebbed and flowed with economic conditions, but cheque and paper item value have remained prominent, and fairly steady (at least in recent years). We can see the continuing growth in the value of EFT items, which is explained in a recent CPA report that discusses the relationships between certain EFT transactions and the use of cheques. While the ACSS provides a useful overview, it is only a partial view of Canadian payments activity. To gain a more complete understanding of the trends in Canadian payments, the CPA conducts research on data from other Canadian payment systems and networks and compiles the findings in recurring Canadian Payment Methods and Trends research. The CPA approached Canada’s payment service providers, consultants, and researchers from the Bank of Canada with an opportunity to contribute in developing a 2014 payment data set. Many contributed, providing comprehensive data on payments and transactions, through which we are able to view the most common payment methods and emerging payments. In this report, the CPA compares the data collected from 2014 with data gathered from 2008 and 2011 to create a six-year observation span to understand the trends occurring in payments. The data was collected on an aggregated annual basis, and is primarily based on actual payment instrument use data and statistics. The focus of this research is on common domestic consumer and commercial payments and transactions. As part of this work, we examine emerging payments and channels that have achieved significant enough volumes to substantively impact the national payments market. As such, some transactions are excluded. For example, securities and derivatives transactions (and trades), and virtual currencies (e.g. Bitcoin) are not included. Transactions that clear and settle through the CPA’s Large Value Transfer System (the LVTS) are also excluded, as most would not be considered “retail” payments. The term “transaction” is used where appropriate, to be inclusive of value transfers that may not specifically be used in exchange for goods or services (i.e. “payments”). For example, ABM transactions are used to obtain cash, where the cash is used for actual payments. In our analysis, each transaction involved is in our scope, and is counted, even though it might reasonably be concluded that this represents some form of double counting. The distinction becomes more important as many of today’s electronic payments cleared by March/April 2016

Trends & Disruptors non-bank service providers, result in multiple transactions in order to make the parties involved whole. As these payment volumes grow the other consequential transactions are growing proportionally. For example, prefunded payment schemes require transactions to move funds into prefunded accounts or prepaid cards. These transactions are separate from the actual payments that are made with the prepaid product. Another example can occur with credit cards, where separate transactions from the payment are often required to move funds to the payee, and for payors to pay down resulting credit balances. The extra transactions add more transaction volume and value through the clearing and settlement infrastructure. Each transaction described is of interest and within the scope of this research, so no efforts were made to remove any of these transactions from the analysis.

2014 transactions In the 2014 data, there were 20.7 billion transactions worth $8.6 trillion in total. The Canadian payments market is in transition; while traditional payments continue to be widely used, electronic payments and newer payment channels are beginning to thrive. Emerging payment channels (i.e. contactless, e-commerce, online e-wallet and e-P2P transactions) have become well established. However, new potentially disruptive payment types, technologies and players have not materialized in the data. The total transaction volume is dominated by Point-of-Service (POS) payments, including cash, debit, and credit card transactions. Cash was the most widely used payment method in 2014, accounting for just over a third of the transactions made in the year. Debit was the second most widely used, accounting for 22 per cent of all the transactions measured. At 20 per cent of the transaction volume, credit card transactions were used in slightly fewer transactions than debit cards, but accounted for about double the total transaction value (six versus three per cent respectively). The total value of transactions is dominated by transactions moving to and from businesses, and the various levels of government (i.e. commercial transactions). Cheque and paper items account for the single largest category of transactions (46 per cent ), with EFT coming in second, accounting for about 44 per cent of the total transaction value (or only about $200 million less than cheques). Here EFT can be seen almost closing the historical gap in the total value of transactions with cheques. During the period between 2011 and 2014, total Canadian transactions grew by an average of two per cent in volume terms each year and a larger five per cent in value terms. As such, the overall average transaction size has increased by about 15 per cent in 2014 compared to 2011 ($415 and $362 respectively). The higher growth in value is partially explained by the favourable economic conditions and higher costs for goods and services observed during the period (the inflation rate was 1.6 per cent annually, or a total of five per cent during the period). The growth of electronic payments, provided by non-bank service providers, have also played a role, as they frequently require multiple transactions to complete the payments cycle. The decline of paper-based payment instruments has been well March/April 2016

documented for a number years. CPA research conducted on ACSS transactions from 2012, shows cheque and paper items declining by about 50 per cent from their peak in 1990. The historic data collected in this analysis, shows that since 2008, cash, ABM, cheque and paper item volumes have all decreased by at least a quarter (in total).

“..The volume of cheque and paper items is declining while the value is growing...� Cash and ABM Cash has lost seven per cent of the total transaction volume since 2011. As a category of payments, cash payment volume was 16 per cent lower in 2014 than in 2011, yielding about a five per cent average decline each year. ABM transactions are closely related to cash use, and are the fastest declining payment category in our study. There were 21 per cent less ABM transactions in 2014 than in 2011, representing an average annual decrease of eight per cent. Since 2008, cash volume has declined by a total of 26 per cent in volume terms and 29 per cent in value terms. The data reveals that cash use is declining at a much faster pace than had been documented or anticipated in previous research, such as our 2012 payment trends report. The growing use of credit and debit cards, including via the contactless payment channel, helps to explain much of the trend. In addition, online transfers have begun to have a discernible impact on cash use.

Cheque and paper items The volume of cheque and paper items are declining while the value of these items are growing, albeit slightly. On the volume side, there were 400 million fewer cheque and paper items in 2014 than in 2008, a full 30 per cent decline. The decline has picked-up pace since 2011, to about seven per cent on average each year, up from five per cent in previous years. However, because cheques are such a small portion of payment volume, the segment only lost about one per cent of the total share of payments volume, in 2014 (over 2011). The total value of cheques is growing slightly as cheques are written for higher amounts. The 2014 average transaction size of cheques jumped by 25 per cent (since 2011), to nearly $4,200, the highest average transaction size observed. Interestingly, despite the growth in cheque transaction sizes, the total value of cheques only grew by about 2.5 per cent on average each year [narrowly outpacing annual inflation (1.6 per cent ) since 2011], and cheque value lost four per cent of the total value of transactions. The data reveals the main reason is because cheque volume decline is occurring faster for lower value cheques, so each year there are less cheques being written, but for increasingly higher values. This highlights the PAYMENTSBUSINESS


Trends & Disruptors important role that large value cheque and paper items continue to play in the Canadian payment system.

Areas of growth: payment cards, EFT and online transfers Past ACSS analysis showed that over 90 per cent of the total growth in payments occurred with electronic payments. This trend continues in this report; electronic payments have absorbed almost all of the new payment growth experienced. In general, payments have been growing in the debit, credit card, EFT, and online transfer segments. Debit and credit cards have led the growth in volume terms, while EFT and online transfers have led in terms of transaction value growth rates.

Credit cards Credit cards are the fastest growing “traditional” form of payment found in the analysis, growing by a total of about 60 per cent volume and 49 per cent in value since 2008. Credit cards’ average growth rate was eight per cent in volume and value terms each year. The key to credit card growth has been expansion in both traditional card transactions and in the newer payment channels. Credit card rewards and incentive programs for payors have helped to grow the use of credit cards in all types of traditional card transactions, from bill payments to small transactions at the POS. In addition, credit cards have become the dominant payment methods in important newer payment channels of contactless and e-commerce, where the data shows credit cards comprising the vast majority of transactions in Canada. The result has been credit cards growing to account for 21 per cent of all Canadian transaction volume, capturing an additional four per cent of the total volume between 2011 and 2014. On the value side, credit cards account for only five per cent of all of the transaction value, but have grown to account for over double the total transaction value of debit cards.

Debit cards While debit card growth has been outpaced by credit card use in recent years, debit card transactions continue to be an integral part of the payment market in Canada, as is evidenced by the nearly three per cent gain in total Canadian transaction volume since 2011. Debit cards continue to grow at a good pace, averaging about five per cent on in volume growth and four per cent value growth since 2008. Most of this growth has occurred in the traditional POS channel via chip-and-PIN payments. This may suggest a potential for further growth, if they are able to become more established in the newer channels such as contactless and e-commerce.

EFT The EFT payment category contains electronic transactions made through deposit accounts held at Canadian financial institutions. These include direct deposits, electronic remittances, pre-authorized debits and other online bill payment transactions. EFT demonstrated strong category growth, expanding by an average of five per cent in volume, and nine per cent in value per year, since 2011. EFT growth 20


is strongly linked to cheque decline, and the growing use of online banking and direct deposit payments from businesses and all levels of government. EFT transactions have grown to become a large part of the total value of Canadian transactions. The EFT segment has grown by a total of 67 per cent in value since 2008, and was the second largest payment segment in 2014. At 44 per cent of all transaction value, EFT made a four per cent gain in the total value of transactions between 2011 and 2014. EFT is on pace to pass cheque and paper items as the largest segment of transaction value in 2015, which will represent a key milestone in Canada’s transition to electronic payments.

Online transfers Online transfers include online e-wallet and electronic P2P transactions, initiated through online services and providers that are prefunded or linked to deposit accounts at financial institutions (e.g. PayPal). Online transfers only made up 0.4 per cent of the volume and value of transactions in 2014. While a small segment of payments, online transfers have grown at the fastest rates observed in the analysis, growing by a total of 184 per cent in volume terms and 228 per cent in value terms (since 2011). That is an average annual growth rate of 42 per cent in volume and 49 per cent in value terms. Both e-wallet and e-P2P payments are benefitting as Canadians become more inclined toward the convenience of electronic payments, and more comfortable with online and mobile device banking and commerce. In total, this segment accounted for nearly 82 million transactions valued at $32 billion in 2014. While these payments are still in the early stages of growth, they have the potential to impact nearly every other payment segment, depending on the uses where further adoption takes hold.

The changing POS In this section, we isolate the segments that are mostly associated with payments in POS environments to better understand the trends occurring in this space. Here POS, or point-of-service (point-of-sale) includes physical and online merchant environments, where over 15 billion payments, worth about $822 billion, were observed in the 2014 data. The most pervasive trend revealed on both the volume and value side of POS transactions is the decline in cash use. In 2014, cash was used for around 25 per cent fewer POS transactions (in both value and volume terms) than in 2008. On the volume side, debit and credit card transactions can be seen making gains as cash use recedes. However, the growth appears tilted towards credit card use, where credit cards gained over 900 million transactions since 2011, and expanded to 57 per cent of the total value of POS transactions. Prepaid is growing at a brisk pace, but still amounts to only a fraction of the total POS payments at about 195 million transactions worth $13 billion. The research suggests two main reasons for the credit card growth at the POS. First, credit cards provide an effective enticement for use, with about 75 per cent of cardholders’ primary credit cards having some form of reward incentive. In addition, credit cards have a sizeable head start in the expanding March/April 2016

Trends & Disruptors payment channels of contactless and e-commerce (see sections that follow) and appear to be successfully leveraging this position. In our past research, we noted credit card’s dominance in higher value POS transactions, as evidenced by the high average transaction value of credit cards. The 2014 data shows credit cards continuing to have the highest average transaction size of the POS payments; however, the average credit card transaction dropped by over $6 since 2011. This finding provides some evidence of the success of credit card growth into lower-value transactions. Credit card transaction growth is also showing signs of disrupting debit card use. A recent Bank of Canada survey suggested debit cards lost about four per cent of total payment volume share between 2009 and 2013. Data derived from the ACSS suggests a slowing down of debit growth rates in 2014, but no decline. Interac debit data (used in this analysis) shows continued growth rates of over five per cent over the last several years. It may be the case that the survey data and the ACSS data are foreshadowing a slowdown in debit that has yet to manifest in the aggregated Interac data.

Contactless The data collected from 2014 revealed that contactless transactions have grown to account for a large segment of the total POS transactions. Contactless transactions are defined as using a payment card or mobile device tap to initiate a payment, through a proximity reader (in physical merchant locations). The 2014 data suggests that about seven per cent of all consumer debit and credit card transactions were performed using the contactless channel, equating to over 650 million total transactions. In 2014, credit cards dominated the contactless channel, being used in about seven out of 10 contactless transactions, and accounting for over 90 per cent of the value of contactless transactions. However, credit cards have had a multi-year head start on debit card contactless payments, which have just started to gain traction in 2014. The fact that debit was able make gains in contactless so quickly suggests the potential for debit to become a larger source of contactless transactions moving forward.

E-commerce payment channel We define e-commerce as the use of web-based store fronts and applications to procure goods (including digital items) and services. E-commerce payments result from completing transactions through online store fronts and software applications, via computers, tablets, cellphones, or other mobile devices. Our data suggests that e-commerce payments are still a small piece of the overall commerce conducted in Canada. By measure of transactions, e-commerce only accounted for about three per cent of all of the POS payment value in 2014, or about $26 billion. Though a small portion of POS value, e-commerce is still considered an important part of Canadian commerce, as many believe this channel will grow to become a significant part of the shopping and payments experience in the years to come. In 2014, the e-commerce payment channel was dominated by credit card company transactions, including the online March/April 2016

debit payments using credit card company networks for clearing. The analysis points to credit card transactions (either entered directly or through services such as PayPal) equating to about 90 per cent of the volume and 85 per cent of the value of e-commerce in Canada. Interac online debits and e-wallet funds, such as through PayPal funds (not linked to credit cards or debit accounts), make up most of the remaining e-commerce transactions—about nine per cent of the volume and 15 per cent of the value.

“...Commercial use of credit cards grew by about 30 per cent…”

Commercial payments Commercial payments include transactions which originate from Canadian organizations, businesses and governments. In total, about 2.4 billion transactions valued at $7.3 trillion were extrapolated from the 2014 data. EFT payments have become the most common form of commercial payment, growing to account for more transaction volume than cheques and credit cards combined. On the value side EFT and cheques dominate the total commercial transaction value, with each constituting about half of the total value (47 per cent and 52 per cent respectively). EFT growth for commercial payments closely mirrors the strong growth rate observed for all EFT transactions, growing by an average nine per cent in both volume and value terms between 2008 and 2014. In total, commercial use of EFT grew by about 560 million items worth about $1.3 trillion since 2008. While commercial use of cheques is clearly on the decline, commercial cheque volumes only decreased by about 100 million items or about 13 per cent in total since 2008 (a two per cent annual average). In addition, the value of commercial cheque transactions has continued to rise slightly, since 2011. Both observations support previous research that found cheques to be an important payment instrument for certain commercial transactions, including businessto-business and real estate transactions. Commercial use of credit cards grew by about 30 per cent to just under 400 million transactions. While credit cards account for a low proportion of total commercial payments, their value has nearly doubled since 2008, demonstrating the potential for longer term growth. In the end, the story is changing but the race has some interesting competition. Cash is still on top, but losing speed. Credit and debit cards are gaining on the leader. Cheques seem to be having engine trouble, losing favour. And online transfers are at the back of the pack but definitely on the move. Michael Tompkins is senior research analyst, research unit, at the Canadian Payments Association. The views expressed are those of the author and should not be attributed to the organizations named in the article or report.



Trends & Disruptors

How Will Banks Address the Challenge of FinTech? By Diane Kazarian & Bill McFarland


s the headwinds of low economic growth and falling commodity prices affect the Canadian economy and banking sector, the banks are working hard to respond to a growing and potentially profound shift in the financial services world. A host of new players have emerged, eager to use financial technology, commonly called FinTech, to disrupt the global banking industry. Capitalizing on the latest mobile, cloud and digital technologies, FinTech startups are targeting the intersection of profit pools and customer pain points with innovative, easy-to-use and cost-efficient solutions. The Canadian banks are not standing still and are devising strategies and initiatives to innovate and embrace the FinTech movement. 22


Canada’s banks delivered another strong performance in 2015, both in terms of revenue and profitability, a very impressive feat against a backdrop of low economic growth. Economically, 2016 doesn’t look to be much better with lower demand and a potential continuation of slumping commodity prices. Unemployment has been climbing to a two year high of 7.2 per cent and may be tested in 2016, particularly in oil-producing provinces. These factors must be considered when coupled with the uncertainty of a low Canadian dollar and a forecasted modest increase in U.S. demand for Canadian exports. The banks need to navigate these cool economic conditions and find profitable growth where household debt burden hit an all-time high of 163.7 percent (debt to income ratio), coupled with March/April 2016

Trends & Disruptors a low interest rate environment. This will continue to impact the banks’ net interest margins. Importantly, the banking industry is very focused on the potential disruption at the hands of a group of new companies that are using FinTech to target key aspects of the banks’ value chain. The quickly growing number of smartphone users worldwide, as well as an increasing middle class, all potential new banking customers, continue to work in favour of emerging financial companies that embrace the FinTech model. And with a credit card and access to the Internet, a start-up can be up and running in days. Developments such as these are reducing the barriers of entry and we’re seeing unprecedented levels of FinTech start-up activity around the world. These new companies are well funded and they’re relentlessly focused on delivering customer-centric solutions with innovative, inexpensive and simpler offerings. More importantly, FinTechs are smaller and more nimble, unencumbered by large, existing businesses and costly infrastructure. They aren’t as constrained by the regulatory environment. And they can more easily capitalize on the latest cloud and open-source technologies, big data and analytics and greenfield infrastructure. FinTech upstarts aren’t the only ones trying to shake up the banking value chain—technology giants such as Apple and Google also aim to seize market share from banks. These potential rivals can use their innovation know-how, global scale and powerful brands to make inroads into banks’ traditional territory by extracting the most profitable aspects of banks’ business. For example, Apple has launched Apple Pay, its mobile payment platform, broadly in the United States, United Kingdom and China. In Australia and Canada, the launch has been limited to date. Google has also looked into disrupting the financial services value chain by registering as a mortgage loan broker and providing mortgage search capabilities in the United Kingdom and select states in the United States. It’s little wonder that 81 per cent of global banking CEOs see the pace of technological change as a threat to growth; more than half (56 per cent) view new market entrants such as FinTechs as a similar threat. As the FinTech-driven movement gains momentum, Canada’s banks are monitoring the evolution of this emerging ecosystem and actively pursuing opportunities to play an integral part in it. Banks recognize that they have much to gain from FinTechs’ innovations: soon, many FinTech-driven offerings may become pivotal elements in banks’ operating models, enabling banks to reduce costs, reach underserved markets and open up new products and revenue streams. To achieve this, a FinTech ecosystem needs to be embedded into the banks’ transformation strategies to drive change across the organization—people, processes and technologies. It will challenge banks to really understand where FinTechs are succeeding and either prepare to collaborate and integrate them meaningfully or compete. In particular, recognizing that FinTech comprises three categories of companies will help banks devise response strategies. These categories are: financial service providers (where the FinTech provides a competing offering), accretive services and user experiences (where the FinTech provides a service atop incumbent financial services) and March/April 2016

technology solution providers to financial institutions (where FinTech provides a solution to incumbent banks). This forms a spectrum of strategic responses that recognizes that not all FinTechs pose the same threats—or opportunities—to banks. In many cases, they can be viewed as enablers to traditional innovation and continuous improvement. It is important that banks continue to embrace a long-term approach to investment and risk taking that gives innovation the space it needs to flourish. In the end, these efforts will help build a Canadian FinTech ecosystem whose members are able to take on global competitors—and win.

“...Many banks are making heady investments in technology...” Bank performance 2015 Despite low economic growth, falling commodity prices and the severe slump in the energy sector, Canada’s Big Six banks performed well, achieving strong revenues and posting solid returns. The Big Six banks’ average consolidated revenues were CA $21.4 billion in 2015, up 4.3 per cent from CA $20.5 billion in 2014. However, average return on equity was 15.6 per cent, down from 16.6 per cent the year before, continuing the decline we’ve observed and commented on in recent years. From a productivity perspective, the banks continued their efforts to increase efficiency and streamline their cost base; however, despite these efforts, the overall efficiency was 58.4 per cent in 2015, up slightly from 57.9 per cent in 2014. Among their Big Six peers, RBC and Scotiabank continued to post the lowest efficiency ratio. As a whole, Canadian banks responded to the slowing economy, restructuring some operations to increase efficiencies, streamline their cost base and become fitter, faster organizations. They will most likely continue to do so by keeping their focus on core productivity measures and increased risk management. However, as they’ve reduced spending in some areas, many banks are making heavy investments in technology as they continue to transform their customer experience, automate processes, comply with regulatory demands and enhance digital capabilities. To date, despite a number of headwinds affecting the Canadian economy and the banking sector, the Big Six as a group improved their 2016 first quarter results compared to the same quarter last year. From a revenue perspective, the banks grossed a total revenue of CA $34.5 billion compared to CA $33.2 billion achieved last year, which represents a growth of 3.9 per cent, and managed to work this growth down to the bottom line, growing their net income attributable to common shareholders from CA $8.4 to CA $8.6 billion—an increase of 1.8 per cent over the same quarter last year.

There’s progress Amid the excitement over FinTech disruption, the banks’ own innovations in financial technology are sometimes overlooked. PAYMENTSBUSINESS


Trends & Disruptors Canada’s banks have brought Canadians the Interac system, Moneris payments processing and email money transfers, along with web and mobile banking. ING Direct—now Tangerine—launched its branchless bank first in Canada. CIBC-backed PC Financial provided grocery giant Loblaws with the country’s first ‘white-label’ bank and BMO launched Mbanx, the first direct-to-customer bank, in 1996. In early 2015, CIBC announced its partnership with MaRS to create a new corporate innovation hub, which would join MaRS’s new FinTech cluster. In addition, it announced a referral partnership with Thinking Capital, a Canadian online small business lender. Scotiabank has jumped into the small business lending space with an investment in Kabbage, a U.S.-based online small business lender. Scotiabank also announced its internal Digital Factory—designed to focus on technology and mobile banking, often partnering with external FinTechs and other start-ups. TD has established an innovation lab at Communitech, announced a partnership with Moven, a mobile personal financial management platform, and announced that it would collaborate on technology solutions targeting customer and employee experience in Cisco’s new Toronto Innovation Centre. RBC has also been active in developing partnerships by announcing testing of payments with Nymi Wristband technology and, more recently, an alliance with Uber for loyalty rewards. In early 2016, BMO entered the FinTech domain with the launch of SmartFolio, a digital portfolio management service, designed to compete with both traditional players and ‘robo-advisers.’

But more needs to happen Canada’s banks understand that innovation is critical. However, their long development cycles, legacy systems, organizational structures and other challenges may at times not allow them to keep pace with today’s rapid shifts in technology and customer needs. What’s really needed is continued investment in building a healthy, holistic Canadian FinTech ecosystem—an environment that will produce the innovative offerings needed to compete in the years to come. If Canada’s banks don’t keep up, they run the risk that outside competitors will bring their proven, successful offerings to Canada and slowly erode market share. This is how the ecosystem could work. Innovation: Canada is now home to more than 80 FinTech firms, and the number of highly promising developments in the country keeps growing. The ecosystem, especially in the GTA-Waterloo and Vancouver areas, is already home to all the major banks, leading universities and a thriving technology start-up culture. The labs, incubators and accelerators are well situated to enable rapid, distraction-free innovation. Talent mix: The foundations of an innovative environment are already in place. Continuing to embrace a talent mix, where creative millennials and experienced financial talent complement each other, can foster the connections, trust and understanding needed to move innovations forward quickly. Regulation: Canada’s regulatory environment may have implications on the development of a FinTech ecosystem. Canada’s regulators have done a tremendous job of protecting customers and 24


ensuring the stability of our banking system. But there could be a sizable and growing disconnect between the regulators’ focus on preserving stability and the need for market innovation. FinTechs’ ambition to bring innovative new products to the market will remain challenged by evolving regulatory oversight. Some FinTech companies may find themselves outside the reach of certain regulators today. However, as they evolve and become integrated into Canada’s banking system, the level of regulatory scrutiny will increase. Investment: Finally, if Canada’s FinTech ecosystem is to prosper, more investment will be needed. Pension plans have been among the most significant investors in FinTech in recent years, but more investment is needed from governments and private investors, and the banks themselves, to give the ecosystem the financial strength it needs to grow stronger. It’s more significant when set against the level of investment globally, especially in the United Kingdom and United States. Canada’s FinTech community has attracted CA $1 billion in capital since 2010, versus U.S. $12 billion invested globally and U.S. $9 billion in the United States in 2014 alone. There’s no denying that Canada’s FinTech ecosystem is in its early days and will take time to mature. While Silicon Valley took decades to become the powerful nexus of innovation, technology and money that it is today, Canada’s FinTech ecosystem doesn’t have that luxury of time. The key elements are there. Banks, businesses and other players must take conscious, deliberate action to create a stronger link between these elements in order to speed the pace of connection and hasten the ecosystem’s maturity. Banks’ considerable profits, a combined net income of CA $34.9 billion in 2015, offer a highly attractive target to players outside traditional banking. But how much of banks’ business is really at risk? We looked at prior disruptions in banking and other industries to see their impact. As these examples illustrate, a single disruption isn’t the chief threat to Canadian banks’ business. Instead, banks must pay attention to the combined impact of many disruptions that build up over time.

Canadian banks are extremely competitive Canadian banks are sophisticated operators that can use their economies of scale, resources, brand and expertise to compete. They are already active participants in the FinTech ecosystem, have started to take notice and will continue to develop strategies to drive the shakeout in the Canadian FinTech sector by investing in, buying, partnering or building their own capabilities. New companies will have many challenges as they attempt to gain traction across the Canadian marketplace. Here are some of the tests they’re likely to face in the near future.

FinTech challenges Winning the trust of Canadians isn’t going to be easy. While start-ups are seen as very appealing, there’s a lack of business sophistication when it comes to dealing with an individual’s money. Canadian banks have the brand recognition and broad trust factor that are still critical advantages when targeting consumers. Canadians have been loyal to these institutions that have worked hard to build a March/April 2016

Trends & Disruptors relationship with them. The start-ups will have to provide superior services at a lower cost to win the trust of Canadians before they can witness any shift. Currently, they lack brand recognition and consumer trust, which may be a key reason for their low adoption. Over a period of time and with word of mouth, adoption is bound to increase, but the question that remains is: Can a FinTech survive that long? The laws of start-up will catch up. Regularly, new start-ups in financial services emerge pitching to angel investors and crowd funding sites. Statistical facts in the past suggest that nine out of 10 start-ups will fail. Only those that have gone through all considerations and have a perfect—and not a minimum viable— product will emerge stronger. With the current economic outlook, there could be a slowdown in FinTech investment. The days of high valuations could be fewer and tech start-ups will be tested to prove their mettle before they get the next round of financing. Scrutiny of risk and regulation are imminent. The risk models and algorithms (specifically using social data) that start-ups have created haven’t been proven yet, especially in a downturn. It only takes a few changes in the business environment before defaults are seen and the authenticity of the models are questioned. In addition, financial services incumbents have to abide by very tight rules set by the regulator. Currently as peripheral players, some FinTechs are able to navigate without the same burdens. As they continue their evolution, the regulatory environment might evolve to bring constraints that will likely impact their progress.

Embracing the FinTech movement The movement is only going to gain momentum in the years to come, and Canada’s banks continue to take ownership of the reinvention of banking. Embracing FinTech isn’t a short-term play. It requires patience, discipline and a commitment to realizing long-term results. Here’s what’s needed: 1. Act now—but think long term. It’s time for the financial services sector to establish a clear, long-term FinTech strategy that not only allows for disruption, but embraces it. This long-term strategy should have two main thrusts: Focus on FinTech technologies and business models that are meaningful to the banks’ business strategy and mature enough to act on; explore, test and learn newer evolving technologies with a clear process to ramp up—or ramp off—as those technologies mature or fail. 2. Think from the customer’s perspective. Gen X and Gen Y will assume more significant roles in the global economy over the next decade, but Millennials seem to be bringing radical shifts to consumer behaviour and expectations. It’s vital that banks look at their own products and services from a customer’s perspective to better understand the points of friction. They also need to continue to engage their customers to understand their rapidly shifting wants and pain points. 3. Adopt new thinking around getting concepts to market. The sector should strive to emulate the start-up model and culture to attract talent and rapidly develop products and bring them to market. Lean, agile organizations, design thinking and hackathons March/April 2016

can all be part of this effort. 4. Invest in the future by investing in technology. Banks must continue to assess new technologies and invest in those that fit with their business strategy and help them become innovation leaders. They must also continue their efforts to reduce or remove their dependence on aging legacy systems, despite the complexity and cost of doing so. One of the keys to this is to leverage the new application programming interface (API) economy. It’s important that banks view these key technology investments through a long-term lens. 5. Collaborate: Technology and customer expectations are changing quickly. It’s about understanding what customers want and

Tangerine Bank: An original disruptor Today’s new and emerging FinTech firms aren’t the first to attempt to shake up the Canadian banking sector. In 1997, Tangerine Bank—then known as ING Direct—arrived in Canada with a very different view of what banking could be. With nearly 20 years of experience in bringing unconventional thinking to Canadian banking, Tangerine CEO Peter Aceto has a unique perspective on what’s happening today. Aceto believes the banking sector finds itself facing a confluence of social and technological revolutions. The social revolution is driven by consumers’ loss of trust in corporations—not just financial institutions—over the last 10 years. This steady erosion of trust means that consumers now think very differently about who they want to work for, buy from and do business with, observes Aceto. Expectations have changed too. “Consumers are demanding a different experience,” he says. “They’re expecting experiences that simplify their lives, and that make things easy.” The technology revolution, powered by huge advances in digital, mobile, analytics and the cloud, is the key to meeting consumers’ new expectations, and that’s created opportunities for today’s FinTech firms to usurp banks’ traditional territory. Aceto understands how technology can be used to disrupt the status quo—because technology has long been central to Tangerine’s competitive strategy. Not that Tangerine invests in technology for technology’s sake, he adds. “It’s all about making things easy for our customers. That’s what drives the test about what technology choices we make,” he says. Marvelling at the speed with which technology has transformed banking over the past 20 to 30 years, Aceto thinks it’s virtually impossible to predict what banking will look like in 10 years. Will Canada’s big banks be outplayed by newer, nimbler FinTechs? Aceto is positive about the banks’ chances. The big players are thinking about technology in ways they never have before, he observes, and they’re focused on solving this problem. “I think the banks in this country solve whatever problems that they need to solve.”



Trends & Disruptors whether the banks have the skills and technology to get there. If not, they should look to partner or collaborate with FinTech disruptors—even engaging in a “coopetition” strategy, where competitors cooperate for mutual benefits—to rapidly create new products and ideas to build new capabilities at the speed the market demands. 6. Stay the course—and don’t slow down. There’s very real risk that if the Canadian or global economies continue to stumble, banks might be tempted to rein in their investment in FinTech and other technologies. The industry must stay focused on the larger goal and increase their investments in analytics, omnichannel capabilities and FinTech—these are essential to meeting the needs of today’s customers and tomorrow’s.

The emerging API economy: a FinTech facilitator Banks continue to evolve and innovate in their response to the FinTech revolution. Application programming interfaces (APIs) have become an important element of a bank’s strategy—they enable banks to embrace, work with and, in some cases, build their own disruptive FinTech. APIs are architecturally flexible and can extend functionally, enabling new product development and co-creation and collaboration with third-party developers. Similar to online or mobile banking today, every financial institution is expected to provide external APIs in the future. By 2016, 75 per cent of the top 50 global banks will have launched an API platform, and 25 per cent will have launched a customer-facing app store showcasing apps that use their APIs. Many Canadian banks have already begun API enablement and implementation. Being innovative with the business model in the API journey will help make more strategic technology decisions and align with the still-emerging API economy, where value chain and revenue generators are being reinvented.

How can regulators address FinTech? We believe regulators are waiting to see how FinTech’s impact develops before introducing new rules or amending old ones. At this point, it’s difficult to say anyone—regulatory bodies included— understands FinTech’s impact well enough to know what they should regulate, much less how. As Canada’s FinTech ecosystem matures, regulators can make more informed decisions. As an analogy, consider the recent rise of Uber. The technology emerged ahead of any new rules; now, having had ample time to better understand how it fits into the transportation ecosystem, regulators are beginning to step in. The same will undoubtedly be true as selfdriving cars become more common. We’ve seen global regulators take actions to understand the implications of FinTech. For example, in 2015 The U.S. Department of the Treasury (The Treasury) submitted a public Request for Information to understand the impact of online marketplace lending on small businesses, consumers and the broader economy. The Treasury was seeking information to help policy makers better understand the various business models and products offered, the potential to expand access to credit to historically underserved market segments 26


and how the financial regulatory framework should evolve alongside the online lending marketplace to support the safe growth of the industry. In the United Kingdom, the Financial Conduct Authority (FCA) launched Project Innovate in late 2014 to “develop and foster competition and growth in financial services by supporting both small and large businesses that are developing new products and services that could benefit consumers.” A year later, the FCA announced the creation of a regulatory sandbox, “a safe space in which businesses can test innovative products, services, business models and delivery mechanisms without immediately incurring all the normal regulatory consequences of pilot activities.” Once the dust settles and a clearer picture of FinTech’s impact emerges, regulators will be in a far better position to develop the right regulations. Regulators need to think about how they regulate to allow innovations to get to market rapidly. They may need to work alongside banks, and possibly others in the banking space, to develop and offer guidance in real time to ensure companies adhere to broad regulatory principles in the absence of official rules.

Continued ROE and margin compression pressure The ROE pressure on the Canadian banking industry has entered its third year unabated. To assess these impacts in a holistic manner, we analyzed them based on an ROE measure for the Big Six that included all forms of income and equity, as opposed to the ROE attributable to common shareholders. By that measure, the ROE for the Big Six banks decreased from 14.81 per cent in 2014 to 13.56 per cent in the 2015 financial year, under pressure from a number of sources. Capital adequacy requirements continue their negative impact on the Big Six’s returns as the increased capital base accounts for a 188 basis points (bps) negative impact on return on total equity. In response, the banks continue to improve their revenue through asset growth, which has allowed them to increase net interest income by CA $3.97 billion (6.4 per cent) despite continued margin compression, contributing to a 154 bps positive ROE impact. In addition, the Big Six grew their non-interest income by CA $2.64 billion (4.8 per cent), resulting in an extra 103 bps improvement in their ROE position compared to the prior financial year. Still, the banks’ gains in revenue were partially offset by a CA $203 million (3.3 per cent) increase in provision for credit losses, accounting for an eight bps erosion in ROE and a CA $4.8 billion (6.9 per cent) combined increase in operating costs, which took an additional 188 bps off the combined ROE for the Big Six. The financial world has become digital. New technologies continue to feed consumer expectations, and start-up companies are using FinTech to disrupt the market with innovative, simpler solutions. They question remains: are banks prepared to embrace the FinTech movement to adjust to current demands? Diane Kazarian is national financial services leader and Bill McFarland is CEO and senior partner of PwC Canada .This article is based on the special report Canadian Banks: Embracing the FinTech Movement, Perspectives on Canadian Banking.

March/April 2016


Card-not-present: Growing risk threatens a bright opportunity Continued from page 8

• Multiple transactions on a single card over a short time period • First time customer and the order does not fit the “average” customer purchase pattern

SHARED RESPONSIBILITY transaction characteristics, VCAS provides real-time, predictive risk analysis which issuers can use to determine the risk level of a payment transaction. The consumer no longer needs to enter a password or user ID. As a result, only the highest risk transactions will need to be challenged, thereby providing a positive consumer check-out experience. Employee training is another key factor in managing CNP fraud—particularly for smaller retailers who are manually processing their online orders. A business who has implemented best-in-class fraud prevention practices is as vulnerable as one with no fraud prevention strategy if they haven’t properly trained their employees to have a thorough understanding of fraud risk and associated chargebacks.

There is no “silver bullet” when it comes to protecting against CNP fraud. It’s important for retailers to understand transaction authorization is not proof that the true cardholder is making the purchase. At the end of the day, everyone has a role to play in preventing CNP fraud. Collaboration is critical to fighting fraud and protecting consumers’ information as threats in the marketplace continue to evolve. i ComScore, Canada, Digital Future in Focus, 2015 ii CISCO, The Trend Report "Internet of Things in Logistics", 2015 iii IPSOS Ipsos Canadian Inter@ctive Reid Report, 2014 iv eMarketer, 2015 v Source TC40 client fraud reporting in nominal USD (as of 01/04/2016)

RED FLAGS Retailers and employees alike should also know the warning signs to watch out for. Common “red flags” for CNP fraud generally fall under three categories and include:

Product or Order Flags • Larger-than-normal orders • Multiple orders for the same product • Orders for products readily convertible to cash (e.g. electronics) • Orders made up of “big-ticket” items

Delivery Flags • Customer requests “rush” or “overnight” delivery • Single card used with multiple shipping addresses • Delivery to an international address • Billing address different than shipping address

Customer Flags • Orders have different names, addresses and card numbers, but from a single IP address • Internet addresses at free e-mail services march/April 2016

The “Nefarious Nine” data-security threats to your business Continued from page 9

Address the largest threats first Merchants, especially those in hospitality, retail and entertainment, can greatly reduce the likelihood of data theft by working with their payment service provider to ensure PCI-DSS compliance and to evaluate their point of sale software and hardware setups. An experienced PSP can also be a partner in preventing transactions from known fraudulent IP addresses, identifying potentially fraudulent transactions and notifying the merchant. Regular reviews and updates of payment system security, along with regular training for employees on safe data handling procedures, can sharply reduce your company’s risk of falling prey to digital data thieves.

Continued from page 16

Also, despite the predicted growth in e-wallets and other alternative payment methods, credit cards are still king in Canada making up over 60 per cent of all e-commerce payments in the country. Canada is also notable for having the highest proportion of cross-border retail—with 75 per cent of Canadian shoppers purchasing from U.S. websites.

PB: How important was the deal with Rakuten Kobo Inc. in leading Worldpay to expand its investment in Canada? We launched a tech office in Montreal back in 1999 and we now employ over 100 people in R&D, software engineering and development and product design for our global customers. With our launch in the Canadian market allowing us to process payments for Canadian companies like Rakuten Kobo, we’ll continue to invest in Canada as demand for local technology services grows.

PB: Are there particular vertical markets or types of companies (e.g. SME, retail, franchises, e-commerce firms, etc.) which are more desirable targets? Our customers tend to be large and fast growing internet-led multinationals with complex payment needs. In Canada we are focusing our efforts on industries where we have proven expertise including airlines, digital content, video games, travel and global retail. We already work with Canadian merchants looking to sell their products to overseas consumers, and also with international companies wanting to extend their reach to Canadian consumers. Our customers are the types of e-commerce businesses who already operate in many markets, or those who want to scale up and swiftly enter new markets. Worldpay is a leader in global payments, processing millions of transactions every day. They provide an end-to-end service including card acquiring, treasury, gateway, alternative payments and risk management, all of which can be provided with a single integration to Worldpay.



2016 Industry Events

March March 7-9 BAI BAI Payments Connect Conference San Diego, CA March 22-25 Mobile World Congress Barcelona, Spain

April April 4-7 ICMA Annual Card Manufacturing & Personalization Expo Orlando, FL April 5-7 Smart Card Alliance 9th Annual Payments Summit Orlando, FL April 6-7 9th Annual Prepaid & Payments Retreat Toronto, ON April 6-7 Payments Awards 2016 Toronto, ON April 11-14 NAPCP Commercial Card and Payment Conference Orlando, FL April 17-19 NACHA, The Electronic Payments Association, Payments 2016 Columbus, OH April 19-21 Electronic Transactions Association 2016 ETA Annual Meeting & Expo Las Vegas, NV April 27-29 NBPCA Annual Congress-The Power of Prepaid 2016 Washington, DC

April 28-30 Central 1 Credit Union Central Conference Toronto, ON

MAY May 5-7 Cartes North America 2016 Washington, DC May 10-11 Finovate Spring Conference San Jose, CA May 12-13 FC Business Intelligence Analytics for Insurance Canada Summit Toronto, ON com/canada/ May 16-17 WB Research eTail Canada 2016 Toronto, ON May 17-20 IFO Fusion 2016 Forum & Expo Reno, NV May 31 - June 2 Credit Scoring & Risk Strategy Association 22nd Annual Conference Muskoka, ON (TBD)

June June 7-10 Internet Retailer IRC&Exhibition 2016 Chicago, IL June 8-10 FEI Canada Annual Conference Montreal, QC June 14-15 ACT Canada Cardware 2016 Niagara Falls, ON

June 15-17 Canadian Payments Association Payments Panorama Calgary, AB June 17-18 ATMIA Canada Annual Canadian Conference 2016 Toronto, ON June (TBD) NBPCA Annual Congress-The Power of Prepaid 2016 National Harbor, MD (TBD) June (TBD) EMV User Meeting 2016 EMVCo Kuala Lumpur, ML (TBD)

July July 31 - August 3 Retail Solutions Providers Association RetailNOW 2016 Orlando, FL

September September 25-27 American Bankers Association Marketing & Retail Conference Nashville, TN September 26-29 Sibos Annual Conference 2016 Geneva, Switzerland September (TBD) IFO Canada 6th Annual Canadian Financial Operations Symposium Vancouver, BC September (TBD) Women in Payments™ Symposium & Women in Payments™ Awards Toronto, ON

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March/April 2016

October October 4-6 Members Meeting Smart Card Alliance Phoenix, AZ October 13-15 BAI BAI Retail Delivery Conference 2016 Las Vegas, NV October 23-26 Money20/20 Las Vegas, NV October 23-26 Association of Financial Professionals AFP Annual Conference 2016 Orlando, FL October TBA Smartcard Alliance NFC Solutions Summit 2016 Phoenix, AZ October (TBD) Canadian Automatic Merchandising Association CAMA Expo 2016 Quebec City, QC (TBD) October TBA 2016 Global Finance Conference For Finance Executives Toronto, ON October TBA Everlink Client Conference CONNECTIONS 2016 Toronto, ON

November November TBA Comexposium CARTES & Identification Exhibition 2016 Paris, FR

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Generation “we” and the sharing economy By Juanita Gonsalves, owner and president of Emerging Payments Consulting Inc. She has more than 25 years of experience in emerging electronic payments. Formerly with Scotiabank, followed by Chase Paymentech as a member of the executive team, and a former participant on several Visa Canada, Interac and Canadian Payments Association advisory groups.


illennials are consumers between 18 and 34 years of age and represent one third of Canada’s population. Their constant companions include some sort of smart mobile device. They are always connected, and expect immediate gratification. Millennials seek amazing experiences and it gets even better when the moment is captured with a great "selfie" and shared with friends. These selfies have a profound effect on what other Millennials want. In fact, Millennials go out of their way to try new things that they’ve read about on social media, so they can report back as experience leaders to friends and followers and prove they are in the know. Based on a recent Capital One survey, Millennials have migrated away from yesterday’s mindset of ownership. In fact, 85 per cent of Millennials surveyed said they would rather have two years of amazing experiences instead of upgrading their economy car to a luxury brand. The trend continued when asked about their living space. 46 per cent would live with friends in order to share household expenses, while almost one third (32 per cent) would rather have five years of great experiences instead of owning a home. This cost conscientious, experience driven mentality has given rise to new innovative 30


services. For example, Uber has redefined the world of the taxi driver. A mobile app lets customers order a car, track the car while en route and share the cost of the ride with other passengers who could be strangers. Payment (while obviously important) happens without friction. The social aspect of the service doesn’t stop with sharing the ride; passengers can rate the driver. To earn that extra star, some drivers will actually provide snacks in the back of the car or display selfies with celebrities who have previously used that driver’s services! Another rapidly expanding business model based on this sharing concept is Airbnb. If you’ve got extra space that you would like to monetize, you can become a host by registering with Airbnb and they’ll find the guests for you. Accommodations range from shared rooms to entire castles. The Capital One survey data showed that on average, Airbnb bookings were longer in duration than stays at conventional hotels mainly due to the reduced daily cost associated with Airbnb. The survey data also revealed that today’s vacationers (Millennials and non-Millennials) want to live like the locals and experience the true culture of their chosen destination. Extra budget (not spent on accommodation) can be spent in restaurants and on other wonderful adventures suited to the travelers’ interests and preferences, and often based on recommendations from the host. And, another added benefit of having unique experiences not offered by a typical resort were the fantastic stories that would be shared upon the return home. They would be much better and more interesting than same-old-same-old from those who dare not explore beyond the walls of the resort chain. And of course there would be plenty of really cool selfies that document and share the amazing experiences, in real-time,

to strike a little envy in the hearts of friends back home going about their day-to-day routines. Social media and the Internet of Things are having significant impact on consumer behaviors. In the olden days, consumers would get product recommendations from family and friends. Fifty-three per cent of today’s Millennials rely on word-of-mouth advertising (based on online ratings) from strangers that could be located anywhere. Sixty-three per cent use a mobile device to lookup ratings even when shopping in-store and may shop elsewhere if online ratings are not available. Seventy per cent of Millennials want to use their mobile devices to make payments and ditch cash. Millennials are considerably less concerned about data security and believe that everything will get hacked eventually. But don’t misinterpret this to mean that personal data can be shared with marketing firms to send a barrage of unsolicited advertising. This is a surefire way to damage the relationship—reinstating trust is not an easy task. Millennials want quality product at a good price, with valuable offers and rewards that can be redeemed easily in store or online. While Millennial spending power may not have reached its peak, retailers should strive to develop strong relationships with this group now. Leverage mobile technology, social media and the internet to enable them to share their great experiences and influence friends, followers and strangers to become your loyal, repeat, valuable customers for life. CaseStudiesWhitepapersResearch/english/Aimia_GenY_ WhitepaperCanada_Final.pdf

march/April 2016


WHERE THERE’S BUSINESS THERE’S EPSON Every day, financial enterprises around the world rely on Epson® Business Solutions to make transactions more efficient by combining multiple processes to save space and minimize errors. Offering a full suite of innovative products including cheque scanning, ID verification and receipt printing, Epson Business Solutions are designed to ensure maximum productivity and mitigate risk. For more information on how Epson Business Solutions are helping financial institutions exceed their vision, visit

EPSON is a registered trademark and EPSON Exceed Your Vision is a registered logomark of Seiko Epson Corporation. All other product and brand names are trademarks and/or registered trademarks of their respective companies. Epson disclaims any and all rights in these marks. Copyright 2015 Epson America, Inc.

Payments Business Mar/Apr 2016 Magazine  
Payments Business Mar/Apr 2016 Magazine