The Merchant’s Guide to Transactions, Cards & e-Commerce
Paying the fares New methods offer faster, smoother transit payments
Canada's payments industry
❱ The need for data speed
❱ Roundtable: payment processing trends
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TableKey of Contents theme
May/June 2018 Volume 9 Number 3
Editor-in-Chief Steve Lloyd email@example.com Editor Brendan Read firstname.lastname@example.org Publisher Mark Henry email@example.com Contributors David Binder; Mike Bradley; Kevin Deveau; Stacy Gorkoff; Aivon Long; Iain McLean; Jeffrey Stewart; Brian Weiner; John Yawney Creative Direction Jennifer O’Neill firstname.lastname@example.org Photographer Gary Tannyan President Steve Lloyd email@example.com For subscription, circulation and change of address information, contact firstname.lastname@example.org Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to: Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 f: 905.201.6601 email@example.com www.paymentsbusiness.ca Subscriptions available for $40.00 year or $60.00 two years. ©2018 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Payments Business should be directed to the publisher.
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Why Canadian transit agencies need open-loop systems
Modernizing Canada’s transit payments
Feature 8 Understanding Canada’s $16.4 billion
Data Analytics 10 Feeding the need for data speed 13 One year later: analytics solutions improve
IFRS 9 management
VENDOR ROUNDTABLE 14 Payment processing trends Tourism & Hospitality 18 How smart mobile payments drive Chinese tourism Mobile 19 Gaining edges with the mobile first generations Events 21
Payments Surveys 22 Small businesses, consumers express payment
JULY/AUGUST May/June 2018
Security, Fraud & Privacy • Printers • Online Retail • Wearables • Wire & EFT PAYMENTSBUSINESS
Why Canadian transit agencies need open-loop systems
Canadian urban areas, like Metro Vancouver, are beginning to follow the lead of global smart cities including Sydney, Australia and London, England.
London has laid the tracks and other cities are following the route By Iain McLean
etro Vancouver’s TransLink recently became the first major transit authority in Canada to adopt an open-loop payment system, allowing people to pay their fare directly by tapping their contactless credit cards or mobile wallets. This type of payment system has many benefits compared to cash or tokens or even a system that exclusively accepts a proprietary card (or a “closed-loop” system) like Presto in Toronto and Ottawa.
The benefits go beyond convenience For the first time in history more people live in cities than in rural areas and this rapid urbanization puts increased stress on services like mass transit. Canada is no exception to this trend and our cities, like Metro Vancouver, are already feeling the pressure of from it and from concentrated immigration. One opportunity to ease the system stress is to create a more frictionless commute. Contactless debit and credit payments make public transit easier and more convenient to use. Commutes are quicker without ticket lineups or searching for change. And it eliminates barriers for occasional users or visitors as they would no longer need to buy into the proprietary system or carry change. But it’s not only about personal convenience. There are other benefits that make it clear that open-loop systems are the future of public transportation. The cost savings from more streamlined systems could fund much-needed infrastructure upgrades. Insights derived from anonymized and aggregated transaction data could help identify peak times and improve commuter flows around a city. Resources could be better directed and commuters could be advised on the best routes in real-time and on an opt-in basis. As part of a recent trial in Chicago, Illinois riders who signed up got text notifications when crowding was expected on one transit line due to sporting events and almost 20 per cent of them shifted to an alternate route.
Lessons from global smart cities, like London While most Canadian cities only offer closed-loop systems, there are signs that we are joining the world’s leading cities in moving towards open-loop. In addition to the full-scale launch in Vancouver, a pilot is under way in Laval, Quebec where contactless debit and credit cards can be tapped to pay bus fares. Mastercard has worked in over 100 cities worldwide, including London, Singapore, Sydney, New York and Mexico City, using our technology and partnerships to help modernize transit fare payments.
Before moving to Canada, I experienced the London contactless roll out firsthand. Transport for London (TfL) runs one of world’s busiest public transportation networks, with more than 30 million journeys taking place each day on their trains, buses and Underground networks. For more than a decade TfL has used Oyster, a pre-loaded contactless smartcard as its ticketless payment system, eliminating the need to use cash to pay for fares. Over time, however, rapidly changing technology and a wider desire for more accessible and connected system signaled an upgrade was in order. In addition to being inconvenient for international visitors, Oyster imposed significant operating costs on TfL: the agency was spending nearly 15 per cent of its revenue collecting it. Using Mastercard contactless payment technology as the enabler TfL enhanced the Oyster infrastructure to make it capable of accepting payments from contactless payment cards. Today around half of all pay-as-you-go journeys on the TfL network are paid that way. The challenge for Mastercard was adapting the convenience of tapping to pay in a store or coffee shop to a transit situation. Normally, a transaction involves a single tap but trips on TfL involve two taps when entering and leaving the system and the cost isn’t known until both of those are completed. Working with TfL, we unpacked how a contactless transaction works and reused the component parts in a different way to help them upgrade their system. Implementing a contactless payment option has resulted in operational efficiencies. TfL was able to reduce fare collection costs by 30 per cent. Despite an almost five per cent increase in Tube journeys, the transit system experienced a 10 per cent drop in Oyster card purchases at Tube stations. In a similar pursuit of a more efficient system, New York City recently announced contactless payments will be accepted across all subway stations and buses by late 2020. Contactless credit and debit has many advantages for public transit, making it easier and more convenient for riders. It eliminates barriers for occasional users or visitors as they would no longer need to buy into the proprietary system or carry change. The friction of waiting in line at ticket booths, ultimately slowing down commuters is also removed. In Mexico City, subways and bus networks carry 5.5 million travellers daily and require different ticketing systems. Mastercard partnered with local banks to launch a contactless debit card to be used for transit payment and everyday purchases. In the first three months over 300,000 cards were issued. Everyone's moving in this direction. It's time for all Canadian cities to get on track. Iain McLean is senior vice president of Canada market development, Mastercard
Modernizing Canada’s transit payments By Brian Weiner
s one of the most digitally advanced payments markets in the world Canada is at the forefront of the transition towards a cashless society. According to the Merchant Segment Study researched by Euromonitor International, an estimated only 11 per cent of Canadians’ personal consumption spending is done with cash or cheques: putting Canada among the lowest users of cash and cheques globally. Canadians are increasingly replacing cash in favour of digital forms of payment. In fact, our data indicates that more than half of all point-of-sale Visa transactions are completed by simply tapping a Visa card. In a market like Canada where electronic payments have been so ubiquitous for such a long time, consumers expect fast, simple and secure payments: whether they are tapping to spend in a grocery store, shopping online or paying for a coffee. But mass transit is a segment where we have not seen the same frictionless experience. Most often riders must pay with exact change, use pre-loaded payment cards or line up at kiosks to purchase tickets or tokens. And when riders are changing modes, like from a commuter train or ferry to a bus or subway they may have to buy separate tickets, which may cause them to miss their connections. Using contactless payments for fares would then save valuable time 6
for transit users. In May 2018, Metro Vancouver, British Columbia’s TransLink became Canada’s first transit operator to allow riders to use their credit cards to “tap & ride”. This eliminates the need for users to wait in line to buy tickets, reload payment cards or carry exact change. It will make TransLink a leading transit system in Canada and a top example within North America. Transport for London has seen over 1.7 billion tap-to-pay trips as a result of a similar implementation. The success in London is now leading more cities to announce plans to introduce contactless technology to pay for travel, including New York and Boston, which, like London, have complex transit networks that date back to over 100 years. Sydney, Australia has announced a similar project with more to come across Europe, South America and Asia. In Canada, a number of cities such as Montreal, Laval and Edmonton are working to bring contactless payments to their transit systems in the next few years, emulating what is taking place in leading cities around the world. We hope to bring similar projects to Toronto, Calgary and to other major metros. The approach makes sense: many transit systems already have the infrastructure in place to accept contactless payments and consumers May/June 2018
are already familiar with tap-to-pay transactions. For regular riders, contactless payments keep people moving, which will improve the everyday commute. For infrequent transit users or tourists, it simplifies the process. No more fumbling for change: just tap and ride. For transit operators, not only will the shift to contactless payments save money, it could make them more effective and efficient and this technology also has the potential to free up resources to reduce ticketing overheads, improve the customer/passenger experience and boost ridership. Visa’s recent Cashless Cities study found that transit agencies spend an average of 14.5 cents of every physical dollar collected, compared to only 4.2 cents of every digital dollar. On top of lower collection costs, operators will also be able to offer a range of flexible fares. And by making the payments process more efficient and keeping people moving, operators can reduce congestion during peak hours. The adoption of open payment systems is a major step forward for transit authorities. But like any big change, there are sometimes challenges. For example, one concern that TransLink addressed in a consumer education campaign is card clash, which occurs when consumers who tap their entire wallet find that an unintended card was charged. While it can be a frustrating experience for the few times that it may happen, TransLink assured customers that multiple cards will not be charged for the same tap. It is an important part of the process to educate customers about card clash and to make sure they are only May/June 2018
SeaBus, the TransLink ferry that connects downtown Vancouver with North Vancouver is very popular with residents and visitors alike, both of whom benefit from TransLink's new contactless VISA or Mastercard credit card or mobile wallet “Tap to Pay” system.
tapping the card they want charged instead of their wallet when paying for transit. Some riders may be hesitant to use their credit or debit cards when using mass transit for security reasons. Like all forms of Visa card acceptance, keeping payment data safe is of paramount importance. Contactless payments use the same dynamic security as EMV contact chip cards. Every transaction includes a unique onetime passcode in place of personal account information, ensuring that the card information transmitted cannot be used to create counterfeit cards. This helps make the process safe and secure, no different than making a purchase at other retailers. So how long will this take to roll out across Canada? Deployment time depends on a variety of factors, including the complexity of the operator. For instance, multi-modal operators with complex fare structures may take longer than single-mode operators with simpler fares. The overall process—from ideation to implementation—can range from six months to several years. Visa looks forward to working with transit operators across the country to streamline the process and help speed implementation. The move to contactless payments in transit is powerful, bringing convenience and ease to everyday riders and visitors while providing efficiencies for the transit operators. It benefits the entire ecosystem and is a key milestone for the future of transit. Brian Weiner is vice president and head of product, Visa Canada
Understanding Canada’s $16.4 billion payments industry By Mike Bradley and Jeffrey Stewart
n the last few years, the Canadian payments space has garnered an unprecedented amount of attention. New players—large and small—clearly see opportunity in the ecosystem particularly as businesses and consumers begin to pay more attention to their payments choices to reap both convenience and rewards. This behaviour is indicative that payments matter now more than ever. Yet the size and scope of the industry has gone relatively undefined. With the future of payments in mind Payments Canada and Northcard set out to quantify the space. The results—while estimates—are profound. Our research revealed that estimated payments industry revenues were more than $16 billion in 2016. This puts the industry’s near-one-per cent contribution to the gross domestic product (GDP) slightly above crop production and arts and entertainment and just below the truck transportation and food services sectors.
understand payments as an industry and be able to communicate with all of the players who can contribute to harness them. There needs to be a standard industry view that allows players to anticipate cross-impacts as payments migrate across streams and understand the effects of regulation, innovation, data security and other issues. By better understanding consumer and business perspectives and how they allocate their basket of payments, payment industry players can plan for, react to and explore business growth opportunities.
A function-based approach to understanding Payments Canada and Northcard have taken a functional approach to naming and framing the payments ecosystem in its entirety. A function-based approach provides the basis for developing a common understanding and language across the industry. This functional approach breaks payment transactions into four distinct steps as a payment travels across the value chain.
Opportunity awaits Behind the numbers the payments industry is undergoing rapid change: • Big Tech and FinTech are altering the customer both consumer and B2B and merchant payment experience, integrating data and moving up the value chain; • Industry incumbents are driving innovation and extending their business models in order to react to new competitors and grow; • The rules of the game are also changing with the expansion of function-based regulation, including Canada’s emerging Retail Payments Oversight Framework; and • Core infrastructure and rules are evolving towards real-time payments, gross settlement and richer data. But to take full advantage of these developments we need to fully 8
First, the user interacts with the payment in the Experience layer. Second, payments are initiated and receive confirmation in the network Connection layer. Third, a Ledger layer tracks and debits/ credits a payment account during a transaction. Fourth, and finally, funds are transferred through clearing and settlement to achieve payment finality i.e. the Balance layer. Beyond the transaction itself, rules and regulations, data services and other supporting functions also support the steps in the value chain. We have estimated revenues for the major lines of business May/June 2018
Payments Industry Revenue Estimates Credit Cards Retail Payments
Estimated Gross Revenues $16.4 billion
Prepaid (Open) Prepaid (Closed)
Ledger Layer (Account Holders or Issuers)
Loyalty (Open) Acquirers / Processors ISOs and Gateways Payment Networks
Connection Layer (Networks and Processors)
©2018 Northcard Inc.
within the transaction portion of the payments industry, namely the Connection and Ledger layers. Perhaps unsurprisingly, the largest revenue generators in payments are in the Ledger layer where account-based payment products reside: • The credit card business ($5.29 billion) and retail account payments ($6.38 billion) are both dominated by the major financial institutions; • Prepaid cards ($872 million including open and closed card revenues) and loyalty coalitions ($1.14 billion) complete the picture of Ledger layer; and • The players in the Connection layer—acquirers, processors and independent sales organizations (ISOs) ($1.94 billion) and the major payment networks ($789 million)—make up the remainder of the industry.
The ledger layer To estimate gross revenues for retail payments, the study deconstructed personal and business package plans to account for the portion of package plan revenues where value is derived specifically from the payment. Similarly, the analysis of the credit card revenues focused on transaction-based revenues: where value is derived directly from the payment. Open loop prepaid card revenues are generated from reloadable (general purpose, payroll, travel cards) and single use (gift, incentive, rebate) prepaid accounts and accrue to prepaid card issuers and program managers. They are estimated at $346 million in revenues in 2016. Closed loop prepaid card volumes include gift cards in a wide range of retail segments including movies, on-line purchases, coffee, electronics and books. This market represents $15.9 billion in value or approximately 2.7 per cent of Canadian retail sales and generate an estimated $525 million in revenue annually. May/June 2018
Loyalty points are increasingly being used as a currency, with cashback programs the most direct example. Revenues are estimated at $1.14 billion annually, net of rewards paid out to consumers.
The connection layer The network Connection layer, which enables acceptance of payment products includes acquirers, processors, ISOs and a mix of gateways, sub-processors and value-added resellers. Acquirers and processors are in a mature industry facing both price compression and rapid technology change. Credit and debit volume growth (new segments) and new products (e.g. mobile point of sale) partially help to offset spread compression. Core revenues reflect transaction processing fees, terminal rental and account and other fees such as gift/loyalty card programs, custom development and gateway operation and are estimated to generate over $1.5 billion in annual revenues. ISOs and others have captured around 13 per cent of Canadian market with estimated revenues of $376 million. Canadian Payment Networks account for just under $790 million in gross revenue, net of incentives, based on transaction, foreign exchange and other account activities. Ultimately these revenue estimates are just that and cannot be formally validated without direct industry participation. However, it is hoped that this study demonstrates the value of a function-based view of payments, spurs further dialogue and improves the fact base related to our industry—which makes a significant contribution to the Canadian economy. Mike Bradley is managing director of Northcard Inc., which provides payments and digital banking consulting services for some of North America’s leading industry players. He can be reached at firstname.lastname@example.org. Jeffrey Stewart is a business analyst at Payments Canada, which is responsible for the Canadian clearing and settlement infrastructure, processes and rules essential to those transactions. He can be reached at email@example.com. PAYMENTSBUSINESS
Feeding the need for data speed By Stacy Gorkoff
n a world of ever-shifting consumer banking habits and real-time payments the concept of time-sensitivity takes on a whole new meaning. From the customer perspective, instant notification and gratification has become the expected norm. From the operational performance and fraud perspectives the speed of remediation affects not only the customer experience, but also reputation and profitability. This is why reliable access to real-time data has become such a fundamental part of retail banking and payments analytics strategies. But determining the relevancy of real-time data to your financial institution will depend on how you answer the question, â€œWhen is my immediate response required (or desired)?â€? All of us feel the pain associated with having less time to make decisions, spot risks or identify opportunities, especially while dealing with a higher velocity of data related to card payments,
Internet of Things (IoT) objects, sensors, mobile or clickstream data. And honestly, if a bit of data latency or delayed reaction does not result in a major impact on customer retention, channel profitability or your reputation then no big deal. But there are more and more teams within banks and financial institutions that claim to need real-time data to do their jobs: marketing, IT, channel operations, fraud prevention, customer experience and support to name a few.
Real-time data analysis use cases It seems the more progressive a financial organization is about adopting a collaborative approach towards customer-centricity, the more it makes sense to invest in the analytics skills and technology infrastructure needed to support real-time use cases, such as: â€˘ Continuous monitoring of all transaction chain components. Proactively resolving host, third party, network or application performance issues before they impact customer experience;
• Real-time triggers for fraud monitoring and Advanced Persistent Threats (APTs). Identifying and predicting potential attacks before they result in major losses; • Real-time customer usage and profitability analysis. Immediately responding to shifts in customer behaviour and buying habits, while also spotting customer acquisition opportunities; • Real-time marketing responsiveness. Offering quicker account openings and updates, delivering personalized promotional offers and providing faster interaction times for payments, mobile alerts and social media responses; • Real-time tracking of compliance risk and service level delivery. Instantly matching systems of record and systems of engagement to reduce operational risk; and May/June 2018
• Omni-channel and cross-channel management. Establishing holistic, real-time analysis of customer activity across all banking channels and payments devices. There are a growing number of use cases (like the above) where mining real-time data seems to make sense and a "slow motion” approach to data acquisition and processing is not enough. If you can improve the speed at which you acquire rich customer insight, and make this data easily available across your organization, you stand to have the most success when it comes to delivering an amazing end-to-end customer experience. The challenge is to figure out how to do all this in a consistent, cost-effective manner.
Data analytics Fast, effective, efficient analysis tools
on-demand, vertical-specific data visualization solutions has made it possible for banks to develop intelligent “lenses” that deliver relevant data to each stakeholder or team involved in positioning the customer center stage. Behind these user interfaces for “novice” analysts are advanced cognitive systems, machine learning models and predictive algorithms designed to continuously learn and forecast customer behaviours. These advancements in storage, visualization and modeling capabilities are making real-time customer data more valuable than ever before. In summary, we are generating and collecting more information about customers faster than ever. If analysis of this information takes days, or even weeks, banks and financial institutions will find they lack a required level of responsiveness when it comes to building lasting customer relationships, dealing with fraud or managing operational performance issues. With real-time data analytics financial organizations can move faster and smarter: exactly what every organization needs to boost financial performance, improve customer experiences and manage risks.
The good news is that real-time data analysis can now happen with less resources and without blowing the technology budget. State of the art data management moves you away from the dependency of stale fragmented data that has been painfully gathered from application logs, flat files, banking systems and relational databases. It adopts the concept of a centralized data hub that makes data accessible to multiple teams and applications: anytime and anywhere. Decreases in hardware costs, coupled with technology advancements in real-time data pipes, live data streaming, scalable data storage, processing and data visualization have made it way easier and costeffective for financial institutions to adopt real-time data analytics. For instance, we are seeing an active movement away from expensive, latent data warehouses to adopting cheaper, scalable data stores or clusters. The ability to analyze increasingly massive (and increasingly diverse), datasets in real-time has also become way more affordable with the Cloud and open source projects such as Apache Hadoop and Spark. With the streaming data and processing technologies available today, answers are continuously updated. This means financial institutions now have the ability to perform continuous analysis on data points that can be used to change decisions and determine a new business path at any time. We are also seeing an evolution from canned reports to selfservice analytics and real-time monitoring. A new generation of
Stacy Gorkoff is vice president marketing and channel development for INETCO Systems. She is responsible for overseeing strategic marketing, brand awareness and communication initiatives. Stacy has over 15 years of experience working with leading edge network monitoring and application performance management companies in a marketing, communications and business development capacity.
The 2018 DM
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One year later: analytics solutions improve IFRS 9 management By Kevin Deveau and David Binder
his time last year we found ourselves discussing the upcoming transition to International Financial Reporting Standard 9 (IFRS 9). A year later and months after IFRS 9 came into effect we can observe its impact on compliant organizations.
Let’s review IFRS 9 resulted in part as a response to criticisms that its predecessor, International Accounting Standard 39 (IAS 39), was inconsistent with the way entities manage their businesses and risks and deferred the recognition of credit losses on loans and receivables until too late in the credit cycle. The new standard took effect on January 1, 2018, with earlier adoption permitted. In Canada the Office of the Superintendent of Financial Institutions (OSFI) required adoption for all Canadian Domestic Systemically Important Banks (D-SIBs) by November 1, 2017. However, organizations whose predominate activities are insurance-related can delay their implementation until 2021.
What we found with companies, like Canadian Tire For many organizations—especially those without sufficient internal resources—a project of this magnitude required collaborating with an organization that has deep analytics expertise, like ours. One challenge was to develop forward looking analytic models that would effectively predict credit losses in compliance with the new requirements. Another major challenge was implementing these models to support both production processes and portfolio management. One organization that FICO worked closely with to manage IFRS 9 impacts was Canadian Tire Financial (Canadian Tire). We helped Canadian Tire navigate the complexities of the new standard, develop compliant models and implement a systemic solution to produce well-governed, auditable and explainable IFRS 9 impairment results. The implementation came with some surprises. In Canadian Tire’s case their new IFRS 9 provision number was much higher May/June 2018
than expected. Armed with accurate data and analytics, however, we were able to explain the figures and ultimately prepare them to defend their accuracy and drivers. FICO worked hand-in-hand with Canadian Tire’s internal analytics and IT teams to transfer the knowledge that went into the construction and implementation of the models to ensure that they were able to maintain them on their own. In addition, Canadian Tire gained: • Confidence in their provision numbers. Canadian Tire gained a clearer understanding of their provision numbers and how best to manage them. Their team understand what the numbers mean and how they can accurately forecast expected credit losses over the remaining lifetime of each account; • Reduced exposure to risk. With a high standard for compliance and a very detailed analytical approach Canadian Tire can minimize its risks and continue to pursue opportunities that are optimal for their organization; • Seamless model execution. By implementing FICO’s models into its Impairment Management Solution (IMS) software platform, Canadian Tire was able to integrate all of the various data sources, enabling efficient model calculations to be done on a scheduled basis or as needed with no intervention; and • Better governance. IMS is easy to use for both the risk and finance teams, which enables knowledge distribution and increases transparency throughout the decision-making process.
What organizations experienced For organizations like Canadian Tire IFRS 9 wasn’t just an accounting change. It was an opportunity to enhance models, improve processes and refine decision strategies to help them better compete. The changes to the provision levels directly affect profitability, capital and returns so it is important to have insight into and management over these drivers. Knowing which levers to pull when, helps keep these crucial financial figures under control. Those organizations who approached the transition to IFRS 9 with foresight will be better prepared to deal with sudden changes in the Continued on page 20
Payment processing trends
Gaylon Jowers, Jr., senior executive vice president and president of issuer solutions, TSYS.
By Brendan Read
he payments processing industry is in the midst of considerable change. What are the key developments and challenges? Payments Business discussed them with Gaylon Jowers, Jr., senior executive vice president and president of issuer solutions, TSYS, Paul Parisi, president, PayPal Canada and Kiki Plytas, chief operations officer, Merrco. Our conversation covered topics including real-time payments, new market entrants, social media payments, migration from cheques and cash, emerging technologies, the Internet of Things (IoT) and wearables and cryptocurrencies and blockchain.
Paul Parisi, president, PayPal Canada.
Payments Business (PB): What are the top growth opportunities for the Canadian payments processing industry? Jowers: 1. Rewards innovation. Rewards continue to be a powerful incentive and were once again ranked as the most attractive feature on consumers’ most preferred credit card, according to TSYS’s recent Canadian Consumer Payment Study1. Credit card providers continue to compete fiercely in the rewards space and is a major reason they continue to attract new customers. 2. Growth potential of prepaid products. Prepaid products are one-way financial institutions can offer solutions to two targeted segments: individuals who are new to banking and those who are new
Kiki Plytas, chief operations officer, Merrco.
to Canada. An example of the first could be a teenager. While they aren’t legally allowed to possess credit card products issuers can market to them with a prepaid product. Banks can graduate them to a more traditional credit product when they are ready. Of the second those that are new to Canada may not immediately qualify for a credit card product. Some of these immigrants could pose a credit risk initially so one of the ways issuers are tackling this is with a prepaid product. This helps them understand purchase history and gain knowledge about these new customers before offering them lines of credit. 3. Drive towards real-time payments. Canada is modernizing its payment system that will make it faster while the May/June 2018
Vendor Roundtable U.S. is moving to faster payments as new technology debuts to make payments faster, easier and safer. The move is being driven by the expectations of consumers and businesses. 4. Migration away from cash and cheque by consumers. Contactless card usage continues to increase while the use of cash has gone down. Using contactless cards not only enables a fast and convenient checkout experience for consumers, it’s also easier for retailers and merchants because they don’t have to deal with certain headaches that cash can cause. Additionally, from a commercial standpoint, you’ll see e-payables replacing cheques. Years ago, some of the big banks decided to get out of the commercial card issuing business but then they started looking at this business again over the past few years. When talking to Canadian big banks they are focused on providing commercial payment solutions to their customer base. One of the ways this can be achieved is by tackling the bigger e-payables market at banks with large commercial relationships. Parisi: 1. Creating frictionless payments. People and business owners want simplicity, speed, security and mobility in their payments. Payment innovation that improves customer experiences and eliminates cumbersome steps from the process is critical. For example, PayPal’s One Touch feature helps remove barriers to online shopping by allowing users to remain logged in for easier and faster checkouts, while keeping their financial information secure. 2. New technology. Emerging technologies —from advancements in biometrics to artificial intelligence (AI) and virtual reality (VR)—are enabling more personalized experiences in new contexts. AI and machine learning are being used in the FinTech industry to deliver rich, data-driven insights that allow businesses to focus on delivering highly personalized purchase experiences. VR-fitted payment platforms are enabling shoppers to purchase virtual items with just a gesture. As these May/June 2018
technologies become more mainstream they will move beyond novelty to essential components of the payment system. 3. Partnerships. Rapid changes in technology and widespread use of digital devices have created a heightened demand for more personalized and customizable products and services. Today’s consumers want more control over their experiences and they value choice. Maximizing the opportunities presented by the digital economy, while also keeping up with customer patterns that can change seemingly overnight, will require a fundamental shift in strategy. To prepare our businesses for the next wave of transformation and opportunity and to produce scalable innovations we need to partner. Banks, insurance companies and government agencies have started partnering with newer FinTech players to deliver better products and services for their customers and expand into new verticals and markets. 4. Contextual commerce. Payments will increasingly occur through experience. Contextual commerce—like Pinterest and Instagram Buy Buttons and Amazon’s Alexa—provides a significant growth opportunity for payments by leveraging this habit. Creating more opportunities for customers to purchase goods within online or social media platforms they are already engaging with eliminates interruption to the user browsing experience and makes payments seamless.
FinTech players have been jumping into the payments industry in Canada and the rest of the world. While these new entrants can bring innovation to the industry it is often done without a focus on safety and soundness. The industry must find a balance between the new technologies being introduced and the safety and soundness consumers and businesses expect. 2. Regulatory environment changes. Governments continue to increasingly regulate the financial industry in the name of consumer advocacy, but often with high costs and unintended consequences. Whether you look to Europe with the General Data Protection Regulation (GDPR) or some of the actions of the Consumer Financial Protection Bureau (CFPB) in the U.S. the trend is there. 3. Security. With the growing sophistication of fraudsters and hackers, everyone in the industry is concerned with keeping data safe, secure and sound. This is top of mind to issuers, processors, acquirers, consumers and many others across the industry. You have to constantly be thinking about how to keep data safe. 4. Downward trajectory of interchange over time. Across the globe interchange rates have been declining. This is a threat to the rewards innovation, which continues to be a growth opportunity. Increased rates and fees could be passed on to cardholders as a means of replacing lost revenue.
Plytas: Cannabis—both medicinal and recreational —is a key growth opportunity (no pun intended!) for Canadian payment processors. The use of a middleperson to facilitate international payments through Canadian platforms, the ongoing integration of Big Data and new technology also represents areas of opportunity.
Parisi: 1. While Canadians are shopping online and using cashless payments, Canadian small businesses are struggling to keep up. PayPal research has shown that only one in five (17 per cent) Canadian small businesses are selling online and as a result they are missing out on customers who want digital experiences. A thriving e-commerce environment in Canada can lead to greater trade, employment and income opportunities. 2. Consumers have broadly abandoned cheques as a payment method. Among Millennials cheque use is down 25 per cent while 20 per cent of them have
PB: Conversely, what are the top challenges facing the industry? Jowers: 1. Disruptive and non-regulated new market entrants. Small and large
Vendor Roundtable never written a cheque2. But businesses still use cheques, which is costly to them. Payments Canada has reported that both large corporations and small-to-medium sized businesses (SMBs) reported cheques as their most commonly used payment method overall for business expenses3. Yet the cost to business of preparing a single cheque can be as high as $254. Businesses must instead adopt digital solutions to remain competitive and cost-efficient. 3. International remittances are too expensive. This is of particular importance to Canadians. A Pew Research Center survey revealed immigrants to Canada send more per capita in remittances out of Canada than immigrants in almost any other country5. The amount is significant too: The World Bank reported $24 billion in remittances in 2012 alone6. The United Nations has stated that average cost of an international remittance should be five per cent of the total, but in most cases the cost greatly exceeds five per cent7. The most cost-effective way to send remittances is to do so less frequently and in larger sums but that format doesn’t match with how people typically send money to loved ones around the world. Plytas: Payment processors need to be a step ahead versus just staying on trend. Key challenges in the payments processing industry today are growing compliance and regulatory requirements, fierce competition, everchanging technology and globalization with international markets converging. Therefore, we need to integrate into these systems and leverage opportunities.
PB: What will it take to move more payments away from cash and cheques? What payment methods will gain as a result? Jowers: We believe the movement toward digital payments comes down to user experience. As digital wallets become easier to use—and younger generations that are more familiar with the technology mature —cash and cheques will be less relevant. According to TSYS’s recent Canadian Consumer Payment Study, half of our 16
respondents believe that over the next two years at least 25 per cent of their instore purchases will be made using mobile phones8. Credit and debit cards should gain from this trend since they are typically the payment source for digital wallets and because many consumers will be reluctant to give up rewards programmes or longstanding banking relationships. Peer-to-peer (P2P) payments options are also helping people move away from cash and cheques. Many people only use cash for smaller transactions like paying a babysitter. As P2P solutions such as Interac or Venmo gain in popularity we think more people will move entirely to digital payments. However, it’s not clear whether P2P platforms can make the leap from a niche service that facilitates transactions between consumers to an accepted payment source by merchants. Parisi: The shift from cash and cheques to digital payments is already happening. Payments Canada noted that cash use has dropped 20 per cent since 2011. The shift to cashless payments is driven by convenience and access to technology, namely the Internet and mobile phones. Canadian consumers want to have ease and speed built into the way they pay, which has resulted in increased preference for these kinds of seamless payments, especially for e-commerce. To illustrate, Canadian e-commerce spending is forecasted to reach $42 billion this year and globally this figure is expected to hit $27 trillion by 20209. In 2017 PayPal processed 2.7 billion in mobile payment transactions globally, which represented a 39 per cent year-over-year growth. In the first quarter of 2018, PayPal processed $49 billion in mobile payment volume, representing 52 per cent growth year over year. Plytas: Continuous evolution of technology to meet the demands of the consumer and making digital payments frictionless will move payments away from cash and cheques. As we move towards cryptocurrencies digital P2P payments will grow as well.
PB: What role do you see for social media payments, particularly QR-code
based methods e.g. Alipay, WeChat Pay? Will they grow the payments market or displace other payment types? Jowers: It’s important to remember that Alipay and WeChat developed in an environment that’s very different than Canada. These platforms effectively filled an unmet consumer need for seamless payments and money transfers, whereas the financial services industry in North America is mature and has been providing these types of services for a very long time, albeit in a different form. In Canada, we believe credit and debit card issuers will be very protective of their clients. Take credit cards, for example. Canadians love credit cards because of the rewards programs they offer, from sky miles to cash back incentives. Our Canadian Consumer Payment Study found that 87 per cent of people say that rewards were important when deciding which payment form to use10. We expect credit and debit card issuers to fight very hard to keep clients happy and using their products. Although the Canadian market is different from countries such as China, TSYS is watching the payments innovation that’s happening across social media very carefully. We know that the way people pay and transfer money will evolve and we intend to be very competitive in this space no matter what the transactions looks like. Parisi: Social media payments have been more prominent in global markets —particularly China—but there are opportunities for social media payments to grow in Canada, especially through the social channels Canadians already regularly use. Facebook for example has already partnered with payment providers, including PayPal, to help bring this functionality to the masses in North America. Rather than displace or disrupt social media payments will provide more options to consumers for how they want to pay. And greater choice aligns to the customer’s preference for convenience, ease and simplicity when it comes to payments. Venmo, which is PayPal’s social payments platform in the U.S. processed more than May/June 2018
Vendor Roundtable $40 billion of total payment volume in 2017. In the first three months of 2018 Venmo processed more than $12 billion in payments, growing 80 per cent over the same period last year. This clearly demonstrates the rise of social media payment platforms. Plytas: WeChat Pay and Alipay are changing the payments landscape by making it truly possible to pay for anything, anywhere. For retailers this means that a QR sticker on a product sheet, advertisement or social media site can now generate a sale without the need for a physical store. AliPay and WeChat Pay’s commitment to the world’s largest population secures their position in the evolution of global digital payment methods.
PB: New devices such as Internet of Things (IoT)-equipped products, virtual assistants and wearables are being used as or may become payment channels. Discuss the trend and its pros and cons. Jowers: TSYS’s recent Canadian Consumer Payment Study found that 37 per cent of people who own an artificial intelligence (AI) powered personal assistant, such as an Amazon Alexa or Google Home would use it to make purchases or payments11. We believe there are two things holding back others from doing the same: security and user experience. Among those who would not use their device to make a purchase or payment, 56 per cent sited security concerns and 35 per cent said it was easier to pay using other methods12. In order for consumers to get comfortable with new payment options, the process has to be safe and seamless. Some of the brightest minds in the payments and technology industries—including at TSYS —are focused on dismantling the obstacles that keep people from using various digital payment methods, so we expect ongoing innovation in this area. Consumer adoption will follow. Parisi: Customer convenience drives payment innovation and change in the industry and incorporation of these devices into the payment ecosystem are the latest iteration. May/June 2018
These days, anything Internet-enabled could potentially be used for payments. From cars paying for gas at the pump, to refrigerators placing an order directly with a grocery store, the payments industry is moving towards everyday payments that are simple, secure and seamless. The growing number of payment channels like these will continue to build choice for consumers. At the core, these technologies are all about reducing the friction consumers experiences when making payments, with the ultimate goal of turning the transactions invisible. Invisible payments take traditional payment methods such as cash, debit or credit cards and card readers out of the equation and use mobile or digital wallets to transact. These types of payments are fast becoming the preferred way to pay for many customers because it is quick, takes place in the background and is secure. But as these new channels develop and transactions become invisible it is important to ensure that all businesses, including SMBs, can benefit from them.
PB: Do you see cryptocurrencies becoming adopted in Canada? What methods would they compete with? What impact would they have on payments processing? Jowers: Cryptocurrencies are still in an embryonic stage and the industry is largely unregulated. What we are focused on is blockchain technologies and how they are being adopted and used in the market. We are engaged in ongoing dialogue with our clients to understand their interests and positions. Parisi: We’re seeing cryptocurrencies being introduced which completely challenge the way traditional institutional banking functions by allowing a global network to transact and without an intermediary. For cryptocurrencies to flourish, regulations first need to be sorted out among a long list of other checks and balances in favour of consumer protection. Blockchain, on the other hand, is a different story. In my view, blockchain is the more powerful part of the landscape.
Cryptocurrencies are just one application. At PayPal, we have a team that is looking into the potential ways blockchain can be used to enhance payments for our consumer and merchant customers. Blockchain’s fundamental advantages are that it enables distributed trust without a central trusted intermediary and also enables the creation of a shared, unalterable, trustable record of facts. Blockchain has been getting lots of attention as the cool new kid on the block, but people are still wondering what they’re going to use it for. Currently, the focus has primarily been on the dramatic increases and decreases in the value of cryptocurrencies. As the year progresses, the conversation around blockchain will move into the realm of pragmatic reality with use-cases becoming more concrete. For example, selfexecuting smart contracts are beginning to make strides towards maturity in implementation. Solutions for some of the payments industry’s time-consuming steps —like clearing, settlement and international remittances—could also see initial implementations in the first half of 2019. Plytas: We already see cryptocurrencies being adopted in Canada as consumers become increasingly familiar with crypto and place trust in it as an established source of funds. Transaction costs may ultimately be lower if traditional players are not part of the equation. 1 “TSYS 2017 Canadian Consumer Payment Study”, report, p.7, September 15, 2017. 2 FirstData, “The Unbanked Generation: A Guide to the Financial Habits of Millennials”, report, 2015. 3 Payments Canada, “2017 Canadian Payment Methods and Trends”, report, December 14, 2017. 4 “We phased out the penny. Our cheques should be next”, Maclean’s, editorial, September 8, 2015. 5 Pew Research Center, “Remittance Flows Worldwide in 2016”, report, January 23, 2018. 6 Douglas Todd, “Remittances: $24 billion a year sent home from Canada”, Vancouver Sun, column, July 31, 2014. 7 Remittances: $24 billion a year sent home from Canada”, Vancouver Sun, editorial, July 31, 2014. 8 TSYS 2017 Canadian Consumer Payment Study, ibid., p.32. 9 PayPal, PayPal Cross-border Consumer Research, report, 2016. 10 TSYS 2017 Canadian Consumer Payment Study, ibid., p.7. 11 TSYS 2017 Canadian Consumer Payment Study, ibid., p.8. 12 TSYS 2017 Canadian Consumer Payment Study, ibid., p.36.
Tourism & Hospitality
How smart mobile payments drive Chinese tourism By Aivon Long
hanks to the rising living standards and increasing income travelling overseas is no longer a luxury for many Chinese tourists. Known for their keen sense of shopping, travelling and food tasting, the Chinese become the new target guests for tourism destinations. According to the Chinese Tourism Academy, Chinese tourists made approximately 130 million outbound trips in 2017 and spent a total of $115.29 billion USD.
Success in Finland Alipay, the mobile payment and lifestyle platform with more than 870 million registered Chinese users, is rapidly becoming a musthave tool for businesses in tourist hotspots. It is being accepted by more and more merchants globally. One example is Finland. According to the Visit Finland website the number of Chinese visits rose by an impressive 63 per cent: from 265,000 in 2016 to 432,000 in 2017. Alipay allows Finnish merchants to better serve and attract the growing number of Chinese tourists. Finnish businesses from catering to accommodation, from resorts to entertainment and from restaurants to retail have followed suit. Marika Aukeala, a women’s fashion sales assistant at Stockmann, the biggest department store in Northern Europe and whose flagship store is in the Finnish capital of Helsinki thinks that one more payment method means more sales. According to the retailer’s 2017 data, the number of Chinese visitors to the store grew by 20 per cent yet sales from this same group increased by nearly 30 per cent. Overall Chinese spending in Finland rose by 39 per cent in 2017 to reach a total of $412.5 million USD, or an average around $1,553 per person, according to Business Finland1.
Serving Chinese visitors, immigrants in Canada Now, partnered with local Canadian payment companies, Alipay has arrived in Canada. However, Alipay is not alone; its major domestic competitor has also landed. WeChat Pay, based on the giant social network of more than 1 billion active monthly users, is aiming to become the first portal and access point for Chinese smartphone users. As the most frequently used and highest time spent app, 18
WeChat may have more influencing power in today’s Chinese consumer market. Both Alipay and WeChat Pay are quickly being adopted in the Canadian marketplace as a means to attract and retain Chinese consumers. With nearly 700,000 tourists hailing from China in 2017, up 12 per cent from 2016, China was Canada’s largest source of tourist arrivals from the Asia-Pacific region and Destination Canada’s second largest overseas market. The timing is excellent. 2018 is the Canada-China Year of Tourism, proclaimed by Prime Minister Justin Trudeau and Chinese Premier Li Keqiang. 2018 is expected to show an increase of 30 percent in traffic according to the Canadian government2. The growth in Chinese tourism will continue beyond 2018. The Canadian government wants to double the number of Chinese tourists coming to Canada by 2021. To facilitate the demand it recently opened seven new visa application centres in China to assist visitors with their travel. Not only that there is a large Chinese population in Canada. According to the Canadian government over 1.7 million Canadians, or about five per cent of the population have Chinese ancestry, leading in the rise of travel to visit friends or family. Mandarin and Cantonese are the most spoken Canadian languages after English and French. It is fair to say that without the Chinese there would be no Canada as we know it. Thousands of Chinese immigrants came here to build the Canadian Pacific Railway, and many of them gave up their lives doing so3. The railway’s completion in 1885 that united Canada is a tribute to their hard work and sacrifice that laid the foundation for the country. Alipay and WeChat Pay are starting to remodel the payment process in Canada to facilitate Chinese consumers’ purchasing experience. Toronto, Ontario—based OTT Pay Inc. is working with both Alipay and WeChat Pay to introduce these mobile payment solutions in Canada. Chinese travellers along with international students and immigrants are able to make payments in Chinese currency, which is then converted to Canadian dollars and transferred Continued on page 20
Gaining edges with the mobile first generations By John Yawney
rends in the behaviour of consumers are changing the financial industry as we know it. By the end of this decade Generation Z (Gen Z) and Millennials will be the largest market demographic and their needs are vastly different from what the industry currently offers.
Gen Z expectations Let’s look at Gen Z. Gen Z alone is projected to make up 40 per cent of all U.S. consumers by 20201. Gen Z has always had access to Google, Facebook and Amazon, making their expectations for immediacy, superior customer experience and individualized service offerings much higher than any generation before them. Their needs range from real-time platforms, mobile-first decision-making and marketing, as well as enhanced individualized loyalty and rewards programmes. Companies which the Gen Z consumers grew up with: WhatsApp, Apple and Facebook are now competing in the financial industry. These new players already have vast amounts of user data, thereby giving them an advantage in appealing to Gen Z. These companies’ technology is already both real-time and specialized in responding to changing customer needs and adapting to new environments. As explained by Facebook's product manager for Facebook pay Steve Davis, “conversations about money are already happening on Messenger”2. These conversations range from splitting the cost of bills to repaying debts from a night out. Now users have the convenience of remaining on the same applications to complete peer to peer (P2P) transactions.
Enabling secure frictionless payments Meeting Gen Zs’ and Millennials’ desires for immediacy and security, governments around the world are putting into effect new regulations for speeding up the rate at which transactions are settled. Canada has adopted ISO 20022, which will modernize our payment systems and rules and standardize financial technology across all systems. One challenge that is raised with real-time payment settlement is fraud detection, which will also need to be updated to work in May/June 2018
real-time. Traditional transactional system architecture will not be sufficient as it is too inflexible and would have to be replaced at great cost. To be compliant, big data solutions such as distributed real-time computation systems will need to be implemented. Consulting and advisory companies which have experience with big data architecture and machine learning could help to create this new architecture. To help facilitate immediacy for the next generation of consumers, payment processors have integrated frictionless billing options such as Amazon’s one-click ordering. In this case, ISO 20022 adoption is a positive for fraud detection. By standardizing technology across the board fraud detection can be implemented much easier. This is extremely important: a poll of 5,000 consumers by Paysafe, a provider of payment solutions, had found that “50 per cent of consumers cited fraud as the greatest barrier to using frictionless payments, while 48 per cent expressed concerns around the use of their data.” Being able to use machine learning to classify which payments may be fraudulent in real-time in combination with big data streaming would be possible in ISO 20022-compliant countries. As we have seen with most social media platforms, technology is first adopted by the younger generations then grows to include nearly everybody. According to Deloitte, “[Millennials] consider technology and online platforms an important aspect of financial advice. 57 [per cent of Millennials] would even change their bank relationship for a better technology platform”3. Meeting the needs of this market segment will provide a compounding return. As an example, wealth management roboadvisors initially targeted their services towards Millennials with lower fees and improved customer experience. But now the average age of robo-advisor clients among 13 Canadian firms ranged from 34.4 years to as a high as 50 years old, according to an article in The Globe and Mail4.
Where banks and payment processors can start Traditional banks can start providing innovative products and services targeted to the younger, mobile-first generations. This provides the opportunity to gather a vast amount of data about user behaviour, social interactions and locality which can be used in next phases of PAYMENTSBUSINESS
Mobile building credit models. Applications that allow customers to build budgets and gain credibility when abiding by them will give insight possibly greater than credit ratings on whether to offer loans or credit. Collaboration between large industry players and companies which understand bleeding edge technology is the key to success of these tools. One example is using machine learning algorithms in parallel with big data architecture, utilizing historical information such as training data and real-time transactional data to determine credit rating. This service, along with real-time updates on customers’ full financial profiles is an added value to customers who wish to have more control over their spending habits. Payment processors and banks are in the best position to integrate these services into their offerings through new features within their mobile payment applications. The technologies enable them to provide industry-compliant customer analytics reports to the merchants. This could benefit the payment processors financially as well as merchants for cross-sell and up-sell opportunities. Financial services providers would also be able to build innovative rewards programs for small and medium-sized businesses as part of their card acceptance, payment processing or commercial banking programmes. Assessing credit worthiness, adoption of applications by all generations, as well as big data and machine learning all factor into how successful businesses are and will remain to be. Leveraging these tools and strategic vision, organizations can adapt to rapid changes by being innovative and technology driven. As rapid technological advancements continue to occur, adoption of these technologies will provide an edge both on the consumer and institution sides. John Yawney is the data science lead at Adastra Canada (www.adastracorp.com). John holds a PhD in applied mathematics from the University of Waterloo and has extensive experience performing numerical and statistical analyses. He feels as comfortable with technology as he does with mathematics, having significant development experience throughout an array of programming and scripting languages. His experiences include scientific computations parallelized across massive computing clusters and distributed computations within the Hadoop ecosystem. 1 Jeremy Finch, “What is Generation Z, And What Does It Want?”, Fast Company, May 4, 2015. 2 Josh Constine, “Facebook Introduces Free Friend-To-Friend Payments Through Messages”, TechCrunch, March 17, 2015.
One year later: analytics solutions improve IFRS 9 management Continued from page 13
economy or customer behaviour because, like Canadian Tire, they chose to invest in granular models and flexible software solutions. Other organizations will lag behind as they struggle to interpret and communicate results ahead of the next downturn or credit crisis, whenever it may be. We anticipate a “Round 2” of improvements to models and systems as organizations identify the weaknesses in their current IFRS 9 processes. IAS 39 went into effect in 2005, so we should assume IFRS 9 will remain the standard for at least another decade, thereby justifying further investment in this crucial process. Only time—and the next recession—will help determine which investments really paid off. Kevin Deveau is vice president and managing director, FICO Canada and North American insurance practice lead, FICO. David Binder is senior director, IFRS 9 and CECL practice lead, FICO.
How smart mobile payments drive Chinese tourism Continued from page 18
to Canadian merchants. Leading Canadian attractions and several major hotels are showing themselves to be early adopters of the technology through partnering with OTT Pay Inc. So, is your business “China Ready?” Aivon Long is marketing manager of OTT Pay Inc. A Canadian WeChat Marketing veteran, Aivon has five years’ experience in WeChat content marketing, WeChat Groups promotion and WeChat Media Buying in Canada. OTT Pay is a member of the OTT Group of companies that strive to make life less complicated by offering payment services, recommendations to their customers and inclusive participation in the new economy. OTT Pay Inc. is a proud partner of Toronto Tourism, Tourisme Montréal and Kingston Tourism, helping them to win Chinese tourism and long-term Chinese consumers.
3 Daniel Kobler, Felix Hauber and Benjamin Ernst, “Millennials and wealth management”, Deloitte, Inside, June, 2015.
1 Business Finland, “Spending by international visitors increased by 20% in 2017”, press release, March 19, 2018.
4 Clare O’Hara, “Robo-advisers find popularity where few thought they would,” The Globe and Mail, October 30, 2017.
2 Government of Canada, “About the Canada-China Year of Tourism, “web site, https://www.ic.gc.ca/eic/site/100.nsf/eng/00001.html 3 Omer Lavallee, “Canadian Pacific Railway”, The Canadian Encyclopedia, last revised January 24, 2018.
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2018 Industry events
May May 8 Canadian Prepaid Providers Organization Prepaid Symposium 2018 Toronto, ON cppo.ca May 8-11 Finovate FinovateSpring 2018 San Jose, CA spring2018.finovate.com May 9-11 Payments Canada 2018 Payments Summit Toronto, ON payments.ca May 14-17 Reed Expositions CNP Expo & Conference 2018 Orlando, FL www.cnpexpo.com May 15-17 WB Research eTail Canada 2018 Toronto, ON etailcanada.wbresearch.com
May 29-30 Retail Council of Canada STORE 2018 Toronto, ON storeconference.ca
June June 5-7 Canadian Venture Capital & Private Equity Association Invest Canada Conference 2018 Calgary, AB www.cvca.ca June 5-8 Internet Retailer IRCE Conference + Exhibition 2018 Chicago, IL irce.com June 13-15 FEI Canada 2018 Annual Conference Halifax, ON feicanada.org/2017/Annual/Conference
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Small businesses, consumers express payment method views Here are the results of two business and consumer surveys, from Payments Canada and Visa on payment methods and technologies. Most small businesses want more payment options Canadian small businesses are ready for more point of sale choices for their customers and want more back-office payments options. Most importantly, small businesses want their payments to be safe and secure. These are among the conclusions from Payments Canada's Small Business Survey Edition. Key findings include: • 81 per cent of surveyed businesses are willing to integrate new technologies into their operations. Newer businesses are even keener, rising to 88 per cent for those in operation 10 years or less; • 61 per cent would be willing to move away from cash while 67 per cent would be willing to move away from cheques, if they had other options; • 54 per cent believe they are spending too much time on payment processing activities; and • 87 per cent think it is important that the payments industry continues to evolve. “Given the growing demand for fast, safe and convenient digital payment formats, coupled with the business need to maximize margins, it’s no wonder small business owners are open to more payment innovations,” said Gerry Gaetz, president and CEO of Payments Canada. “There appears to be a higher demand for faster alternative methods as most business owners are willing to move away from cash and cheques—that is, once they have other options.” “Small firms are indeed looking for new, faster ways of payment,” said Dan Kelly, president of the Canadian Federation of Independent Business, an advocacy group for 110,000 Canadian independent 22
businesses. “Many firms are particularly interested in new ways to make businessto-business payments where larger sums of money can be transferred quickly without hold times or high transaction costs.” The introduction of new systems, rules and standards as part of Payments Canada’s Modernization program will foster a faster, safer and more data-rich payments environment. The primary efficiency enhancement for businesses is anticipated to come from new real-time payments, giving small businesses more choice in how they make their payments, and the adoption of the ISO 20022 data standard, a change that has the potential to improve automation and efficiency. Enhancements to the core payment systems are also anticipated to enable new and exciting ways for Canadian households and businesses to pay for goods and services and transfer funds. “While our Canadian payments system is recognized as one of the most secure in the world, evolving based on marketplace demand is essential to economic competitiveness,” added Gaetz. “We know the operational efficiencies from modernizing the payments system will be significant—businesses will be able to chip away at the $3 to $6.5 billion they spend on payments each year. Add to that the emergence of new and innovative products and services, and there is much for businesses to look forward to.”
Trust, security key to payments A recent Visa survey of 1,000 Canadians exploring perceptions of trust and security around payment methods reveals that security and convenience are the most important factors when choosing payment methods. 71 per cent of respondents say they use
chip-and-pin cards regularly: in line with their view that these cards are very convenient (82 per cent) and very secure (74 per cent). Contactless cards are increasingly a preferred way to pay, with 52 per cent of respondents saying they use it regularly. In addition, eightout-of-10 Canadians view contactless cards as very convenient ways to pay and 45 per cent view them as very secure. The study also found there is a strong relationship between usage and perceptions of security. These findings may represent a hurdle to the adoption of emerging payment methods. Only 35 per cent of respondents consider digital wallets very secure, followed by mobile apps (34 per cent), peer to peer (P2P) sites (27 per cent) and wearablesbased pay (26 per cent). Relatedly, only a small minority of consumers regularly use these new forms of payment like mobile apps (nine per cent), digital wallets (six per cent), peer-to-peer apps (four per cent) or wearables-based pay (three per cent). In contrast to the survey findings, Jamieson points out that the new payment technologies are very secure. Every transaction includes a unique one-time passcode in place of personal account information, ensuring that the card information transmitted cannot be used to create counterfeit cards. Critical information and data, including cardholders’ names and CVV codes are not shared during contactless transactions. “Emerging forms of payments use the same dynamic security as contact chip cards so while Canadians may see them as less secure than traditional methods at this time,” said Gord Jamieson, head of risk, Visa Canada. “But as we have seen with contactless cards we expect to see that perception change as consumers become more familiar with these new payment technologies.” May/June 2018
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