Payments Business Magazine Nov/Dec 2015

Nov/Dec 2015

The Merchant’s Guide to Transactions, Cards & eCommerce

Industry Report A look at the payments ecosystem and payments transformation also in this issue:

❱ Vertical Market

Achieving valued brand experiences through transit payments systems

❱ Technology Update

Five ways to maximize monetization

❱ Segment Update

Why loyalty is the key to making digital wallets a reality PM 4 0 0 5 0 8 0 3

Table of Contents COLUMNS & DEPARTMENTS November/December 2015 Volume 6 Number 6 Editor Karen Treml karen@paymentsbusiness.ca Publisher Mark Henry mark@paymentsbusiness.ca

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News

FEATURES

Contributors Christopher Barnard; John Davis; Kristian Gjerding; Bob Harden; Cassie Hunter; Oliver Manahan; Peter Maoloni; Chris Rauen; Alex Todd Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca

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Navigating the Complicated Payments Ecosystem

Photographer Gary Tannyan President Steve Lloyd steve@paymentsbusiness.ca

Integration can be challenging. Is your business prepared?

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Payment Transformation Options are Migrating North

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Made possible with the support of the Ontario Media Development Corporation

Payment digitization services offer the potential for substantial savings

The Future of Payments is Digital A move toward datarich transactions is underway

REGULAR COLUMNS 11

PAY CHANNEL The move to EMV is the dawning of a new day for the U.S.

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SEGMENT UPDATE Why loyalty is the key to making digital wallets a reality

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VERTICAL MARKET Achieving valued brand experiences through transit payments systems

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TECHNOLOGY UPDATE Five ways to maximize monetization

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INDUSTRY UPDATE Cheques: Another Blow

Next issue…

jan/Feb – … The Disruptors: A look at the disruption that occurs with the evolution of technology November/December 2015

PAYMENTSBUSINESS

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NEWS

Central1 Credit Union appoints new board members The Board of Directors at Central 1 Credit Union announces the appointment of two new directors: Dr. Blaize Horner Reich and Penny-Lynn McPherson. Their term of appointment is until Central 1's 2018 annual general meeting.

Dr. Horner Reich currently holds the position of Interim Dean, Beedie School of Business at Simon Fraser University and has the title of RBC Professor of Technology and Innovation. Dr. Reich is widely recognized for her expertise in organizational transformation through technology. She is credited with many contributions to improving businesses in Canada, serving as academic leader for the national Business Technology Management (BTM) program and as a board member of the CIO Association of Canada, the Information and Communications Technology Council and the Canadian Women in Technology.

Ms. McPherson has significant Board and executive management experience through her greater than 25 year career with the Canadian Payments Association (CPA).

Prior to her retirement, she served as VicePresident, General Counsel and Corporate Secretary with the CPA. She also served as Vice-Chair of the Queensway Carleton Hospital in Ottawa. Ms. McPherson is bringing to the Board significant expertise in the field of liquidity management, particularly in the area of payments and settlements, legal, governance and regulatory.

"Penny-Lynn and Blaize bring wide-ranging financial acumen and business leadership experience to the Central 1 Board," said Rick Hoevenaars, Board chairperson. "Their familiarity with the credit union system and technology innovation are valuable to us as we continue to grow and adapt to the needs of our credit union members and their communities. These are exceptionally talented people, and I think I speak on behalf of the entire board when I say that I'm looking forward to working with them in the years to come."

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Optimal Payments now Paysafe in global rebrand Optimal Payments, one of the world’s leading global payment solution providers, has announced its new brand identity and company name, Paysafe. The company’s purpose is to offer relevant solutions for every payment eventuality.

The company’s business expertise includes the market-leading digital wallet and Stored Value brands Skrill and NETELLER, a white-label invoice issuing and installment product portfolio, payolution, which is specific to the German, Austrian, and Swiss markets, the worldwide market-leader in prepaid payment methods for the internet, paysafecard, and FANS, a fully-integrated mobile engagement solution which helps venues and content providers engage their customers while providing monetization tools.

Paysafe’s B-to-B portfolio offers 360 degree global merchant solutions and tools to enable easy transactions between businesses and their customers. These include payment gateway solutions, merchant onboarding services risk management and a comprehensive virtual back office for dedicated end-to-end support. Paysafe also offers a suite of pre-paid card solutions as well as issuing and acquiring services.

Commenting on the new brand launch, Joel Leonoff, president and chief executive officer of Paysafe, says: “At the heart of today’s online business requirements is the need for a robust payment strategy that is both seamless and secure for merchants and customers alike. Merchants face a variety of challenges including the constant evolution of technologies, changing consumer behaviours and a wide variety of currencies.”

Leonoff adds: “Paysafe is the meeting point between businesses and consumers.

Through our rebrand, we aim to redefine the role of the payments provider. This is the very definition of Paysafe; to be relevant at the point of every payment.”

Paysafe’s contemporary logo includes a ‘spark’ symbolizing the meeting point of payments. Its overall visual identity presents a fresh and modern design, and the company’s newly-designed website is fully responsive to accurately present the company’s full portfolio of products and services for today’s consumers and businesses.

The launch of the Paysafe brand is the pinnacle of what has been an exceptional year for the Company. In August 2015, it completed the transformational acquisition of Skrill Group, Europe’s leading digital payments provider. The deal, which was worth €1.1 billion (US $1.2 billion), has been recognized as one of the most prominent events of the LSE AIM market in 2015.

Canadian Tire launches mPay & Play Canadian Tire has dipped its toes into the world of mobile payment with a new app. The Canadian Tire mPay & Play app enables members of the retailer‘s Options MasterCard program to pay for items in-store with the app, while adding a gamification element.

Consumers can earn “badges” by using their Options MasterCard when grocery shopping or purchasing things from Canadian Tire Corporation-owned Sport Chek or Mark’s, for instance. Once a member has earned 10 badges, they can get 10-times bonus Canadian Tire money (in addition to bonus money earned by using the MasterCard at the retailer.)

“We knew that the app needed to be more than just a payments app; it needed to engage our customers and strengthen their affinity to Canadian Tire,” said Mary Turner, president, Canadian Tire Financial Services, in a release.

The new app follows the digitization of the retailer’s iconic Canadian Tire money last year, with the roll-out of its My Canadian Tire “Money” loyalty program.

November/December 2015

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Industry Report

Navigating the Complicated Payments Ecosystem

Integrating payment services, methods, currencies, devices, and channels can be challenging. Is your business prepared?

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By Kristian Gjerding

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PAYMENTSBUSINESS

iscussions about today’s payments ecosystem typically include numerous adjectives –complex, fragmented, converging, mobile, evolving, vulnerable.

It’s a phenomenon marked by numerous challenges and multiple, overlapping moving parts for millions of businesses, consumers, and payment processors. The moving parts and players include multiple payment methods, payment service providers (PSPs) and a variety of payment channels,

devices, currencies, and storefronts, all of which must work seamlessly and securely in the act of processing billions of transactions each year.

Consumers, of course, expect that their payment methods of choice will be supported by any business across any channel, including online, offline, digital, mobile, wearable (and whatever comes next).

Payments managers must decide which payment methods, currencies, and channels to support within their operational November/December 2015

and revenue plans. They want to meet consumers’ ever-changing expectations, yet do so in a way that supports the enterprise’s strategic plans for revenue growth and cost-containment.

For customer service and longterm loyalty reasons, merchants want to ensure that seemingly simple acts of paying (or swiping or tapping) occur as part of a seamless user journey, marked by one-click checkouts and error-free transactions that are supported from one channel to another.

Industry Report How can all these moving parts and changing technologies function inside an ecosystem that rarely stands still? Bank of America, for example, predicts that mobile payments will grow 200 times over the next seven years, reaching $3 trillion by 2022. In addition to the shift to mobile payments, new technologies hint at a not-too-distant future of biometric-supported payments, fingerprint-activated payments, more mobile wallets, peer-topeer payments, alternative payment methods, virtual currencies, and more.

The payments challenge: data The challenge for payments managers and directors, of course, is integrating the various components of the payments puzzle so that transactions proceed smoothly for customers and passengers.

Professionals can build inhouse platforms from scratch, knowing full well that doing so is a multi-step process of commercial agreements, technical integration of payment providers/methods for reservations and booking, followed by roll-out and support across numerous channels. But businesses usually find that integrating a variety of payment providers and methods into a single platform can be timeconsuming, resource-intensive and costly.

In-house approaches to payments can also delay the incorporation and launch of new payment solutions, limit

revenue opportunities, reduce paths to purchase, or keep passengers and customers waiting for their particular payment method or device to be supported.

The solution lies in an enterprise-level platform in which all necessary PSPs and payment methods are preintegrated, easily managed, and easily updated. With a converged payment platform in place, businesses can adapt quickly to new technologies, devices, currencies, and payment methods. An enterprise-level data hub, installed internally or operating as a SaaS solution, can orchestrate payments and e-commerce transactions, enabling businesses to: • Process payments and other transactions cost-effectively and quickly, regardless of channel (Apple Pay, China UnionPay, MasterPass, Samsung Pay and others).

• Support more pathways for customers to purchase directly, a capability that supports bottom-line growth and revenue goals • Manage payment cards, customer accounts and mobile wallets with oneclick functionality from a single platform • Enable PCI-mitigating stored payment capability across multiple channels, supported by single sign-on for oneclick checkout • Benefit from an infrastructure that provides end-to-end monitoring of all transactions, including currencies/payments, rewards and loyalty program activities, coupons, vouchers, and the like • Mix and match preferred November/December 2015

payment providers to take advantage of geographic rate differences and to have a failover strategy in place for payments • Bring new payment solutions and methods to markets in a matter of days or weeks rather than months, and often without lengthy IT involvement or costly inhouse resources.

Key payments questions All businesses must assess their respective needs, expectations, and growth plans when deciding how best to develop and deploy a payments strategy. That same thought process applies to their plans to simplify and manage the payments marketplace.

Questions to ask depend on the size, revenue goals and capabilities of the business: • Does the business rely on one payment provider?

Would it benefit from the ability to use more than one provider?

• Is the current business infrastructure capable of integrating, managing and processing payments from disparate sources, methods, PSPs, and channels?

• How quickly can the business bring new payment solutions to market with existing processes and resources? Is that timeline sufficient, or does it need to be shortened/streamlined to take advantage of new revenue opportunities and new technologies?

• Is the business prepared to support each new wave of technology, devices, and payment methods as they enter the payments ecosystem (e.g., mobile

wallets, wearables, biometrics, EMV/HCE, virtual currencies, new industry regulations)?

• Are e-commerce managers able to reassure executives that payments and transactions can be processed quickly and securely -- and still deliver a great user experience?

• Is the existing staff and budget capable of staying current with the constantly evolving payments ecosystem?

• Do existing payment strategies and solutions contribute to the bottom line rather than detract from it?

Some businesses will choose to rely on internal resources for payments solutions, but others can clearly benefit from a pre-integrated payments hub that can add efficiency, speed, and revenue potential to the payments process.

Rather than a piecemeal approach focused on cobbling together the many data components needed to manage and process payments businesses can instead rely on pre-integrated payments solutions that enable them to accept payments and handle transactions at the same pace as the ecosystem moves.

Kristian Gjerding is CEO of CellPoint Mobile, a technology solutions firm that enables mobile payments and digital transactions for clients worldwide. CellPoint Mobile’s key solutions encompass payments, mobile wallets and fraud monitoring. Before joining CPM, Gjerding served in senior executive roles covering technology, wireless, and mobile payments at StorageTek, Sun Microsystems, Amdahl, Network Appliance and OIS. www.cellpointmobile.com or kristian@ cellpointmobile.com

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Industry Report

Payment Transformation Options are Migrating North While most companies still rely on cheques for the majority of supplier payments, new payment digitization services offer the potential for substantial savings.

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By John Davis

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PAYMENTSBUSINESS

ith both the Bank of Canada and the International Monetary Fund (IMF) downgrading their Canadian economic outlook in October, finance professionals are more challenged than ever to find efficiencies to strengthen their companies’ competitiveness.

Challenging times create a need for leaders to broaden their influence in their organizations, and finance professionals need to drive change to strengthen the competitiveness of their firms. The most impactful opportunities involve full transformations of existing processes as opposed to incremental improvements.

Looking at a process endto-end and re-engineering it can often create step change improvements, but finding the time to look for these opportunities and make changes, amid unrelenting day-to-day demands on time and budget, is difficult.

To help address this need,

outsourced options have arrived in the Canadian market that enable leaders to implement transformations of the economics and risks of current payments without distracting internal staff from their core mandates.

The status quo Paper-based processes and cost structures represent an opportunity to reduce cost and risk, where finance professionals can implement change to create value for their businesses. Finance professionals have made real progress on invoicing workflow, cash position information, and forecasting. Arguably, progress has been made in the payments space as well, but the pace of the adoption of electronic B2B payments lags retail payments substantially. You don’t need to look far to see examples of paper and manual processes that distract finance staff from more strategic activities and create little value for their firms.

A number of factors reinforce November/December 2015

the status quo, and keep the old world of paper and manual processes in place. Nearly a billion cheques are used in Canada annually according to the Canadian Payments Association (CPA).Payment process transformation efforts need to address the reasons things are the way they are in order to result in lasting change. Ubiquitous acceptance is certainly a primary driver of the prevalence of paper, as is the fact that many business’ payment processes are still built around cheque issuance.

Supplier banking information is not needed to write a cheque, and mail float still creates some additional working capital. To transform paper payment flows to digital, acceptance, routing information, working capital impact, security, and inertia need to be considered.

Cost and risk implications Cost, control and risk are the major drawbacks of cheque payments. A 2015 payments

Industry Report

Cheques introduce significant fraud risk in terms of alteration, and a cheque itself contains many pieces of useful information for a fraudster …” cost benchmarking survey by the Association for Financial Professionals (AFP) shows that cheque payment costs are typically more than five times the cost of electronic payments, with the typical issued cheque costing $3 as opposed to the typical next-day electronic funds transfer (ACH in the U.S., EFT/AFT in Canada) costing 56 cents (including internal and external costs). Cheques introduce significant fraud risk in terms of alteration, and a cheque itself contains many pieces of useful information for a fraudster, including the company’s logo, address, and bank account number along with the name and sample signature of an authorized officer. Indirect costs related to handling and problem resolution of cheque issues can be difficult to assess, and are unpredictable in terms of amount and frequency.

While float is often perceived to be a benefit of cheque usage, float is less valuable today than it has been in previous higher interest rate environments. Additionally, the cost of supplier calls to Accounts Payable departments (AP) to make payment inquiries, leading to hours of non-value added activity

by AP staff, are not usually factored in, resulting in an overestimation of the net benefit of mail float.

For large companies with higher volume payments, Citi

data suggests that the gap between the costs of cheque and electronic payments is closer to 9X, driven by the greater scalability and efficiency of electronic payments at high volume, the costs of fraud targeted at large companies, and the costs of mitigating this risk. In these cases, migrating from cheques to electronic payments is likely to result in between 65-85 per cent cost savings – a dramatic improvement that finance professionals can achieve, with ancillary risk reduction benefits.

The picture improves further for companies with meaningful volume of low-dollar payments, as these can often be moved from cheques to credit card payments as opposed to moving them to EFT/AFT/ ACH. In addition to the cost savings noted above, moving small payments (<$10,000) from cheques to virtual card payments earns the company a rebate of 0.75 per cent to 1 per cent of the total value of those small payments made, turning what used to be a cost stream into a revenue stream.

Depending on the number of payments being made, Citi has observed that companies can achieve cost savings of $50-150,000 from efforts to migrate their payments from paper to digital.

Cheque volume is falling organically at 6.3 per cent annually according to CPA statistics. CPA modernization November/December 2015

efforts may accelerate this, but they are several years away from delivering meaningful savings to corporates. Simply waiting for this change to happen won’t result in meaningful near-term cost efficiencies.

Since most large companies in Canada are presented with this same opportunity, it is best resolved through an outsourced approach where best practices can be shared and cost efficiencies gained, as opposed to in-house efforts that tax scarce resources and achieve neither the scale nor experience advantages that a wider effort can bring.

Addressing the challenge Reducing reliance on paperbased payments has been a challenge for finance professionals because converting a large supplier base (accustomed to receiving paper payments) to electronic payments is as much a marketing and IT challenge as it is a finance challenge.

Payment digitization initiatives may require: 1. An outreach program via email and telephone to drive supplier conversion to electronic payment acceptance.

2. Validation of supplier bank details, and security to protect supplier information.

3. A customized supplier portal to enable suppliers to maintain accurate information on an ongoing basis.

4. Ongoing optimization of the payment mix from a single payment file to maximize cost savings.

5. Automated notification to suppliers when payments are made.

6. Access to historical transaction information and payment reconciliation support.

Challenges in marshalling cross-functional resources can make an insourced payment digitization program difficult for finance professionals to get off the ground. In the United States this has led to the creation of a number of payment digitization services, offered by banks and technology companies. Canada lags in commercialization of payments digitization services, but services like Citi Payment Exchange have recently arrived in the Canadian market to close this gap. Payment Exchange and services like it have been in place in the U.S. for several years.

Outsourced payment digitization services can enable corporations to transform the economics and risks of their payment process, without distracting limited internal resources from other key priorities. By leveraging an outsourced payment digitization model, proven to create cost efficiencies and reduce risks, finance professionals can deliver a win that will strengthen their organizations’ competitiveness and their profile as leaders.

John Davis is the Head of Citi’s Payments and Receivables business in Canada

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Industry Report

The Future of Payments is Digital – Just Ask Your Suppliers

By Chris Rauen

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s consumers, we’ve embraced digital networks to the point that we can’t imagine life without them. We use them to search, buy, and pay for goods and services, to hail a cab, line up housing, keep tabs on friends and family, share news, and more. And with increasing frequency, businesses are moving their activities online too. Why? Because they recognize that their employees – a growing percentage of whom are millennials – expect things to be as easy when they start work on Monday as they were at home over the weekend. And business processes are, frankly, too complex.

B2B payments are a great example. From shopping to socializing, nearly every aspect of our lives has been digitized, mobilized, and automated. Yet, when it comes to the world of business, antiquated methods of payment are still the norm.

More than 60 percent of payments between businesses in the US are still made using checks.

For buyers, that means lots of paper and inefficiencies that cost their companies billions each year. For sellers, it 10

PAYMENTSBUSINESS

means little visibility into when they will actually be paid and what they are being paid for, making it difficult to effectively manage cash and reconcile payments.

But thanks to advances in technology, it doesn’t have to be this way. Just as Apple Pay has digitized payments for consumers, services are emerging to do the same for businesses. Leveraging the connectivity and insights of business networks and the convenience and agility of cloud-based technologies, for instance, services like AribaPay enable companies to connect and collaborate around B2B payments in completely new ways and more effectively manage the entire payment cycle – from exchanging purchase orders and invoices to delivering rich remittance data along with payments that shows what they represent at the invoice and line-item level - all in a fast, secure, electronic environment.

Companies that are closely watching the development of such services are the technology companies that help complex organizations drive revenue through increased engagement with

sales content on any device.

For example, Mediafly, long a proponent of leveraging e-commerce channels such as networks to do business, has automated its invoice and payment processes with a number of customers through the Ariba network.

But payment processing still occurs offline as a largely manual process. And this poses problems. Payments are often delayed. Lack of visibility into scheduled payments makes it difficult to forecast cash flow.

And even when payments are received promptly, they can’t easily be reconciled because the payment file may come with incomplete remittance detail, or may not contain any remittance information at all.

“With most of our clients it’s a black box as to when we are going to see payments and what we will actually be paid for,” says John Evarts, Mediafly’s chief financial officer and chief operating officer.

But Evarts sees a solution in network-based electronic payment offerings that link payments with relevant transaction documents such as purchase orders and invoices and deliver the detailed November/December 2015

remittance information needed to accurately apply payments and improve cash flow forecasting.

“In taking a network-based approach we can create datarich transactions that drive much greater transparency and enhance the entire procure-topay process,” Evarts says. “I’d like all my customers to pay me this way.”

And he isn’t alone. Seeing the speed and efficiency that electronic payments deliver, suppliers around the world are moving to digitize their invoice and payment processes.

Certainly buyers would be wise to do the same.

As solutions marketing manager at Ariba, an SAP Company, Chris Rauen is responsible for marketing programs that educate finance, procurement, supply chain, and other business professionals on the transformational potential of the Ariba Network and Ariba’s cloud-based financial solutions.

Before joining Ariba, Chris spent more than 15 years in business-to-business marketing for technology innovators OpenVision, Documentum, and Xign Corporation. His published work has appeared in a variety of technology, trade, and business press, including Business Week, Fortune, Nation’s Business, Dow Jones Capital Markets Report, Enterprise Systems Journal, PC World, and Portable Office.

Pay Channel

Shift Happens The move to EMV – the dawning of a new day

By Oliver Manahan

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he sun rose as expected on October 1, 2015. The world continued to turn and America’s credit and debit cards continued enabling a world of commerce without so much as a hiccup. All this despite the U.S. implementing of one of the biggest changes in the industry since the dawn of credit cards. On October 1, the U.S. liability shift began to protect the entity – be it merchant/ acquirer or bank – who offers the greater level of security by holding the other entity with less secure systems responsible for fraud. For example, if fraud occurs when a magnetic stripe card is swiped at a chipenabled merchant terminal, the merchant/acquirer is protected from the fraud. And vice versa.

None of this is news to Canadians who have been using chip cards for more than a decade. So what does the U.S. shift mean to Canadians with chip cards in their pocket?

In short – not much. But rather than Canadians going back to swiping cards when travelling in the U.S., now they’ll perform transactions just like they do at home, by inserting their chip card. What’s slightly different is that in many places shoppers will be asked to sign for the transaction rather than using a PIN code. And with the growth of NFC terminals and the proliferation of Apple Pay in the November/December 2015

U.S., Canadians should also feel confident that in many retailers, they will tap and go just as they do in 70 per cent of major retailers in Canada.

The shift generated a lot of attention in the U.S. Thousands of media outlets reported on the move to chip cards as, understandably, this change affects thousands of banks and merchants and millions of cardholders. Would cards still work? Would smaller merchants pay more, or less, for transactions? Many wondered just what would happen once the shift took place.

The answer is that yes, all cards – chip and mag stripe – still work. As of the end of October, 48 per cent of all U.S. MasterCard-branded consumer credit cards were powered by chips. Most Americans – a projected 60 per cent – are going to have chip cards in their wallets before the end of this year and MasterCard expects the transition of all cards to be done by around the end of 2017.

Further good news is that 54 per cent of American consumers surveyed recently said they have at least one chip card in their wallets and of those, 30 per cent say they will use it more than the other cards in their wallet.

Some merchants are embracing the change as it allows them to upgrade systems to accept contactless and

mobile payments like Apple Pay while also benefitting from the additional security that they can now offer their customers.

In the end, the move is good for cardholders, issuers and merchants as counterfeit card fraud will be driven out of the U.S. payment ecosystem.

We know this because, in the 80+ countries that have switched to chip, including Canada, counterfeit card fraud has dropped by 60, 70 or even 80 per cent. Similar results should hold true for the U.S. giving everyone greater peace of mind.

Now more than a month out from the shift, those U.S. consumers who are using chip cards from their issuing bank and the over 670,000 U.S. merchant locations that have upgraded to accept chip payments should be celebrated as frontrunners actively participating in the latest milestone of safe and secure payments technology.

At MasterCard we are encouraged by all the progress we’ve made as an industry and celebrate this shift that will help significantly reduce counterfeit fraud from the system. October 1 served as the dawning of a new day for safe and secure payments around the globe.

Oliver Manahan is Vice President, Emerging Payments, US EMV, Contactless & Transit Lead PAYMENTSBUSINESS

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Securing Mobile Life.

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

Segment Update

Why Loyalty is the Key to Making Digital Wallets a Reality

By Christopher Barnard

F

or consumers, purchasing needs to be simple. The easier it is to make a purchase, the more likely it will actually happen. Which is why digital wallets seem like the perfect solution. The technology allows shoppers to seamlessly use their smartphones â&#x20AC;&#x201C; something most shoppers have in their hands the majority of the time already â&#x20AC;&#x201C; to easily make a purchase.

And for merchants, digital wallets have the potential to boost revenues and eventually reduce operating costs by

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PAYMENTSBUSINESS

November/December 2015

lowering fraud loss and/or payment processing fees. In addition, once theyâ&#x20AC;&#x2122;re properly integrated, digital wallets have the ability to improve the customer experience allowing for easier engagement and even making checkout lines more effective.

Still though, the majority of consumers have yet to incorporate mobile wallets due in large part to concerns surrounding security and the lack of infrastructure. And despite the opportunities for customer engagement and added

Segment Update efficiency brought about by digital wallets, merchants aren’t willing invest in a new POS system without the support of their customers.

To get both parties involved, digital wallets need to offer more than a new form of payment to break consumers away from the status quo of a traditional credit card. And when consumers are on board, merchants will be as well.

So what is the extra component that will push adoption rates over the edge?

The answer is loyalty. Here’s a breakdown of how loyalty impacts both consumers and merchants.

For the consumer • Convenience Though shoppers have been slow to adopt mobile payments, 48 per cent of loyalty program members reported that would like to engage with loyalty programs through their smartphones. Consumers want digital loyalty, so loyalty is the key to incentivizing them to transition to digital wallets.

With traditional loyalty cards (think physical paper punch or plastic mag-stripe cards), customers are often left to frantically search for their card before checking out – and that’s if they remembered it in the first place. For that reason, it’s not surprising that mobilecentric loyalty programs, like My Starbucks Rewards, are so successful. A digital loyalty card streamlines the point-of-sale process by offering customers a conveniently location for their loyalty card in their

smartphones. In addition to reducing the amount of time it takes to complete a transaction, consumers will no longer need to worry about missing out on the points and rewards they deserve.

• Hyper-personalized discounts and offers When it comes to coupons, discounts and perks, one size does not fit all.

In addition to creating a more convenient way for consumers to manage their loyalty programs, having loyalty integrated into mobile wallets can also provide hyper-personalized offers based on each consumer’s transaction history, location, and their specific loyalty profile given their portfolio of programs.

Because the transaction history shows exactly what each shopper has a tendency to buy, every time they use their digital wallet to purchase, they can receive points and offers that are specific to them, giving them a greater incentive to use mobile payments rather than a traditional payment methods.

And with Bluetooth technology, digital wallets bring the power of location, location, location. Bigname companies are already making the most of such technology to help boost business. Target, for example, is launching a beacon technology pilot that aims to provide customers with deals and recommendations as they make their way through the store. In the same way, you can cater to the unique November/December 2015

experience of each customer by rewarding them with deals on nearby products as they shop. By offering loyalty points and discounts in real time, digital wallets save customers from digging through the mail in search of a coupon.

For the merchant • Enhanced customer engagement Digital wallet providers need to convince consumers to adopt digital wallets before they focus on merchant adoption, but if providers can demonstrate the value, the quicker merchants will get on board. And the integration of loyalty is the exact bit of extra value they need.

Merchants know that consumers love loyalty rewards and that loyalty programs are the driving force behind consumer engagement. By integrating loyalty, digital wallet providers can position digital wallets as a new and more effective customer engagement tool.

As I mentioned above, digital wallets provide a way for merchants to connect with their customers exactly in the way they want to be engaged. By integrating loyalty into mobile wallets, merchants will have the ability to cater to their customers, providing relevant, targeted offers that customers crave.

• Drive sales Merchants already know how effective loyalty programs are for increasing revenue. Attractive incentives are the main

driver for consumer’s purchase behavior. Loyalty programs have been proven to encourage repeat customers to spend more while they chase their next reward, and even great loyalty programs can have a significant impact on organic word-of-mouth marketing.

By integrating loyalty into digital wallets, purchases and points are completely in-sync, allowing transactions and loyalty management to be seamless, eliminating that extra step for merchants.

According to recent research from Gallup, only 13 per cent of smartphone owners actually have a digital wallet app. More than three-fourths of those consumers rarely ever use it.

Awareness of mobile wallets may be increasing, but these statistics prove that concerns regarding security and a lack of infrastructure have kept the majority of consumers from using mobile wallets on a regular basis. By incorporating loyalty programs in digital wallets, digital wallet providers can unleash its potential to be far more than a traditional payments channel.

Christopher is the President and Co-Founder of Points since inception in 2000, and is a member of the Corporation's board of directors. He is responsible for corporate strategy, product development, corporate development and financing activities.

He has also held various interim operating positions including CFO and VP of Product Development and Marketing. Christopher is paving new ground with the further innovation of the Points Loyalty Commerce Platform that will expand the capabilities of loyalty currencies and change how consumers interact with loyalty programs.

PAYMENTSBUSINESS

15

Vertical Market

Transit Payment Systems Potential cornerstone of community-oriented brand experiences

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By Alex Todd and Cassie Hunter

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alued brand experiences are created through repeated moments of interaction between merchants and consumers. Central to this interaction is the payment system. Payments, on their own, are simply a means of completing a purchase.

However, more broadly, they are also a conduit to interact with each consumer and a window of opportunity to build a positive experience and promote brand loyalty. Increasingly, merchants and marketers alike are optimizing this touch point with small-scale convenience and incentive programs – but what more could they do to create experiential brand value?

Is it possible for payment systems to elevate the worth of product and service purchases beyond their status of transactional commodities to becoming facilitators of purpose-oriented brand

engagement? What if such systems could help identify and satisfy customers’ objectives and needs even before they entered the store? Within those systems would lie an opportunity to build customized relationships that enhance customers’ daily experiences, and thereby strengthen brand devotion. A common system could help orient all merchants around each customer’s daily routine.

Used by more than 20 per cent of the population in Canada’s largest municipalities, transit systems are among the most actively used public organizations. In fact, few institutions come close to touching as many people in large cities as transit agencies – and none as frequently.

Transit users represent an ideal market for local businesses.

They represent a community of people with highly patterned behavior, and their daily November/December 2015

journeys take them through familiar neighbourhoods in which they have the potential to habitually interact with various merchants. Furthermore, they utilize and rely on a common and widespread transit payment system, day-in and day-out.

In fact, this payment system is often used more frequently on a day-to-day basis than even their favourite debit or credit card. Transit commuters are a reliable segment of the population whose needs are consistent. Their daily actions are dictated by four key objectives: convenience, availability, positive relationships, and incentives.

In turn, they seek merchants who can meet those objectives to better their commute and enhance their lifestyle.

Utilizing patterned daily behaviours The goal of every merchant is to find a way to drive repeat

Vertical Market business, and to build and maintain brand loyalty. When competition was limited, this goal was easy to achieve.

Brand loyalty was a default behaviour; the merchant only had to offer a popular product or service to bring customers back though the door. However, with increasing competition and availability of information, customers now have the ability to shop around for similar alternatives.

It's no longer enough to offer the product they desire and hope they become repeat customers. Instead, the customer experience has become the purpose around which marketers are offering increasingly commoditized products and services. Brands therefore need to adapt, and change how and when they interact with their target audience.

Take for example Starbucks, a leader in customer-brand experience. Introduced in Canada earlier this year, the Mobile Order & Pay app feature allows customers to pre-order and pre-pay for their drinks on their way to the coffeehouse. Starbucks doesn’t just sell coffee.

They sell an upscale lifestyle that makes customers feel desirable and accomplished.

Starbucks caters to their many needs – from dietary to seasonal, and now, scheduling.

This value-added service recognizes the daily patterns of its clientele and proactively engages within them to enrich brand experiences and stimulate repetitive interaction. This is just one way to tap into commuters’ patterned behavior, thereby strengthening their bond and

loyalty to the brand.

Utilizing a common payment systems Transit tickets are increasingly being transformed into digital payment systems, including mobile. For example, the PRESTO card, actively used in Ottawa, the Greater Toronto and Hamilton Area, and increasingly with the Toronto Transit Commission (TTC), is rapidly replacing traditional paper and token payments.

And mobile ticketing has recently been introduced to the TTC and the new Union Pearson (UP) Express airport rail link in Toronto. This transition from traditional to digital payment solutions creates an opportunity to take the commuter and brand experience to the next level.

It allows for cross-channel integration, convenience and availability. Transit riders utilizing a common system of electronic payment throughout their day introduce a massive potential for local merchants to increase their involvement in supporting the commuters’ end-to-end journey.

Leveraging transit payments to enrich commuter experience is not unprecedented. In Hong Kong, the Octopus transit card contributes enormously to the success of getting people around the region and their lives outside of transit. In fact, the Octopus is used to make payments for public transit, car parks, fast food outlets, convenience stores, supermarkets, vending machines, pay phones, leisure facilities, and schools. It has also been introduced successfully for non-payment uses, such as access control. In fact, Octopus November/December 2015

has become a card and service that people in Hong Kong cannot live without. Similarly, Montreal’s public transit (STM) incorporates a loyalty and promotion program called Merci, designed to engage the merchant ecosystem to provide commuters with incentives and thereby promote the use public transit.

These early examples of transit payment-experience programs demonstrate a budding potential to take the customer-brand experience to new heights. Like never before, these transit payment systems allow merchants to reach their customer base repeatedly, in novel ways.

Putting it all together: Imagine the possibilities Let’s look at an example of what may soon be possible.

Envision a mother using her transit payment app to arrange for a shuttle bus to pick her and her toddler up in the morning, with a quick daycare drop-off en route to the train station. She could then settle into her reserved seat and have her take-out breakfast waiting for her as she exits the train. Throughout her day, her app would allow her to pull journey-supporting offers from merchants near her office for her coffee and lunch breaks. Her day would end with the same train and shuttle service that would take her to her awaiting groceries on the way to daycare and home. Moreover, each time she uses her app to pay for transit, or other transit journeyrelated services, she would earn privileges towards making future journeys even more productive and enjoyable.

Such support services provide a value-added experience for the mother, which align with her lifestyle and create a solid foundation for building brand loyalty.

Today, this example may seem sensational or unattainable, because such engagement systems have yet to be perfected. However, as customers and their behaviours increasingly demand deeper attention from merchants, brands will need to respond with equally extraordinary promises. Comparatively, today’s loyalty program models are insufficient. They encompass some key consumer objectives, but are neither comprehensive nor wholly reflective of the changing focus. True brand devotion will rely increasingly on reciprocal community privileges that cater to lifestyle objectives, enabled by new kinds of integrative payment systems. Not only can this approach help reach key market segments with common objectives and unmet needs, but it also promises to vastly improve the quality and experience of commuting, shopping, and civic engagement. Moreover, it can help strengthen brand value far beyond what has been possible within the traditional paymenttransaction oriented paradigm of today’s loyalty programs.

Alex Todd is Founding Principal at Trust 2 Pay (Twitter: @Trust2Pay), a FinTech innovation company. He was formerly Chief Technology Officer at PRESTO (the automated transit fare collection division of Metrolinx, in Ontario).

Cassie Hunter is the Business Development Manager at a Canadian boutique retailer. She oversees all instore and online marketing strategies, driving industry-leading brand experiences across the country.

PAYMENTSBUSINESS

17

Technology Update

Billing is Broken: 5 Ways to Maximize Monetization Billing, as commonly practiced, is broken. A more comprehensive monetization strategy is necessary to future success.

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By Bob Harden

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hat’s the difference between billing and monetization?

Monetization is about more than just cutting an invoice and collecting payment. It’s an end-to-end process that requires managing all aspects of a customer relationship, from the moment a customer first visits your web site through provisioning new services, communicating with customers, invoicing, and recognizing and allocating revenue. Billing sits at the heart of that process, and the right billing solution will help keep all of those activities in sync.

Why is the transition from traditional billing to monetization models so critical and how can you get your billing system up to speed? Let me explain.

Quote-to-cash is a dead end We’re all familiar with the traditional one-and-done Quote-to-Cash (Q2C) cycle – you acquire a customer, payment is received, and the transaction is done. This model has been in place, with slight alterations, since the day the first caveman swapped a fish and some berries for a handful of shiny rocks. But if you think this is a winning November/December 2015

formula for the future of your business, get your resume in order – you might need it sooner than you think. We’re living in a different world now.

In this new world or ‘new normal’ where each and every customer interaction provides an opportunity for monetization, a new economic model is required.

That model is recurring services, in which the attention shifts away from products and toward the single constant over time – the customer account. In these models, your goal is not just to close a sale and collect payment; it’s to retain customers

2016 ISSUES & EDITORIAL THEMES Issue  January-February The Disruptors

Our first issue of the year will delve into the current trends in technology that are bringing about disruption, as well as looking at the credit union space. Other topics include ePayments and credit cards.

EDITORIAL DEADLINE: January 22nd

Issue  March-April Merchant Services Report

This issue features a report on merchant services with respect to analytics. We also visit what’s trending in the travel industry, with prepaid cards, and with digital money.

EDITORIAL DEADLINE: March 24th

Issue  May-June Cards, Cards, Cards

In our Cards, Cards, Cards issue 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.

EDITORIAL DEADLINE: May 6th

Issue  July-August Security, Fraud, and Privacy

Security, fraud, and privacy are key issues that continue to evolve. This issue takes a look at the new face of fraud. We also take a look at the eCommerce space, physical equipment, and ID technology.

EDITORIAL DEADLINE: July 15th

Issue  September-October The Mobile Report

Everything mobile – from apps to wallets to wearables – this issue provides insight into what is happening in the mobile space. We also look at the world of gaming payments and provide a technology roundup. EDITORIAL DEADLINE: August 19th

Issue  November-December Industry Forecast

Our end of year industry forecast provides an outlook at what 2017 holds. Along with the forecast, we also look at the technology of healthcare ePayments, and loyalty and points programs.

EDITORIAL DEADLINE: November 18th

Plus…

Each issue includes regular editorial columns which look at business management... vertical market insights...technological developments...major news stories... association updates...events... and more..

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Technology Update and to maximize customer lifetime value.

This is not what traditional quote-to-cash processes and legacy billing and receivables systems are designed to do.

These systems are outdated and focus only on managing and completing one-time transactions rather than developing and nurturing customer relationships. To successfully navigate the new normal, you need to forget about the old one-and-done sales models. The greatest growth potential going forward will be in recurring services and long-term customer relationships.

If you approach recurring revenue as a series of one-time Q2C transactions stacked endto-end, like some enterprises do, you’ll fail. Miserably. Forget the old Q2C mindset. Start thinking about monetization.

Monetizing relationships Monetization is the process of converting business assets into recurring revenue. It begins with knowing each customer intimately, at a macro, micro, and segment level. It requires managing each and every interaction with the customer as a potential revenue moment – an opportunity to earn (or lose) revenue. Knowing your customer gives you the ability to personalize offers and services, resulting in greater customer satisfaction.

Satisfaction leads to retention and brand loyalty, which help to maximize the lifetime value of each customer relationship.

Recurring revenue is relational, not transactional – it’s about monetizing relationships, not executing transactions. However, the 20

PAYMENTSBUSINESS

majority of existing billing systems don’t or can’t handle this type of relationship.

Recurring revenue models – subscription, usage-based, freemiums, and hybrids – are inherently customer centric, allowing the customers to vote with their wallets and requiring you to know and continuously satisfy your customer.

A good monetization strategy and platform puts the ability to manage customer relationships front and center with the tools to manage offers, accounts, and revenue operations. It helps you master markets by enabling innovation and giving you the ability to roll out new services and offers faster than your competitors.

And it provides the finance and billing tools – invoicing, payment, dunning, revenue recognition, etc. – to manage revenue operations. If your current system doesn’t support your efforts to increase customer lifetime value, your future, though short-lived, will be bumpy.

The modern ‘billing system’ – 5 requirements The modern billing system – the one you need to support monetization – has a unique set of capabilities, different from what traditional billing systems can provide.

Following is a quick litmus test is to see how your current solution stacks up in these five key areas.

1. Extensible product catalog In a recurring revenue model, a single ‘item’ can be packaged and priced in several ways.

The product catalog should support this without creating an unmanageable explosion

of SKU numbers. Effective solutions allow business users to manage the product catalog and create new offerings without IT intervention.

2. Monetization and pricing flexibility Support for subscription and usage-based models, along with a variety of flexible pricing options, is a must. Pricing options include: complex tiered and volume pricing, discounts, minimums, free trials, promotions, and the ability to mix and match any/all of these in creative ways. The best solutions also allow you to embed your own monetization business rules within the billing process, without writing custom code.

3. Proration and non-sale transactions Recurring revenue models generate non-sale transactions like upgrades, downgrades, cancellations, and renewals.

When a customer changes service levels mid-cycle, your solution should give you the option to seamlessly make prorated adjustments to period charges to account for the change.

4. Security To process card-based payments, billing and the infrastructure around it must meet PCI-level security requirements. To protect your customers, their data should be encrypted in transit and at rest. The best billing system vendors work overtime to prevent fraud and security threats.

5. Integration Solutions with tools like November/December 2015

data-rich messaging, robust APIs, and flexible reporting capabilities enable you to link billing with processes like provisioning and customer care. This allows you to provide the right services, at the right times, at the right cost to maximize customer satisfaction and loyalty.

Depending on your circumstances, additional requirements could include multi-language and multicurrency support for global business, certified compliance with data privacy regulations, and specific integrations with widely-used software packages like Salesforce.

Traditionally billing has been viewed as an invoice assembly and presentation tool—a commodity product. The modern view sees billing as a service enabler and revenue generator operating at the center of your business, with a new set of capabilities to drive your monetization strategy.

Your success in monetizing recurring revenue requires you to adopt this second view, coupled with a solution that empowers you to realize and fulfill this vision.

So forget one-and-done transactions. The “new normal” requires a new way of thinking – a fundamental change in the way you do business by putting the customer relationship first at every revenue opportunity.

Those that monetize will thrive.

Those that don’t won’t survive.

Bob Harden has 30 years of IT experience. He is the former Director of Billing Solutions at Experian and current founder and principal of The Harden Group, where he often teams up with Aria Systems.

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November/December 2015

PAYMENTSBUSINESS

21

Industry Update

Cheques: Another Blow

By Peter Maoloni

I

n the rapidly evolving payments landscape, the growth of new and emerging electronic payment solutions is resulting in more efficient and secure ways for consumers and businesses to pay and be paid. While great strides have been made in shifting payments to electronic forms, many organizations still rely on cheques for commercial disbursements. According to the Canadian Payments Association, there are still nearly one billion cheques used in Canada each year. These legacy payment instruments are inefficient and costly to payors and inconvenient for recipients – increasingly out of step with the way consumers and businesses handle their day-to-day financial affairs. With the rise of electronic payment solutions, organizations need to explore and adopt new ways to make these everyday transactions fast, easy and secure.

For example, as Canadian small businesses become more frequent users of the Interac e-Transfer automated file transfer process service to both pay and be paid, there’s an opportunity to build on this progress and expand its use across a broader range of recipients, like businesses and governments. Bulk disbursements, where cheques still dominate, are a key area With bulk disbursement services, organizations can send multiple payment

22

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disbursements in a single file upload to their financial institution, thereby eliminating the need to issue, track, and reconcile costly cheques or handle cash payments.

Scotiabank is the first financial institution to offer this enhanced functionality.

The bulk disbursement service is ideal for any organization that wants to offer their recipients a secure, paperless acceptance option.

And unlike direct deposits, all that is required is a recipient’s email address. For example, by using the service a business can easily and securely issue payroll for temporary and casual staff, insurance claim payouts, company rebates, contest winnings, and emergency fund disbursements. Payors, such as hospitals, governments, insurance companies, utilities, product manufacturers, and auto dealers are just a few examples of organizations that can recognize substantial benefits from bulk disbursement.

Improved operations There is a never-ending requirement for organizations to do more with less. One way to cope with this pressure is to take a closer look at backoffice operations to identify opportunities for efficiencies.

With electronic bulk disbursement, organizations can simplify and streamline administrative tasks. For example, scheduling regular, secure payments in advance can

reduce the workload required to manually process paperbased payments. In addition, detailed reporting such as real-time acknowledgment and daily status reports for pending and cancelled transactions eliminates time spent monitoring progress. Not only are these administrative tasks made easier and more efficient, but employee time is also freed up to focus on alternative responsibilities.

Flexibility This is a flexible disbursement service that can accommodate benefit pay-outs or different pay periods whether they are recurring, such as payroll, or one-off payments, like expense claims, delivering a simple yet high-impact advantage and improved customer service.

In addition, accommodating last minute or urgent disbursement requests can now be easily facilitated with overnight or intra-day processing options. There is no minimum value for payments, and, expiration dates can be set for up to 364 days in advance, so payments can be waiting securely for recipients travelling and offline for an extended period of time.

Security Increased efficiency and convenience are top priorities for organizations. However, security will always reign supreme. Bulk disbursement offers organizations of any size the capability to provide November/December 2015

recipients with a simple, paperless, and secure method of accepting funds directly into their bank account without the need to provide personal financial information to the organization. Bulk transfer recipients are able to safely and securely deposit their funds anywhere and anytime they have access to online or mobile banking. Each payment is password protected, with leading fraud management capabilities to keep the system safe and secure.

Customization Many organizations know that elevated customer loyalty and engagement can result from brand familiarity, and are looking for ways to extend their brand messaging to all communications regardless of content. An added benefit of the bulk disbursement service is the option to generate customized HTML notifications that bring brand familiarity to the payment notifications.

Interac’s e-Transfer bulk disbursement service is a game-changer for commercial disbursements in Canada.

Whether it’s alleviating backoffice operational burdens or providing ways to make everyday transactions fast, easy, and secure, the service offers organizations an innovative and comprehensive alternative to traditional disbursements, particularly cheques.

Peter Maoloni is AVP of Online Products, Interac Association and Acxsys Corporation

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