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Sept/oct 2019

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

Open banking

What it means for Canadians Courtesy Senate of Canada

❱ Disrupting the payments ecosystem ❱ What's fuelling the Bitcoin bus? ❱ Connections key for payments

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TableKey of Contents theme

Open Banking

Editor-in-Chief Steve Lloyd steve@paymentsbusiness.ca

Cover Story

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Editor Brendan Read brendan@paymentsbusiness.ca

Contributors Tyler Anderson; Patrick Bermingham; Brian Laneheart; Andrew McCormack; Peter Misek; Christopher Morris; Lindsay Mulligan; Meenaz Sunderji; Jennifer Tramontana; Brian Weiner Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca Photographer Gary Tannyan

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Courtesy Senate of Canada

Publisher Mark Henry mark@paymentsbusiness.ca

11 Disrupting the payments Courtesy Fgs

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The measured evolution It’s a matter of trust

FinTech

President Steve Lloyd steve@paymentsbusiness.ca

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What it means for Canadians

COURTESY Portfolio+ Inc.

September/October 2019 Volume 10 Number 5

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Courtesy Brightwell

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ecosystem Visa x Payment Rails Prepaid sparks FinTech innovation Rebooting international payments Removing the payments boundaries Adopting FinTech to help others What's fuelling the Bitcoin bus?

Internet of things 22 Connections key for payments Next issue…

Nov/Dec 2020 Payments Forecast • Loyalty • Events & Entertainment • Cash Handling September/October 2019

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What it means for Canadians Senator Colin Deacon, member of the Senate Committee on Banking, Trade and Commerce.

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PAYMENTSBUSINESS

September/October 2019

Courtesy Senate of Canada

Open Banking


Open Banking

By Brendan Read

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Courtesy Se

nate of Cana da

pen banking promises to provide Canadian consumers and businesses with the ability to control the use of their banking data and access digital banking tools or financial technology (FinTech) services, according to Senator Colin Deacon. He is a member of the Standing Senate Committee on Banking, Trade and Commerce. These FinTech services “will enable them to more safely and affordably access credit, manage their retirement, pay bills on time: to name just a few of the benefits,” said Senator Deacon. And as such it may spark innovation, new solutions and growth in Canada’s burgeoning FinTech industry. It will also stimulate competition and productivity growth within our entire banking sector, better preparing it for global disruption that he believes is inevitable. But according to the Senate committee, Canadians who use open banking tools also presently “have little control over their personal financial data and many use third-party banking apps that place them at greater risk of identity theft and fraud”. To be fair, current customer agreements with Canadian banks provide their customers with little control over their personal financial data, and these incumbent banks have not been immune to data breaches. In a new report, Open Banking: What it Means for You, the committee recommended that the federal government must take several steps to enable Canadians to use open banking securely. • Immediate term: providing oversight for open banking, including screen scraping and funding consumer protection groups to help them research on the benefits and risks; and • Longer term: developing an open banking framework. Also, aligning the Personal Information Protection and Electronic Documents Act (PIPEDA) with global privacy standards, including giving consumers the right to control how organizations share their personal financial information.

The full text of the report can be downloaded at https://sencanada. ca/content/sen/committee/421/BANC/reports/BANC_SS-11_Report_ Final_E.pdf. To fully understand open banking, its benefits and its challenges, including its impacts on Canada’s payments system, Payments Business recently interviewed Senator Deacon. An entrepreneur who has worked with tech start-ups, he understands both the opportunities and the risks of innovative technologies and practices.

Payments Business (PB): What exactly is open banking? Senator Colin Deacon (CD): At its core, open banking is the structured sharing of data by consumers with and between their September/October 2019

financial service providers (e.g. banks and FinTechs). It opens the financial services market up to the sort of disruptive, customerfocused innovation that we’ve grown to expect in so many other areas of our life. But, most importantly, it puts consumers in control of their data and the financial services they use. Kirsten Thompson (Dentons) says that “open banking” is better called “consumer directed banking” and I think she nailed it.

PB: What are the benefits to consumers? Businesses? CD: The biggest benefit is that the data sharing is safe, discrete and reversible; consumers and businesses can grant and revoke precise levels of consent at any time. The premise of open banking is that the customers (e.g. consumers or businesses), not service providers, have the right to be in control of their data, for their own benefit. This stands in stark contrast to current conditions. We can’t even begin to imagine the innovative solutions that will be created. I believe, totally and completely, in the abundance of opportunity that is created when you open systems up to “the crowd”. All of a sudden, problems that we did not fully appreciate or understand are being solved: and highly creative, effective and cost-efficient solutions are disrupting the market. In particular, I see open banking helping marginalized communities because now entrepreneurs from those communities are free to identify AND solve problems that are important to and serve the needs of their particular community. Think about rural and remote communities that have been experiencing declining levels of banking services. With open banking, they will have even better services available to them, safely and securely, on their mobile devices or laptops, 24 hours a day, seven days a week from anywhere. And if you don’t think we can find solutions that will serve the most marginalized Canadians, consider that 96 per cent of Kenyan homes have an account with M-pesa, a mobile banking service. If you focus intensely on the specific needs and realities of a given group of customers, wonderful opportunities can emerge.

PB: How will open banking mesh with Payments Canada’s payments modernization initiative? CD: Open banking consists of two changes to the banking sector. Firstly, it would allow third parties with the permission required from the customers to access banking data, or, more simply, the ability to “read” them. Secondly, it would allow third parties to initiate payments from bank accounts or have the capacity to “write” them. In Canada, open banking discussions have focused mainly on third parties being enabled to access banking data, but both functionalities will be required for Canadians to receive the optimal benefits of open banking. Payments Canada told our Committee that it is leading a payments modernization initiative that is designed to promote innovation in payments processing, which will include real-time settlement PAYMENTSBUSINESS

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Open Banking

© Library of Parliament.

and clearing of payments. It stated that “combining the ability to reliably access financial data with the ability to initiate payments or transfer funds between institutions will increase the range and competitiveness of new financial services.” Achieving that “read” and “write” objective is key. The Canadian Bankers Association told us that the goal of payments modernization is the same as open banking. So, it sees payments modernization and open banking as aligned and interconnected. That’s good. Payments Canada’s promise of real-time settlement and clearing of payments said to me that it is heading in the right direction; my only questions then relate to when it will be able to reliably deliver that functionality. Payments Canada suggested that the federal government set an “ambitious timeline” for implementing open banking. This tells me that it believes that its new platform will be completely functional before the first iteration of an updated regulatory framework will be in place. I also see the opportunity to look well beyond the domestic market. In the tech start-up world, where I come from, the market focus is always international. I sure hope someone in Payments Canada is working on how we scale to become the preferred global payment services provider.

PB: What factors are moving Canada towards it? CD: Market realities and advancements in technology. Global competition is rising incredibly rapidly. Competing and emerging markets now have more advanced banking and payments options than Canada, and we are increasingly falling behind. As these other markets accelerate, the gap widens, making Canada’s financial services industry a very high cost, low value banking market in relative terms. When you look at how well respected our banking system is, our incredible technical capabilities, huge global successes, reliance on exports, the sophistication of our population and our initial global leadership on privacy legislation, it’s crazy that we are so late to the open banking transition. There are, of course, plenty of Canadians who have already transitioned into using open banking; almost four million are estimated to use one or more FinTech apps that use screen scraping to access their banking data. This unregulated workaround exists purely because of the current lack of an established system. It’s crucial that we get the right regulations in place quickly so that these consumers are properly protected while accessing these services, and can contribute to the momentum of new FinTech technologies. Our Senate report summarized the key factors demanding action in the creation of an open banking framework in one sentence. “Canadian consumers need open banking regulations as soon as possible for three main reasons: to keep their personal financial information safe; to be provided more choice and improved financial products and services; and to help keep the Canadian financial sector strong and internationally competitive.” The importance of this last point cannot be overemphasized.

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PB: Where does Canada stand with other countries on the adoption curve and why? CD: Not nearly far enough along the adoption curve, in my estimation. Brett King’s Bank 4.0 book provides some sense of how rapidly we are being left behind. I’m also concerned that we are looking at issues related to consumer data consent and privacy only through the window of “protection” and not prosperity. Yes, consumers need to be protected, but they also need to be able to unlock the economic potential of their data. On August 1, 2019, Australia passed its Consumer Data Rights Act. The need and motivation to act swiftly to create this innovative legislation emerged from the Australia Productivity Commission, a body charged with conducting public inquiries on key policy or regulatory issues bearing on Australia’s economic performance and community well-being. The Commission recognized the enormous economic value of data, the legal complexities related to ownership and the importance of giving consumers control over those data so that they could invest them where they see fit. This challenges the traditional view, one that is all too common in Canada, where consumers simply need to be protected, not empowered. The role of the Privacy Commissioner of Canada’s role is entirely focused on “protecting” and “enforcing”, not on the equally important roles of “enabling” and “empowering”. This is why we chose to recommend that the Privacy Commissioner of September/October 2019


Open Banking Canada and the Canadian Commissioner of Competition both need to be involved in the development of the regulatory framework. If we are to move up the open banking adoption curve at the rate required, we have got to look at this issue from an entirely more balanced perspective.

PB: What are the top challenges facing open banking? CD: I think the biggest challenge is political will. The average Canadian is not demanding open banking. I expect that most Canadians have no idea what open banking is, or that we currently have a closed banking system. There will be no national survey citing open banking as an important issue. I’ll wager money that it’ll never be a debate question during the election. Yet issues around data, consent and privacy are tremendously important: in an increasingly digital economy, they are central to our productivity growth. If we do not do a better job of managing these issues, we limit our ability to maximize opportunities in countless fields that are central to our domestic expenditures (e.g. healthcare), as well as other internal and export markets. The public’s urgency to address these issues grows every time another data breach is announced, but cybersecurity is only one element of how we manage consumer data rights in this country. Moving forward swiftly with open banking will be a real step in the right direction for the government to help protect and empower Canadians in how they use their personal data. It is critical for policymakers to understand and prioritize that fact before we fall even further behind our global competitors.

PB: What are the lessons learned from the U.K. and Australian experiences? CD: The U.K. was able to implement open banking in part through the existence of the General Data Protection Regulation (GDPR). The Australian example provided our committee with an interesting understanding of how consumer data rights can be viewed across sectors: where the consumer is in control. Canada has its own unique challenges, including our geography and population. We can’t adopt another country’s strategy entirely but we can—and should—take note of lessons learned so that we can be one of the leaders in the new digital economy. We were impressed that the implementation of open banking was devolved to the private sector in the U.K. through an initiative funded and led by the big banks. My only concern is governance: making sure that the open banking market opportunity values all size of participants and does not inadvertently or intentionally create barriers to new entrants. My background means I firmly believe that new entrants (e.g. FinTechs) can be just as capable—even more so—of serving customer needs than established groups (e.g. banks). I have heard concerns that the big banks held a bit too much influence in the Australian process, so I think we need to be sensitive to that risk. Our Committee concluded that the government should act as facilitator, but that the open banking framework should be developed September/October 2019

by industry. This is why I have been calling on Canadian FinTechs, aggregators and banks to sit down now, during this election period, to keep the issue moving. They can focus on areas of agreement, understand and explain the complexities that may be the source of disagreements and begin to identify the central elements that will shape the essential components of an open banking regulatory framework, like a common application programming interface (API). It’s time we get going, learn from others and find that allimportant starting point. Nothing gets done without a deadline, and we need to move even faster than they did in the U.K. and Australia if we want to be globally competitive.

PB: Outline the key Senate recommendations. CD: Our report outlined ten recommendations, urging the federal government to pursue open banking as a means of encouraging innovation and the adoption of new technologies while also ensuring the protection of Canadians’ privacy. In the longer term, this will require modernizing PIPEDA to ensure we are aligned with global standards. Also, designating regulatory and enforcement authorities for open data framework: we proposed a joint mandate between the Privacy Commissioner of Canada and the Canadian Commissioner of Competition. In the shorter term, we recommend more research and public education as well as, crucially, that the government facilitate the development of a principles-based, industry-led open banking framework. As facilitator, the government should ensure equal participation by all stakeholders, including those involved in payments modernization. I’d love to see industry start this work now to allow the government to set ambitious timelines that respect the urgency required.

PB: Where do you see open banking in the next five years? CD: I want us to take the actions needed to be at the forefront of open banking globally, combining our reputation for strong financial and regulatory systems, with our deep-seated respect for individual rights, our globally competitive technical skills and our capacity to innovate. Canada is third in the world in terms of volume of digital transactions, so we have a large, proven market. This is an amazing opportunity to revolutionize our financial sector as well as our global competitiveness. The lessons we learn with open banking will have an enormous impact on how we deal with data in other sectors. I truly hope that the next five years will have us emerging as an international leader. But without decisive action, I fear we will be importing, not exporting, many of our financial services and that is not a place I want us to be. Facebook will launch Libra in some form. I expect that they will be followed by Apple or Google or Microsoft. The financial industry is rapidly becoming global and digital. Canada can be a leading and highly trusted financial service provider to the world, or an importer of what the world creates. I’m going to do all I can to make sure we choose the first option. PAYMENTSBUSINESS

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Open Banking

The measured evolution By Meenaz Sunderji

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recent report released by the Standing Senate Committee on Banking, Trade and Commerce warned that Canada is at risk of falling behind if the country fails to create a regulatory environment conducive to open banking1. The report called for the federal government to move forward with an open banking framework so that Canadians can have more choices when it comes to financial products and services: which will also keep the Canadian financial sector internationally competitive. While there are many potential benefits to open banking, one of the most important to Canadian consumers is more choice when it comes to financial products and services.

More competition, innovation The current financial landscape in Canada is fragmented with some FinTechs beginning to enter the space looking to disrupt how financial services are provided. In anticipation and response, Canadian policymakers and regulators are working to advance open banking initiatives to increase consumer choice through a more diverse ecosystem of financial services providers and products. The Senate report noted that Canadian consumers and small businesses would benefit from increased competition and innovation in the financial sector. Competition and innovation are arguably the most significant areas of opportunity provided by open banking. Open banking would facilitate the ability of financial services providers to create tailored products and services more closely aligned with customer needs. Increased competition will also benefit consumers, allowing increased visibility for comparing pricing, products and offers to help them make more informed choices. With more competition, financial institutions will be challenged to develop more innovative products and solutions. To succeed, they’ll need to show how customer-centric they can be, creating compelling customer experiences, deepening loyalty through transparency of fees and allowing customers an earnest sense of autonomy and information. Small and medium enterprises (SMEs) also stand to benefit from open banking. This is good news for one of the most traditionally underserved segments of the financial services market. According to the Review into the Merits of Open Banking consultation document by the Department of Finance Canada’s Advisory Committee on Open Banking, SMEs would benefit from open banking through 8

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digital services. Namely those that reduce red tape, platform applications that allow new operational insights and functionality and faster adjudication of small business loans, auto financing and mortgages, with greater variety and flexibility.

Information safety and security While recognizing the benefits of open banking, both the Advisory Committee’s consultation document and the Senate committee’s report stressed the importance of protecting the security and privacy of consumer information. The Senate report noted that “it is up to the federal government to encourage innovation and the adoption of new technologies while protecting the privacy of Canadians. If implemented correctly, open banking offers the federal government the opportunity to accomplish both of these objectives.” This is probably one of the biggest challenges in open banking. Fundamental to it is the fluid transfer and sharing of customers’ financial data to make it easier for them to work with multiple financial institutions. Lawmakers and regulators are still hashing out how to protect consumer privacy as this data is being exchanged. One of the keys to addressing this challenge is defining the scope and accessibility of data. Consensus on how broad this data sharing will be and how data can be used will need to be reached among all stakeholders. These include representatives from federally and provincially regulated financial institutions, financial services providers, consumer advocacy groups, Payments Canada and other relevant groups, to ensure that consumer privacy is protected.

Strong, competitive sector Recognizing that open banking is better for customers and an economic benefit for Canada, lawmakers and regulators are focusing on advancing this initiative. According to the Review consultation document, “the digital transformation of the financial sector and supporting policy frameworks have the potential to both better serve consumers and grow businesses and markets, contributing to the growth of the Canadian economy and Canada's global advantage.” While there is an urgency to keep pace with the digital transformation of the financial services sector, Canada is taking a measured approach to open banking. The country ranks eighth in the EY Open Banking Opportunity Index, which assessed the readiness of 10 different markets around the globe to thrive in an Continued on page 10

September/October 2019


Chris Buck, CEO of open banking platform provider Portfolio+ Inc.

It’s a matter of trust By Brendan Read

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s Canada prepares to adopt open banking, financial institutions (FIs) are figuring out how to embrace this new level of digital information sharing. Canada is following the lead of other jurisdictions, such as the United Kingdom, Europe and Australia, in giving its citizens more control over how their information is used and which third-party providers can gain access. Open banking is expected to increase competition in the financial services industry, giving consumers more choice on everything from opening a bank account to applying for a loan. McKinsey & Company reported that, for financial services companies, the potential benefits of open banking include a vastly improved customer experience, new revenue streams and—if executed properly—a more sustainable service model1. For most of these companies, the value will come from having a flexible, scalable and secure open banking platform that delivers reliable products and services. September/October 2019

COURTESY Portfolio+ Inc.

Open Banking

Financial services companies that establish a first-mover advantage are also likely to be leaders in open banking, pointed out Chris Buck, CEO of open banking platform provider Portfolio+ Inc. (www.portfolioplus.com). This is significant, since PwC UK estimates that in that country alone, the open banking revenue opportunity by 2022 will be upwards of £7.2 billion ($11.7 billion Canadian)2. “It’s a case of disrupt or be disrupted,” said Buck, whose company is part of the Volaris group of companies under Constellation Software Inc (TSE: CSU). Payments Business recently interviewed Chris Buck, where he discussed the importance of open banking to Canada’s financial services ecosystem, and how companies can prepare for the new digital-sharing environment.

Payments Business (PB): How big a change will open banking be for Canada’s financial services sector? PAYMENTSBUSINESS

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Open Banking Chris Buck (CB): We see open banking as a large opportunity to embrace and increase customer value. Open banking will allow customers to access their own information and execute their financial transactions in a way they find convenient and secure. Open banking is a digital evolution, not a revolution. In our view, it will be a riskmanaged approach that carries the day.

PB: How can open banking transform a FI’s business? CB: It’s an opportunity to attract new customers and keep them for a lifetime. FIs will each embrace open banking in their own way. They will need to ask themselves important questions such as, “What does open banking mean to my bank?” or “What does it mean to our customers?” Open banking will be a journey by a FI or FinTech based on what customers come to expect and demand. Over time, people will seek out products and services they want from multiple channels. It’s the FIs that offer high-quality, highsatisfaction service delivery that will lead in market share. While the big banks may dominate today, they have to assume they’ll be disrupted over time. The goal for financial services companies will be to capture share of mind, share of wallet and share of heart in their open banking products and services. It starts and ends with trust.

PB: Why should financial services companies prepare for open banking, before it’s formally adopted? CB: More and more Canadians are becoming aware of and are using digital financial services. It’s evolving quickly and not just with the Millennial generation either. Everyone from Generation Z to Baby Boomers are looking for the kind of services that open banking offers. Customers will do business where it’s most convenient and cheapest to safely manage their financial affairs. FIs need to be on board in this new era of customer-driven service and demand for a superior experience, or risk being disrupted by others that are.

PB: What criteria should FIs look for when seeking out an open banking platform provider? CB: They should look for a provider that offers all of the following attributes: openness, flexibility, scalability, security, responsiveness and trust. What do I mean by each of these? Being open, flexible and responsive means having a platform that can adapt and change as the banking system and digital technologies inevitably change. The platform should also be able to scale to meet market demand as the numbers of customers and transactions increase. The platform should further be able to operate within the corporation’s technically secure and auditable technology infrastructure. Last but not least, the corporation should be able to trust that their open banking platform provider is in it for the long-term: and not some fly-bynight operation.

PB: How is Portfolio+ Inc. readying for open banking in Canada? CB: We are ready now. We are able to actively engage in the design and deployment of an open banking platform today. We have a technical solution and a full set of documented open banking application programming interfaces (APIs) ready to deploy. They can be adapted, modularized and customized, as our clients are already finding. The question for businesses considering open banking is “Which solution do you feel you will need?” Whatever it is, we are ready and able to support their strategy. This is our core business. It’s time that we embrace open banking. 1 Laura Brodsky and Liz Oakes, “Data sharing and open banking”, McKinsey & Company, article, September 2017. 2 PwC Canada, “Canadian Banks 2019”, report.

The measured evolution Continuned from page 8

open banking environment2. Lawmakers and regulators are taking this go-slow approach to help ensure that the Canadian financial sector remains strong throughout the evolution of this initiative. As Canada moves toward open banking, the country can also enhance the competitive position of its financial sector by taking a best practices approach to implementing open banking. By observing the evolution of this initiative—what worked, what didn’t—in the U.K, the European Union and Australia, Canadian lawmakers and regulators can make more informed decisions that balance the benefits to the consumer with mitigation of risks as they implement open banking. 10

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Open banking is inevitable. Lawmakers and regulators in Canada are working to transform the country’s financial services sector with open banking policies. Those that encourage greater competition and product and service innovation for the benefit of consumers, protect the privacy and security of consumer information and position Canada’s financial services sector to remain competitive in the global banking market. Meenaz Sunderji is executive vice president, Zafin (https://zafin.com), which provides product and pricing control solutions to financial institutions. He is responsible for partner growth, sales strategy and sales growth globally. 1 Senate of Canada, “Open Banking: What it Means for You”, report, June 2019. 2 Abhishek Sinha and Anthony Rjeily, “How new open banking opportunities can thrive in Canada”, EY, article, March 28, 2019.

September/October 2019


Fintech

Disrupting the payments ecosystem By Tyler Anderson

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ayments in the Canadian ecosystem have evolved beyond the financial service providers. Everyone from early-stage start-ups to tech giants and to other nonfinancial players wants to be involved in the quickly growing payments ecosystem. At FinTech Growth Syndicate (FGS), we have had a front row seat to the exciting opportunities on the horizon for payments and can understand why so many individuals are excited about this space. Not only does offering a payments solution enable companies to become further entrenched in their customers’ lives, but it also creates a stickiness that other initiatives cannot.

FGS reports that there are approximately 633 PayTech companies operating in Canada with 420 of them headquartered in the country. This market supports, enables and is directly involved in the transfer of value between stakeholders. PayTech has also seen a variety of funding deals completed in 2019: 244 deals totalling $2.68 billion in funding for PayTech companies across Canada. New entrants into the PayTech vertical is on the upswing in Canada as 33 per cent of all PayTechs are currently considered earlystage companies. Over the last few years, we have witnessed the rate of failed companies on the decline as new start-ups have made headway into the market over the previous three years. We can take this as a sign that PayTech is here to stay, and as these companies mature, we will see a rise in investment, partnership and growth in the ecosystem. Tech giants such as Apple and Amazon are also paying close attention to the payments space and have increased investments into their payments offerings. An example of this is the Apple Card, introduced by Apple earlier this year. The credit card is designed to be used with Apple products such as an iPhone. Similarly, Amazon has Amazon Pay: a payment solution for an enhanced checkout September/October 2019

Courtesy FGS

The Canadian PayTech ecosystem

experience for their customers. Messaging platforms are also innovating in the payments space. Two prime examples of this is WhatsApp Pay in India and WeChat Pay in China. As payment technology is advancing, it is changing the way we conduct, facilitate and process payments. A cultural shift is happening as people demand solutions that are integrated into all facets of their lives.

Payments modernization Payments modernization has been a hot button topic in Canada that the organizing body Payments Canada is currently tackling. The initiative is aiming to simplify and enhance payment interactions, as well as position Canada as a leader in financial services on a PAYMENTSBUSINESS

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Courtesy FGS

fintech

global scale. However, it is no simple task, involving updating and re-thinking many different aspects of our current payments system. Below is an outline of the various payment systems that are being innovated as part of the project.

Real-Time Payment Rail (RTR) RTR is the supporting infrastructure. It will enable real-time (and faster) consumer and business payments and transfers while also creating new and innovative ways to make payments. Banks offering overlay services and other payment service providers (PSPs), e-commerce web sites, mobile players and so on, will have the ability to connect to the RTR and bring their overlay services.

ISO 20022 The payments modernization initiative will also include the global and open standard, ISO 20022. The ISO 20022 standard will allow necessary payment details and associated remittance information to travel together in the same payment message: meaning richer information with every payment.

Open Banking International developments in PayTech have had a significant impact on Canada’s PayTech initiatives. As a result, Canadian legislative bodies have begun to consider the adoption and implementation of 12

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an open banking system, which would allow third-party access to consumers' financial data through their banks. In January 2019, the Department of Finance Canada released a consultation paper on open banking. Its purpose was to understand Canadians’ views on open banking and to determine the overall desirability of the system.

Upcoming trends and predictions Like anything in the world of technology, it can be challenging to predict the future. However, here are some of the trends FGS has been tracking and hope to see come to life shortly. 1. New entrants into the Canadian ecosystem. As international boundaries continue to blur, PayTech success stories from other countries, such as Revolut and Paytm, will continue to enter the Canadian market. 2. Remittances on the rise. As the Canadian government is inviting an ever-increasing number of skilled immigrants, the demand for remittance products will continue to rise. It is estimated by the Canadian International Development Platform that the total remittances flow out of Canada was $24.6 billion in 2017, with the largest flows being to China and India. 3. Tech giants versus traditional banks. As tech giants further expand their payments offerings and expand into new markets, banks will begin to have a more difficult time keeping market share. Since most of these giants have a foothold across the Canadian September/October 2019


border in the U.S. moving to Canada is very lucrative for them. Considering their customer stickiness and vast resources at their disposal, it won't be difficult for them to sideline their banking competitors. 4. Payments modernization in action. The roll-out of payments modernization initiatives will lead to ever-increasing digital payments adoption within the country. 5. Consolidation of the industry. As different categories of companies make waves in the space, the market will start to consolidate and see significant acquisitions. This is also true when large corporations acquire financial institutions or PayTechs only for gaining access to the licences and meeting all official requirements to operate in the payments space. For example, Every, a challenger bank for small businesses, was acquired by Wave to add financial services offering to Wave’s suite of products. 6. The social side of payments. The social payments space will find adoption in the country. While social payment solutions like Venmo, WeChatPay and Alipay are not yet standard in Canada, as these companies make strides towards Canada, these platforms will spread like wildfire. 7. Actualized point-of-sale financing. This almost untapped market in Canada will begin to take off shortly. Currently, an increasing number of companies are offering this service, and non-Canadian companies, such as Klarna, are operating in the Canadian landscape. These companies have been able to provide consumers with the freedom to pay for their purchase after 15 days interest-free, and then subsequently convert the charge into installments. 8. Consolidation of loyalty programmes. The loyalty space in Canada is very crowded; almost every major brand has a loyalty programme. This has led to Canadians holding multiple loyalty cards: and often forgetting to use them at the time of purchase. A solution that can aggregate all the loyalty programmes for the customer is desperately needed. Users should not only be able to track all of them in one place but should also have the ability to exchange loyalty points from one brand for another. This need will September/October 2019

Courtesy FGS

FinTech

lead to the creation of an open and comprehensive ecosystem of loyalty programmes. Imagine shopping for groceries at Loblaws and using Starbucks rewards points to pay for them. It has never been a more exciting time to be a PayTech in Canada. As the space continues to evolve, we predict we will see new technologies emerging and different categories of players innovating to compete for their piece of the payments pie. To learn more about PayTech in Canada, download our Canadian PayTech Report 2019 (www.fintechgrowthsyndicate.com/ paytechreport). Tyler Anderson is chief operating officer of FinTech Growth Syndicate (FGS) (www.fintechgrowthsyndicate.com). Tyler has spearheaded and grown many projects through from ideation to commercialization. Tyler oversees operations at FGS and is a Business Model Canvas and Value Proposition design expert. PAYMENTSBUSINESS

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fintech

Visa x Payment Rails By Peter Misek

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arlier this year, FinTech and artificial intelligence (AI) startups across Canada presented their innovative solutions for the payments industry at the Visa-sponsored Future of Payments Pitch Battle, as part of the Canadian Fintech Summit (www.fintechsummit.ca). Amongst 14 startups across a wide range of sectors, one company stood out from the rest. Payment Rails (www.paymentrails.com) took the No. 1 spot for its innovative payouts platform that enables businesses to effortlessly send payments around the world to their contractor workers and suppliers via multiple payment methods. Derek Colfer, head of Technology and Digital Innovation at Visa Canada and Tim Nixon, CEO and founder of Payment Rails sat down with me to discuss the Pitch Battle, the current FinTech landscape and the future of FinTech in Canada.

Peter Misek (PM): What kind of challenge is Payment Rails trying to solve? Tim Nixon (TN): We’re helping businesses and platforms pay their on-demand contractor workforce. We help automate all the processes to pay on-demand workers with our REST API and online dashboard. We connect our customers to a global payments infrastructure, all under one platform and application programming interface (API), and save them up to 80 per cent in reduced payment and admin costs: while offering a far better end-user experience.

PM: What did you get out of the Future of Payments Pitch Battle? TN: We were excited for the opportunity to present our innovative product to the Canadian FinTech and banking communities. It was great exposure, which led to a number of discussions with prospective new customers and partners. The subsequent networking dinner hosted by Visa helped us develop strong connections with key people from Canada’s largest banks for potential partnerships.

PM: What unique opportunities does Canada’s FinTech scene provide Visa and FinTechs? Derek Colfer (DC): Toronto is North America’s second largest financial services hub after New York City in terms of industry employment. The city is seeing increased interest in FinTech investments, with one of the highest growth rates globally (118 per cent since 2010, according to Toronto Finance International). This milieu provides fertile ground for Visa to continue being a trusted connector in the payments industry, with a focused commitment to foster relationships that will help start-ups grow. Toronto’s rich talent pool is keen to stay here, which provides a fertile ground for innovations. TN: We have offices in both Montreal and Toronto, which help 14

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us benefit from the best that both cities and provinces have to offer. Whilst Toronto is clearly the financial centre, Montreal has a very strong and supportive tech start-up scene, with great local programmes focused on helping FinTechs, such as Holt Fintech Accelerator and Fintech Cadence. Both cities are great places to find incredibly talented people to help build a global FinTech business.

PM: How are FinTechs playing a role in solving payment challenges? DC: The future of payment innovation depends on our ability to collaborate with new and traditional players in the payments ecosystem. Consumer preferences and experiences are rapidly evolving. With more than 25 billion estimated connected devices worldwide by 2021 (according to research from Gartner), there’s a huge opportunity to bring consumer-centric payment experiences to everyone, everywhere. This new juncture opens the door for FinTech startups—like Payment Rails—to create innovative payment methods that revolutionize the consumer experience.

PM: How does Visa support FinTechs? DC: Visa’s global network delivers the security, speed and scale that FinTech companies need to grow their businesses. FinTechs, through their sponsoring financial institutions, can leverage Visa’s relationships and technology to begin issuing Visa cards to their consumers. They can also take advantage of Visa Direct to support fast and easy payouts for things like wage disbursements, payments to employees and other push payment transactions. We also provide valuable industry expertise and resources that are all housed in the Visa Developer Portal. It’s a one-stop-shop for FinTechs.

PM: Why is it important for big tech to enable FinTechs? TN: FinTechs are focused on solving real problems for consumers or businesses in new ways, but access to financial infrastructure is still required to deliver many of these solutions. In most cases this means partnering with incumbent banks or insurers to access those services. Visa is uniquely positioned as a global network with deep connections. Having Visa’s support can greatly accelerate a FinTech’s speed to market.

PM: What are your hopes for the future of FinTech in Canada? TN: My two hopes for the future of Canadian FinTechs is that we see more successful independent companies scale up at both the national and international level and become leaders in their categories. Peter Misek is founding partner at Framework Venture Partners (www.framework.vc). His company organized the annual Canadian Fintech Summit with BDC Capital and in collaboration with MaRS Discovery District. September/October 2019


FinTech

Prepaid sparks FinTech innovation By Jennifer Tramontana

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repaid currently plays a valuable, though unassuming, role in Canada’s financial ecosystems. With $4.3 billion loaded onto open-loop prepaid products in 2018, reports the Canadian Prepaid Providers Organization (CPPO), prepaid is rising from the shadows as more consumers, businesses and governments discover the convenience and security of loading funds onto physical or virtual cards. The rapid growth of prepaid solutions has come through offering Canadians innovative, technology-driven products and services for buying goods, paying workers, using them in incentive and loyalty programmes and in transferring social assistance and tax refunds. As we have learned in other markets, like the U.S. and the U.K, prepaid isn’t just a pay-before card solution, but a platform for financial services innovation. According to KPMG, growth of FinTech investments in Canada exceeds $750 million a year and prepaid solutions are at the core of many leading FinTech players1. FinTechs are using prepaid’s modular and light infrastructure for innovative products that are challenging Canada’s big banks.

Prepaid FinTech use cases Here are the most mature prepaid use cases in Canada. Gig worker payments platform. The application of prepaid cards in contract worker payments is beneficial from both the worker and business standpoints. For instance, Payfare uses prepaid cards to ensure that gig workers are paid faster. It enables transportation and ridesharing companies to pay them by loading their earnings onto prepaid Mastercards, giving drivers the ability to shop in-store or online anywhere Mastercard is accepted. The ability to offer real-time pay with prepaid also gives businesses a competitive advantage in the acquisition and retention of workers in an increasingly crowded gig economy space. Additionally, the rich information bundled in an electronically generated and transported message can tie in all the data rendered through traditional payments. With six in ten (62 per cent) Canadians say they feel more loyal to a company that pays them in real time, according to a study commissioned by the CPPO, it is expected that gig economy solutions will continue to grow on prepaid platforms.

September/October 2019

Financial management tool. Canadians struggle with a longstanding relationship with debt and overleveraging, thereby depleting their savings. In 2018, debt levels rose as average balances for credit cards while lines of credit grew at a faster pace than in 2017, especially in Vancouver, B.C., Edmonton, Alta. and Toronto, Ont.2 A December 2018 report from Payments Canada shows that since 2012, the value of cash payment transactions has decreased by 21 per cent, while consumers opt for more convenient and digital methods of payment such as contactless, online transfers and in-app purchases3. This has ushered in an industry of innovative payment technology that provide convenient and cheaper digitalfirst alternatives to traditional banking. Two of Canada’s leading FinTech companies, Stack and KOHO, are challenger paytechs offering services on a prepaid platform. Stack eliminates account and transaction fees while also offering a real-time budgeting tool and rewards from select merchants. KOHO offers a free prepaid Visa card and an integrated app to help Canadians budget and save.

FinTechs are using prepaid's infrastructure for innovative products that are challenging Canada’s big banks. Modern cheque replacement solution. Canadian businesses and government agencies send more than 550 million cheques annually, primarily due to the need for administrative processes and a clear audit trail, costing the economy $5.8 billion, according to research by Deloitte for the CPPO and data from EY and Payments Canada. Meanwhile, an electronic payment costs less than a dollar. Prepaid products offer significant advantages over more traditional methods for cashless transfers. It combines security, tractability and the record keeping rigour of a traditional cheque audit process with a modern, digital payment product, as well as the information that is passed along with an electronic payment. Prepaid is proven; it has been delivering payments for disaster relief scenarios, incentives and commission payments as well as a whole host of back-office B2B PAYMENTSBUSINESS

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Courtesy CPPO

fintech

Source: University of Bristol, The Poverty Premium.

and government disbursement, which are slowly moving to cards and e-payables. Cheques, however, remain pervasive in Canadian business. In a recent article from PYMNTS.com, Andrea Gilman, senior vice president of product management, new payments and commercial products at Mastercard, said that corporate executives may be focused elsewhere, beyond the mechanics of payments 4. Similar to the U.S. though, there is a big market opportunity in Canada that is just beginning to be touched.

Prepaid provides an initial point of financial access to underserved Canadians. Financial inclusion enabler. It’s only in the last decade that prepaid options have come to the forefront in Canada as a useful tool for financial inclusion. Prepaid provides an initial point of financial access to underserved Canadians. Though over 90 per cent of eligible Canadians have a bank account, many communities have low engagement with financial services offered by traditional banks5. As a result, these Canadians are limited in their ability to manage cash flow, save money and access credit due to economic, technological and geographic barriers. They can pay anywhere from $5 to $45 dollars per NSF (non-sufficient funds) and overdraft charges6, while 16

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cheque cashing fees can cost between 1-5 per cent of their cheque value in fees7. By using prepaid products instead, the aforementioned Deloitte research estimates that the same consumers would pay, on average, around $60 a year. Innovative efforts such as the collaboration between Payment Source and Canada Post give customers the opportunity to make quick and secure payments all over the country to businesses or even the Canada Revenue Agency, in real time, through prepaid cards or other forms of payment. With close to 80 per cent of Canadians living less than 2.5 km from a post office, and over 90 per cent within 5 km, Payment Source capitalizes on Canada Post’s convenient payment network. Prepaid solutions have an important role to play in the Canadian FinTech space and the potential is just beginning to be tapped. Canada will continue to see growth in disruptive financial products and services over the next decade and prepaid is going to continue to be a very important platform for creation, launch and growth. Jennifer Tramontana is executive director of the Canadian Prepaid Providers Organization (CPPO) (www.cppo.ca). 1 KPMG, “The pulse of fintech Q3 2017: Global analysis of investment in fintech”, 2017. 2 “Canadians racking up debt even as mortgage activity slows, CMHC says”, Global News, May 22, 2019. 3 Michael Tompkins and Viktoria Galociova, “Canadian Payment Methods and Trends: 2018”, Payments Canada, report, December 2018. 4 “Mastercard Weighs In On B2B Payments’ Tipping Point”, PYMNTS.com, November 1, 2018. 5 World Bank, “The Global Findex Database 2017”. 6 Garry Marr, “Overdraft is another way banks win and you lose”, Financial Post, April 6, 2013. 7 Law Commission of Ontario, “Fees for cashing government cheques”, report, November 7, 2008. September/October 2019


FinTech

Rebooting international payments By Lindsay Mulligan

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t’s difficult for banks to distinguish themselves in today’s digital world. With technology evolving at the speed of light, customer expectations are high, and it is incumbent upon financial institutions (FIs) to provide their clients with the latest technology if they wish to obtain, and retain, their customers. While for the most part FIs are keeping pace, one area in which they have historically lagged is cross-border payments, and in particular bill payments. In this one regard, they are mainly stuck in the 20th century, and those that do not adapt to the changing marketplace will begin to feel the consequences.

banking functions now being available at the touch of a button, international bill payments have, until now, remained analogue. This is an enormous lost economic opportunity for FIs. In 2017, the international payments space saw $1.9 trillion in revenues and measured projections show the potential for the space to reach $2.9 trillion globally by 2022: provided FIs step up to modernize the process2. As international trade expands, this latency in cross-border payments is extremely costly to everyone along the supply chain. The friction that exists within bill payments creates a tedious customer experience and something that needs to be improved upon.

Needed: new solutions

Costly missed opportunities Transferring funds or paying bills within one’s own country has long been available via apps, but for individuals or small mid-sized enterprises needing to pay bills internationally, there have been only two options for such transactions, neither of which are simple, costeffective or convenient. One, customers can either visit bricks-andmortar banking locations to initiate lengthy wire transfers. Or two, they can open additional bank accounts in the various countries payees reside. The latter can be subject to non-residency challenges and regulations and can put undue strain on their cash flow. Both processes are highly time-consuming, costly and inconvenient, not to mention archaic. With shifting populations, growing global trade and living in a real-time data-rich world, how is it possible that paying, for example a utility bill in your foreign office or vacation home, can be so difficult?

Bank to biller payments need to keep pace with rapidly changing technology. Disappearing borders are increasingly turning the world into a global village (to cite Marshall McLuhan), changing not only the way that business is conducted, but contributing to major population shifts. In Canada alone, more than 20 per cent of the population are immigrants1, many of whom need to send money and pay bills for personal and business purposes across borders. On top of this, many Canadians still like to flock to the U.S. in the winter while keeping, and still paying for, their homes in Canada. But despite virtually all September/October 2019

This is why digital real-time solutions are critical as we move forward. Improved cross-border bill payment capabilities have the potential to help businesses grow, and to help individuals quickly, easily and seamlessly pay bills overseas. Directly connecting cross-border bill payments to domestic bill pay infrastructure can remove latency and improve the customer experience. Fortunately, external providers are emerging to help FIs expedite the technology solutions necessary to make real-time international bill payments a reality. Buckzy Payments Inc. is among the new players in the space, offering a much-needed solution. The firm is enabling users to send and receive money instantly between bank accounts and facilitate real-time international bill payments, 24/7, 365 days a year. Buckzy partners with FIs including banks, facilitating integration with its platform to enable them to provide a real-time payments solution to their customers, and ultimately satisfying their customers’ rapidly changing needs.Players like Buckzy are transforming the way money gets moved and bills are paid around the world. With global migration continuing to grow, and barriers to global commerce gradually coming down, international payments and bank to biller payments need to keep pace with rapidly changing technology. Though the digital economy moves forward, one time-tested truth remains: the customer is king. If banks hope to maintain their clients, they need to adapt to an ever-changing global village. Lindsay Mulligan is chief marketing officer, Buckzy Payments Inc. (www.buckzy.net). 1 Statistics Canada, “Immigrant population in Canada, 2016 Census of Population”, October 25, 2017. 2 McKinsey & Company, “McKinsey Global Payments Map 2018”, October 2018.

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fintech

Removing the payments boundaries By Brian Weiner

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he experience of buying and selling has fundamentally changed and there is no sign this will stop. Payments are no longer being constrained by current wire payment infrastructure, thereby opening up possibilities for people even in the most remote parts of the world and giving them access to the digital economy. Businesses are also seeing the effects of globalization and are becoming increasingly borderless. But while trillions of dollars flow across the globe every day, when it comes to exchanging businessto-business (B2B) payments, the experience is less than optimal on an international level. Despite a time of rapid market growth, international payments remain difficult to navigate due to dated technologies and a maze of regulations. Cross-border B2B payments through existing methods currently cross a large decentralized network of financial institutions and intermediaries. This can cause inefficiencies, such as in the speed of processing and settlement, transparency of how funds are moved, the cost of moving them and lost or incomplete transaction data along the way. Not surprisingly, businesses are demanding more options with easier and more secure ways to make and receive international payments.

Faster, more secure solutions Given these challenges, we saw an exciting opportunity for Visa to enable a commercial payment experience that better meets the expectations of our financial institution clients and their corporate customers. Launched in June 2019, Visa B2B Connect is a non-card-

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based platform—the first of its kind—that removes friction from the process of exchanging B2B payments internationally. Our goal was to build a product that was scalable and which met and exceeded Visa’s standards of trust, reliability and security. Visa B2B Connect expedites transactions directly from the originating bank to the beneficiary bank without the need for any intermediaries. What once could take up to weeks now takes just one or two days. So how does it work? The new Visa B2B Connect is a global multilateral payments network built from scratch to solve a specific use case, rather than adding to an existing card network infrastructure. It leverages Visa’s best-in-class assets for settlement, fraud, data analytics and risk management. While speed was critical when building this product, we knew it couldn’t come at the expense of security. Visa B2B Connect’s digital identity feature tokenizes sensitive business information, such as banking details and account numbers, with a unique identifier to securely facilitate transactions on the network. This technology helps protect from many of the fraud risks that exist in the market today. The global payment volume from one business paying another business is significantly larger than payment volume from consumer purchasing and growing. The B2B market segment opportunity presents an exciting time for everyone, from financial institutions to businesses and global payments players like Visa. To learn more about Visa B2B Connect, visit www.Visa.com/ visab2bconnect. Brian Weiner is vice president and head of product, Visa Canada.

September/October 2019


Adopting FinTech to help others By Christopher Morris and Brian Laneheart

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he Canadian FinTech sector has grown in recent years. In the first half of 2019, Canadian FinTechs raised $251 million, almost double the amount raised during the first six months of 20181. Today, Toronto, Ontario is one of the largest industry hotbeds in North America. When compared to other industrialized countries, Canada falls behind in FinTech adoption. But the tide is turning. Once highly competitive, banks and FinTech companies are turning their mindsets toward collaboration. Combined with FinTech partnerships, these joint efforts are driving adoption and bringing benefits not only to Canadians, but to countries globally. One such partnership, forged two years ago between FinTech September/October 2019

Courtesy Brightwell

FinTech

providers Cambridge Global Payments and Brightwell, is making a positive difference by simplifying global remittance. One of the most exciting areas of FinTech, global remittance is relied upon by local economies as it is critical for migrant workers who need the ability to send money home. The need, and scale, is large. Today, there are 164 million migrant workers in the world2. And as recently as 2017, Canada ranked eighth globally as a host to incoming migrant workers, receiving $1.3 billion in remittances and sending $24 billion globally3.

Far-reaching impact Through this partnership, Cambridge and Brightwell make it possible for migrant workers to make important cash management decisions right from the palms of their hands. Workers can send money back PAYMENTSBUSINESS

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Courtesy Cambridge Global Payments

fintech

FinTech is playing a critical role in faster, safer and more secure remittances. home in a matter of minutes, regardless of where they earn a living. These remittances can be processed in a worker’s local currency and received in their native country by loved ones who use the funds for vital expenses, such as paying bills and putting food on the table. This quick, easy option for financial management and decisionmaking is positively impacting the quality of life for the people who seek work far from home and away from their families. For example, in India, a strong and tight-knit family culture often means that people take care of their aging parents, educate the family’s children and care for unemployed and handicapped family members. For many, jobs abroad are often the best way to earn the income they need to support family members at home. This strong family system and sense of responsibility for the family unit motivates Indian workers abroad to send significant amounts of money home each year. In 2018, India received nearly $79 billion of overseas remittances: a 14 per cent leap from the previous year’s $65.3 billion4. As this number continues to grow, FinTech is playing a critical role in faster, safer and more secure remittances.

Enabling inclusion FinTech is powering this movement and management of money by not only helping migrant workers more easily send, share and save money, but also by enabling the shift to a cashless society. Canada

There are still individuals in both Canada and the U.S. who struggle with financial wellness. ranks as one of the largest global societies to embrace the cashless transformation in which card and mobile-based payments are more widely accepted, and in many cases, preferred over cash. Migrant workers especially rely on these convenient options to make pointof-sale purchases from their phones or cards and for the ability to send funds home to their families with ease. While there is fear that moving to a cashless society will leave low-income people behind, FinTech partnerships, like the one between Cambridge and Brightwell are actually driving financial inclusion and empowerment, which is needed in countries around the world, including Canada. Although more prevalent in emerging markets, there are still individuals in both Canada and the U.S. who struggle with financial wellness, especially within the migrant worker communities. A lack of trust in the financial system, resulting mostly from inexperience with financial and banking systems, is the most common reason migrant workers, especially those coming from a heavily cash-based economy, give for being slow to adopt traditional banking systems. Because of this, companies like Cambridge and Brightwell are focusing attention and experience on creating easy to use, low cost and frictionless FinTech experiences that foster trust. Around the world, FinTech is changing lives and promoting inclusion. As more companies take the responsibility to educate and inform unbanked populations and those less comfortable with technology, the opportunities become endless. Christopher Morris serves as senior vice president of Global Enterprise Solutions Group for Cambridge Global Payments, (www.cambridgefx.com) a FLEETCOR company and leading provider of integrated cross-border payment services and currency risk management solutions. As a trusted partner for more than 25 years, Cambridge delivers innovative solutions designed to mitigate foreign exchange exposure and address unique business needs. Brian Laneheart serves as the senior vice president of New Product Innovation for Brightwell (https://brightwell.com) a FinTech company that helps global workers get paid, as well as send and spend money safely and easily worldwide. 1 CB Information Services, “Canada Venture Capital H1 2019”, report, 2019. 2 International Labour Organization, “ILO Global Estimates on International Migrant Workers”, report, December 5, 2018. 3 Pew Research Center, “Remittance flows worldwide in 2017”, report, April 3, 2019. 4 “India highest recipient of remittances at $79 bn in 2018: World Bank”, Economic Times, April 9, 2019.

For breaking news and in-depth features, visit our website at www.paymentsbusiness.ca 20

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.ca September/October 2019


FinTech

What’s fuelling the Bitcoin bus? By Andrew McCormack

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ince the introduction of Bitcoin in 2009, cryptocurrencies have had their share of media frenzy. Even Facebook has gotten in on the action, recently unveiling its Libra digital coin. But Bitcoin was the first, it’s the biggest and with the help of new players on the market, interest in it has been reinvigorated. But let me ask you this, have you bought anything with Bitcoin lately? Would you invest your hard-earned savings in it? Answers to these questions vary depending on the individual. When Canadians were asked about their perceptions and attitudes towards Bitcoin, the answers fluctuated: much like the value of the popular digital currency.

Tracking consumer attitudes While there had previously been some studies tracking consumer awareness and use of Bitcoin in the Canadian marketplace, Payments Canada wanted—from a research standpoint—to measure how Canadians who have used the cryptocurrency feel about it. That’s why Payments Canada joined CorbinPartners Inc. to launch the Bitcoin Sentiment Tracker, so we can better understand the experience of those who have dabbled in the Bitcoin market, have actively invested or who have steered clear.

The trust in Bitcoin—to buy and trade on platforms—still needs to evolve. “We’ve studied merchant acceptance of Bitcoin in Canada in the past, but this is the first time we’ve tackled consumer sentiment around Bitcoin,” said Jon Purther, president and chief operating officer, CorbinPartners Inc. “These findings give us a good indication of what’s driving people to purchase and the obstacles for those yet to purchase.” What did we find out, and moreover, what does it all mean? For starters, curiosity is playing a role in people’s purchase of Bitcoin. Almost four in ten Canadians bought Bitcoin for the first time simply because they just wanted to try it. Delving into Bitcoin’s investment viability, we found that its price September/October 2019

volatility is seen as both a positive and a negative feature. 29 per cent of Canadians who purchased Bitcoin for investment purposes found its price volatility to be an advantage compared to traditional currency, while 39 per cent of those yet to purchase Bitcoin perceive the same to be a core disadvantage. Of those who bought Bitcoin, many find it easy to use (34 per cent) and a third call out its cross-border use as a key advantage. However, only a small percentage of Canadian businesses accept Bitcoin to this point, making it less convenient than the good old dollar. On the flip side, the majority of businesses that are transacting in Bitcoin are pleased with the experience and would recommend that other business owners adopt it as a payment source. That’s a lot of opposing answers to the same questions. A difference in opinion is natural, but what’s behind Canadian sentiment toward Bitcoin? Moreover, what’s behind the wild fluctuation in its value? The suspicion, from our perspective, is that Bitcoin is going through an identity crisis and people are choosing to invest, or not, based on what they perceive Bitcoin to be. You could argue that Bitcoin is, at once, a currency, an investment and a technology and perhaps one more than another on any given day, which has a direct impact on its market price. When Bitcoin is good as an investment, it is not good as a vehicle to purchase goods and services, and vice versa.

Bitcoin’s future? So, what’s the future of Bitcoin? It’s still tough to say for sure. The technology behind digital currency is fascinating, progressive and stable. But the trust in Bitcoin—to buy and trade on platforms—still needs to evolve. It is international, it doesn’t have a central governance of any kind, so consumers remain hesitant and, for now, it is not the place where most Canadians are going to put their hard-earned money. Six in ten Canadian Bitcoin users (60 per cent) plan to use Bitcoin again in the next 12 months. However, fewer than one in ten non-users (9 per cent) plan to purchase or transact Bitcoin over the same timeframe. Looks like it will be a combination of awareness and education that will further fuel the Bitcoin bus. Andrew McCormack is chief information officer at Payments Canada. He is responsible for Canada’s core payment systems as well as Payments Canada’s technology strategy and emergent technology agenda. For more on the Bitcoin Sentiment Tracker visit www.payments.ca or e-mail info@payments.ca. PAYMENTSBUSINESS

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Internet of things

Connections key for payments By Patrick Bermingham

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anadian start-ups and established businessto-business (B2B) companies alike are increasingly interested in the industrial Internet of things (IoT), with over 81 per cent of medium and large organizations adopting at least one IoT solution1. Many of these businesses, however, are missing a trick when it comes to payments. They face many challenges when designing and implementing their own IoT payments solutions, most notably serious security risks and a lack of interoperability. Just one slipup could have a serious impact on them.

IoT payments benefits The immediately obvious benefits are operational. Specific stock levels, for example, could be set to trigger alerts in smart factories that tell the system to not only order more of those components from their suppliers, but to automatically pay for them. This could help solve many of the payments problems plaguing Canadian businesses—particularly micro- and small mid-sized enterprises—of which 48 per cent say that collecting payments from customers on time is the most problematic aspect of managing their cash flow2. Automating payments increases efficiency by freeing up resources. Time intensive (and tedious) paperwork associated with procurement, such as invoice reconciliation, call-off delivery notes and future batch ordering, can be processed with minimal human intervention and maximum accuracy. There’s also improved operational visibility. When using a stakeholder-agnostic payments platform, integrated with IoT solutions, digital payment issuance and acceptance is simplified, with past and incoming transaction data captured, stored and processed in real-time. This increases payment flexibility and reduces the cost of transactions. 22

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There are strategic benefits to improving industrial payments processes. Late payments continue to be a major issue for businesses globally, with one in ten invoices being paid late at a cost of $3 trillion a year3. Moving to automated digital supply chain payments ensures that transactions are processed quickly and on time, thus improving buyer-supplier relationships.

Wise to fly solo? But as more and more companies identify these benefits, many are diving in at the deep end and rushing to build their own industrial IoT payments systems, thinking it will bring them competitive advantage. In fact, this is more likely to do harm. Complying with evolving industry regulations, such as Payment Card Industry Data Security Standard (PCI-DSS) is crucial for these B2B merchants. Unless their payment systems are up to standard, they risk data breaches and fraud: which can irreparably damage their brand and buyer relationships and incur heavy fines. But compliance is complex and expensive to achieve and maintain. It requires extensive penetration testing, hours of skilled developer time and ongoing changes to internal payment infrastructure. As data breaches continue to cause national security concerns globally4, it’s not worth the risk.

Integration best answer Integrating an independent stakeholderagnostic payments platform with IoT solutions meets these requirements, and, crucially, accepts responsibility for maintaining them, significantly minimizes these risks. They also enable B2B merchants to strengthen their offerings in two key ways: First, best-of-breed systems combine endto-end data encryption with tokenization, replacing sensitive data with meaningless information. This reassures buyers that even if their payment information is intercepted, it is indecipherable, therefore has no value.

Second, by placing the burden of payments interoperability on an independent platform provider, companies can scale quickly. Agnostic platforms enable acceptance of a large variety of payment methods, from credit and debit cards to purchasing cards and even alternative payment methods. This means that suppliers can work with more buyers, regardless of these clients’ payment infrastructures, instead of doing business with only a tiny fraction of the overall market.

Canadian opportunities The opportunities presented by IoT payments should also be considered in combination Canadian payments modernization. The new core clearing and settlement system in development will only enable real-time payments increase the amount of data travelling with transactions, thus making this the perfect time for businesses to invest in their own payment systems. A connected payments network can improve financial processes. That’s why more Canadian buyers are looking for innovative and more reliable ways of paying their suppliers, as evidenced by the rise in tender documents enquiring about supplier payment acceptance. But for B2B merchants, ensuring they are accepting IoT payments quickly, cost-effectively and securely is a tricky path to navigate alone. Suppliers should consider what is already available. Tried and tested third-party payment platforms can bridge the gap between buyers and suppliers, reducing costs, improving efficiency and enhancing corporate relationships. Patrick Bermingham is CEO at Adflex (www.adflex.co.uk). 1 Nigel Wallis, “State of IoT Adoption in Canada, 2018”, IDC, survey, September 2018. 2 Bibby Financial Services, “Global Business Monitor 2017”, report. 3 Sage, “1 in 2 UK Small & Medium businesses are suffering or expect to suffer impacts of late payments ahead of Christmas”, press release, December 7, 2017. 4 Chloe Taylor, “UK spy chief raises questions over China’s 5G rollout”, CNBC, December 4, 2018.

September/October 2019


How payments are made and managed payments is undergoing an exciting evolution. Examples include: • Contactless cards and mobile wallets • Internet of Things • Real-time payment rails • Blockchain and cryptocurrencies • ATM, cash and cheque modernization But security and fraud risks also are rapidly evolving. There are new techniques, tools, standards and regulations to facilitate fast, intuitive, transparent and secure transactions and processing. Payments Business (www.paymentsbusiness.ca), published by Lloydmedia, keeps track of these trends and provides thought leadership from industry experts.

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Mark Henry, Publisher mark@paymentsbusiness.ca 905-201-6600 x223 For news and contributed articles contact

Brendan Read, Editor brendan@paymentsbusiness.ca 905-201-6600 x227 Payments Business is a Lloydmedia, Inc publication. Lloydmedia also publishes DM Magazine, Contact Management magazine and Canadian Equipment Finance magazine.


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