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Sept/Oct 2017

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

The mobile wallet ❱ Elavon and Google bring Android Pay to Canada ❱ Changing the game for travellers ❱ Self-sovereign identity: Diminishing the surveillance economy PM 4 0 0 5 0 8 0 3


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TableKey of Contents theme

Editor-in-Chief Steve Lloyd steve@paymentsbusiness.ca Managing Editor Sarah O’Connor sarah@paymentsbusiness.ca Publisher Mark Henry mark@paymentsbusiness.ca Contributors Andre Boysen; Kevin Deveau; Mark Frey; Chris Horlacher; David E. Johnson; Daniel Kornitzer; Laurent le Moal; Paul Parisi; Kate Risch Choi; Matthias Setzer; Arun Thakur Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca Photographer Gary Tannyan President Steve Lloyd steve@paymentsbusiness.ca For subscription, circulation and change of address information, contact subscriptions@paymentsbusiness.ca Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to: Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 f: 905.201.6601 info@paymentsbusiness.ca www.paymentsbusiness.ca Subscriptions available for $40.00 year or $60.00 two years. ©2017 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Payments Business should be directed to the publisher.

Made possible with the support of the Ontario Media Development Corporation

The mobile wallet 4 8 Leapfrogging international payments innovation

Digital wallets change the game for travellers

6

Android Pay in Canada: A muchneeded boost for mobile payments?

Elavon and Google bring Android Pay to Canada

Features 12

Five factors driving the shift toward recurring revenue models

14

Self-sovereign identity:

©Studio Baron Photo

September/October 2017 Volume 8 Number 5

10

Diminishing the surveillance economy

16

The opportunity and the challenge of cross-border trade

On the cover Mia Huntington is senior vice president and general manager at Elavon Canada.

17

Equifax’s epic fail

18

Making ISO 20022 work for Canadian corporations

Points & Rewards 20 The survival factor for legacy retailers:

Creating brand loyalty through analytics

FinTech 23 Experience matters as FinTech becomes the global

payment norm

Opinion 26 Cryptocurrencies are here to stay Next issue…

November/December 2018 payments forecast • Acquirers • B2B • EMV card technology September/October 2017

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Mobile Wallet

Leapfrogging international payments innovation By Laurent le Moal

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hile established cities including New York and London continue to battle it out to be crowned the hub of FinTech innovation, if the last five years have taught us anything, it is that increasing levels of payments innovation are now occurring in all corners of the globe. Worldwide innovation trends are largely focused around increased collaboration and integrated payments as both meet the relentless universal consumer demand for convenience. However, while mature established markets like the U.S. can get tangled in its legacy infrastructure, a new wave of payments innovation is taking place— with emerging, high growth markets becoming the ones to watch. In short, propelled by increasing consumer demand, favourable regulation and unburdened by legacy infrastructure, countries in high growth markets are starting to come to the fore when it comes to large scale payments innovation and adoption.

Asia leads innovation A recent report released by the Global Payments Innovation Jury confirmed, by a substantial margin, Asia as the home to the most payments innovation over the next two years. The report cited widespread opportunities in the region due to the rapid population growth, high willingness to accept new technology and the sheer size of the market opportunity to convert from cash to digital payments in economies where the reach of traditional banks is limited. Indeed, a great example of this leapfrogging payments innovation trend can be found in India. As the country’s leading payments services provider, we are seeing first-hand that India is fast becoming a hub of payments innovation and disruption at scale. India is home to several of the elements necessary to encourage new technology to flourish, as highlighted in the Global Payments Innovation Report. Key among these components are the increasing consumer demand for digital payments, a supportive regulatory environment and a highly skilled tech market.

Consumer demand

electronic payments have been a mainstay for the best part of 30 years is the very reason that innovation can be stifled. With legacy infrastructure and entrenched customer behaviour new and innovative payment technologies don’t have an easy path to adoption. In contrast, India’s extreme smartphone adoption is fuelling the rapid uptake of digital payments. With 220 million users, India is now the second largest smartphone market in the world. Given that India has a population of over 1.25 billion, its appetite for mobile products and services is set to continue to boom.

Interoperability and open platforms are critical to help break down barriers when considering how to best support multiple payment types. Access to credit With this rise in smartphones in high growth markets comes the corresponding rise in data availability. As the amount of data increases new techniques are being used to build credit intelligence from data. As businesses become more comfortable and able to use a variety of methods to build data profiles for consumers, more and more people can access credit. In turn, options that enable customers to pay later, pay in installments or only use credit when needed provide the opportunity for more people to access the payment services they need in a way that suits them best. Not only this, but the credit offerings themselves are also changing to reflect the people and lifestyles unique to certain markets. Adjustable credit cycles combined with regulatory changes and better data security are helping payments businesses—and the merchants they service—mitigate the credit risks commonly associated with high growth markets.

As previously touched upon, in mature markets the fact that traditional 4

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Continued on page 21 September/October 2017


Advertorial

3 Reasons it’s Time to Automate Accounting Processes A single invoice can require up to 41 days for processing in a manual, paper-based environment. When carried out by your staff, your organization’s AP and AR transactions can be labour intensive, costly and possibly even lead to mistakes or inaccuracies. The more businesses automate their accounts payable systems, the more they reduce costs and transaction time. Automation can make that difficult work much more manageable and many companies would be happy to give their workers a more streamlined and less intensive process.

Gain the ability to process twice the number of invoices Leaving your in-house team to handle all AP and AR services can cost an organization time and dollars. From a strict cost-benefit standpoint, automation technology is now powerful enough to make a very persuasive case. Saving almost 40 percent per invoice will add up to sizable savings very quickly. A white paper by worldwide consulting firm, The Hackett Group, shows that the more businesses automate their accounts payable systems, the more they reduce costs and transaction times: a company processing 400,000 invoices annually will save $1.27 million - more than it costs to invest in and implement automation.

Enhance your cash conversion cycle Streamlining and accelerating all of your AP and AR transactions significantly reduces your print spend while increasing your staff productivity. Ricoh technology and processes bring efficiency to traditionally cumbersome steps such as invoice capture, data validation, exception handling and secure delivery. A digital solution manages your AR without paper, hassle, or trips to the bank for reduced costs, a better customer experience and faster payment. Publish invoices with customized reminders and notifications. Collaborate with customers to resolve discrepancies and questions and start accepting online payments, all from your own customized AR cloud portal.

“Automating accounting processes will allow CFOs to turn their attention back to strategic initiatives rather than being bogged down in the basics of traditional accounting practices.” Richard Perri CFO at Ricoh Canada Inc

www.ricoh.ca/accounting-processes September/October 2017

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Mobile Wallet

Elavon and Google bring Android Pay to Canada By Sarah O’Connor

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anadian consumers can now “tap and pay” using their Android devices. Payments solution provider Elavon has partnered with Google to enable Android Pay mobile payments technology at merchant locations across the country. “We‘re excited to bring the simplicity and security of mobile payments to Elavon customers with Android Pay,” said Pali Bhat, global head of payment products at Google, in a release. “People throughout Canada can now use their Android device to pay at hundreds of thousands of contactless payment terminals in the country.” For merchants, Android Pay offers fast payment acceptance and the ability for consumers to add loyalty programs and special offers. Android Pay transactions are also protected by multiple layers of security. When a consumer adds a credit card to Android Pay, the actual card numbers are not stored on the device. Instead, a unique virtual account number is assigned to the card and stored on the device. For consumers, it’s as simple as tapping their Android device to pay. First, consumers must download the Android Pay app and set it up by adding an eligible credit or debit card. Android Pay then works at any Elavon merchant that currently accepts contactless transactions on the point-of-sale (POS) terminals. Consumers simply wake their phones and place it near the contactless reader. The payment information is then securely passed to the point-of-sale system. “Elavon has been an early supporter of mobile payments and Canadians continue to demonstrate their interest in adopting new payment technologies,’ said Mia Huntington, senior vice president and general manager of Elavon Canada. “By using Android Pay, Canadians can leave their credit cards at home, tap to pay with their mobile device at their favourite merchants and know that those transactions are processed on systems with multiple layers of security.” In 2015 Elavon and Google initially partnered to bring Android Pay to the U.S. and Huntington sees the Canadian launch as the natural next step: “I would say that really this is just the next evolution of us 6

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continuing that partnership [with Google] and bringing the product to Canada.” It took two years to prepare for the Canadian launch. “Obviously any FinTech rollout in Canada has to deal with the nuances of the Canadian payment infrastructure,” notes Huntington. “I think the two year window [since Android Pay launched in the U.S.] was probably longer than anyone would have liked. I know certainly from a consumer perspective there was a lot of anticipation about it coming.” Huntington believes that because tapping a card to pay is so entrenched in consumer habits and expectations that “there has to be an incentive and motivation for someone to use their mobile device” instead. “I think a big part of what all of the wallets will do, including Google particularly, will be quite adept at constantly adding value to their wallet and their value proposition. That will drive that behaviour.”

38 per cent of all of the transactions that Elavon processes in Canada are contactless and that segment is growing. Huntington notes that close to 38 per cent of all of the transactions that Elavon processes in Canada are contactless and that segment is growing. “I would suggest that Canadians, for whatever reason, are very quick to adopt technology, particularly in the payments space. I think as a result of that we will eventually really embrace and adopt all of the wallets. Because we’re so contactless-enabled on the merchant side of things in Canada, I think we’re well equipped, technologically speaking, to be able to accept the wallets, now it’s the consumer adoption side of it. From that perspective I think it’s going to be more of a marathon. It’s not a sprint.” September/October 2017


Mobile Wallet These value-adds will include loyalty programs and rewards, enhanced identification and verification, and eventually replacing everything that is in an individual’s wallet. More than 80 per cent of Canadian wireless subscribers have a smartphone, more than half of which run a version of Android as their operating system, according to the 2015 Canada Digital Future in Focus findings from comScore. That was up from 44 per cent using Android systems the year before.

“How long ago was it that you never knew what it meant to put your pin in for a transaction? How long ago was it before that that you didn’t know what it meant to tap your card?” muses Huntington. “If you consider the speed at which some of those things can take off, I think the consumers are going to decide, at the end of the day, who’s the winner of this race. The consumers will decide if they are going to adopt. The consumers will decide how fast they are going to adopt. “I think when you have companies like the Googles of the world innovating with this type of technology, they are looking at it from that user experience perspective. And so, when I say that to me this is just the beginning, it’s because this is the foundational part of what you have to do to get the methodology into the psyche. I strongly believe that they will be quite adept at adding features from a loyalty perspective and all the value adds that are going to drive that adoption. If anyone is well positioned to do that, it’s companies like Google.“ In addition to Canada, Elavon offers Android Pay acceptance in the U.S., UK, Ireland and Poland and it continues to support Android Pay as it rolls out globally.

September/October 2017

©Studio Baron Photo

More than 80 per cent of Canadian wireless subscribers have a smartphone, more than half of which run a version of Android as their operating system.

Mia Huntington is senior vice president and general manager of Elavon Canada.

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Mobile Wallet

Digital wallets change the game for travellers

By Paul Parisi

F

or savvy consumers, the smartphone has become a fantastic travel companion. It’s perfect for scheduling tours, taking photos, sharing experiences through social media, navigating unknown locales and staying in touch with loved ones. With all these uses, the most convenient and functional use is the ability to use a smartphone as a digital wallet. Whether a trip is short or long, domestic or international—consumers are using their phone to pay for tickets, accommodation, transportation, experiences and much more in most big cities around the world. 8

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Businesses big and small can, and should, be ready to accept mobile payments. Mobile payments are growing at a rapid pace. IDC predicts that by 2020, worldwide consumer mobile payments will reach $3.814 trillion annually. Canadian usage supports this trend too. A recent Nielsen survey notes that one-third of Canadians are actively using their smartphones to pay for day-to-day transactions. Mobile payments are quickly becoming one of the easiest ways to pay, while offering travellers important benefits during business or leisure trips. From ease and convenience to protecting oneself from travelrelated risk, there are plenty of advantages that come with using September/October 2017


Mobile Wallet mobile payments, all of which are driving adoption in many regions. Consumers like that a digital wallet significantly increases personal security. A bulging wallet can attract unwanted attention from thieves, while using a mobile device means consumers don’t have to carry thick wads of cash, travellers cheques, wear a money belt or spend time searching for a money exchange. Mobile payments offer a convenient way to pay in local currency, while also reducing conversion fees. Mobile payments also help reduce the risk of fraud and compromise. For example, using PayPal to pay for travel and accommodation bookings keeps banking and credit card information safe because financial information is not shared with companies or vendors. Travellers rest easier knowing that even if their mobile phone is forgotten, lost or stolen, their information is still safe. Different devices have various built-in security features, like password protection, fingerprint authentication, remote wiping and “find my device” services that can help lock, protect and clear data remotely, if needed. Mobile payments seamlessly fit into the total travel experience and are perfect for both frequent business and leisure travellers. Combining the security and convenience of mobile payments with other technological advancements such as mobile travel apps like Dash Mobile by Travel and Transport, mobile boarding passes, mobile check-in at hotels and more, travellers have access to a personalized mobile ecosystem where everything is never further away than a finger swipe. Travellers can roam freely with a single mobile device and still have access to a variety of payment options and reward programs in the palm of one hand. With a smartphone, travellers can keep track of expenses and easily split travel costs between family, friends and colleagues to avoid awkward IOU follow-up conversations. There are many businesses and industries that are already making

Businesses who enable mobile payments will open themselves up to wider audiences and a 24-hour opportunity to sell goods and services to customers.

One-third of Canadians are actively using their smartphones to pay for day-to-day transactions.

it easy for travellers to use mobile payments. Many airlines, hotels and businesses already offer mobile payment options for travellers. Plane tickets, hotels and car rentals can be booked easily from a mobile phone on websites like Hotwire, hotels.com, Expedia, Orbitz and Airbnb. Many major airlines around the world now accept mobile payments. Upon arriving at a travel destination, there are endless mobile payment touchpoints that make day-to-day activities run smoothly too. Travelers can book ground transportation with Uber, Lyft or local taxi mobile apps. Several cities have ride sharing or mobile parking apps like Green P Parking in Toronto, where you can pay or top up the meter remotely from a mobile phone. With global retailers embracing the digital economy, many local businesses are now offering mobile payment options. While consumers quickly adopt this payment method, businesses who enable mobile payments will open themselves up to wider audiences and a 24-hour opportunity to sell goods and services to customers—especially to travellers who may be researching destinations and making plans in advance, or at the last-minute. A successful mobile payments implementation should focus on the benefits afforded to customers and easily integrate into the buying habits they already exhibit. Businesses should also ensure that they have the capability to accept a number of payment options, while giving customers the flexibility to choose the payment method that is right for them. On the back-end, a reputable payments processing platform will ensure a fast, seamless and safe way for customers to pay online. Whether traveling for business or pleasure, consumers are ready to receive the benefits a mobile wallet can provide and look for ways to capitalize on the opportunity to fully embrace mobile payments. Businesses should be ready to do the same. Paul Parisi is president of PayPal Canada.

September/October 2017

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Mobile Wallet

Android Pay in Canada: A muchneeded boost for mobile payments? Canada leads on contactless payments, but lags behind on mobile wallets on a global level. Will Android Pay change this? By Daniel Kornitzer

C

anadians love tapping their plastic. Contactless payments are a $30 billion industry. And penetration of contactless-enabled payment terminals here is one of the highest in the world. But when it comes to making the leap from contactless to mobile, progress is happening at a snail’s pace. Mobile wallet use currently hovers at around 33 per cent, which means Canada lags behind not just global leaders China and India, but also countries with lower uptake such as the U.S. and Australia. In May 2017, Google launched Android Pay in Canada in collaboration with a number of partners including payment services provider, Paysafe. Canadian consumers can now use their Android smartphone to pay for purchases in-store and in-app at thousands of participating merchants. But can this new addition to the Canadian mobile payments landscape persuade more consumers to make the switch? And what will it mean for mobile wallet adoption in the broader context?

A matter of convenience: Barriers to mobile payment adoption From a technological standpoint, the mobile wallet is the contactless card’s smarter sibling. Customers can link as many cards as they want and store them electronically in one place. They can pay for goods online in one click, without having to input their card details every time. And 10

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thanks to tokenization merchants receive a digital “token,” which stays encrypted, instead of the actual card number. Mobile wallets tend to be far more secure than their plastic counterparts. So why have Canadians been reluctant to switch? Well, the answer is deceptively simple: many see no reason to do it. They’ve yet to be persuaded that mobile wallets deliver a superior experience or meet a need that their contactless card can’t fulfill. So what can Android Pay offer that might convince them?

Familiarity breeds comfort Several studies have shown that consumers tend to prefer familiarity. For instance, in a 2013 Nielsen global consumer survey, 60 per cent of respondents said they’d be more likely to try a new product if it was made by a brand they already knew. This makes a powerful case for Android Pay’s chances of success on the Canadian market. Fifty-nine per cent of smartphones in Canada run on the Android operating system, as opposed to 32 per cent on Apple’s iOS. So, a majority of smartphone users already have a strong connection with the Android brand and they’re accustomed to the look and feel of its ecosystem. On launch day, Android Pay landed on their devices with almost no extra effort required. The sense of familiarity also extends to the level of infrastructural support. Within a week of launch, Android Pay supported three of Canada’s big five banks, as well as several regional and specialist institutions. At the same time—thanks to the popularity of contactless payments— September/October 2017


Mobile Wallet eight out of 10 Canadian retailers have NFC-enabled point of sale terminals, which means they can accept Android Pay in-store. With so much of the groundwork in place, it’s not such a big leap for consumers to start tapping their phone instead of their card. However, familiarity on its own may not necessarily be sufficient. Consumers also have to be convinced mobile payments provide a better user experience.

Speed and security—mobile payments’ competitive advantage As attempts at online financial fraud grow more organized and sophisticated, mobile wallets are increasingly pitting themselves against each other in a security arms race. And this is where they arguably have an edge. Contactless cards’ vulnerabilities are well documented. As with any traditional chip-and-pin card, there’s the risk of the card number and other details falling into the wrong hands. Users don’t need to enter their PIN to complete a transaction, either. So an unauthorized person could potentially complete several fraudulent transactions undetected. By contrast, mobile wallet security is far superior. Not only are card details encrypted via tokenization, but there are also three other layers: 1. Something the customer knows (such as a PIN or password); 2. Something they have (their smartphone); and 3. Something they are (biometric authentication).

according to RFi Group’s Global Payments Evolution Study 2017, 60 per cent of respondents said it would be the ability to earn rewards, with 25 per cent putting it as their first preference. Users in other parts of the world seem to share this attitude, too. So much so, that Apple Pay and Android Pay rival Samsung Pay launched its own rewards program, which it claims has led to a significant surge in active monthly users. So far, neither Apple Pay nor Android Pay have followed in Samsung Pay’s footsteps, either in Canada or elsewhere. However, when Canadian users pay with Android Pay they will earn the same points and rewards they would have by using the physical card. Seeing as 78 per cent of Canadian adults’ credit cards earned rewards in 2016, this is a big deal. If it does become a determining factor in growing the number of Canadian users, it may be the proof of concept that will finally make mobile wallet uptake pick up steam around the globe. Daniel Kornitzer serves as EVP and chief product officer of Paysafe Group plc. Prior to re-joining the Group in 2014, he was CEO and board member of SiteSell.com. In his 20+ years in technology management, Daniel has pioneered groundbreaking initiatives, from one of the world’s first over-the-phone speech recognition systems and the ISO/ITU standards for video coding in use today, to FirePay’s digital wallet and industry-leading risk management processes, which resulted in his subsequent appointment as a member of the NACHA Risk Management Task Force.

Admittedly, this added security has been somewhat of an Achilles’ heel; however, Android Pay has made an effort to tackle the issue by offering a choice of authentication methods. Fingerprint scan aside, Android Pay users can also authenticate payments using a retina scan, a PIN or a unique unlock-screen pattern. This should result in a speedier, smoother and therefore more appealing payment experience.

Hi-tech for the non-tech savvy Having several authentication options is also significant for another reason. PINs and unlock-screen patterns don’t require the latest hi-tech smartphone. They also work on older and low-to-mid-tier handsets that lack biometric functionality. In short, a wider range of consumers can use Android Pay. And this includes those who would otherwise be discouraged because they’d have to get an upgrade they don’t want.

Final word: Mobile payments in the broader context While it’s too early to tell, there’s a compelling case for Android Pay to succeed in Canada. The country has a robust NFC-enabled payment infrastructure. Three of the largest national banks already support it, as do thousands of merchants. And Android is a familiar brand offering a faster, simpler and more secure payment method to a larger swathe of the population than ever before. But will this be enough to drive adoption? Asked what features they’d value most in a mobile wallet, September/October 2017

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Feature

Five factors driving the shift toward recurring revenue models By Arun Thakur

F

or years we’ve heard about the change in the way consumers are buying products and services—moving from one-time transactions to subscription-based models (think Netflix). There’s no doubt that today everything from airplanes to razors can be purchased on a subscription basis. In fact, some companies have even built their entire brand around the “subscription economy.” But two new reports from leading analyst firms MGI Research and Forrester indicate that the market for billing solutions is bigger than just subscriptions, which represent an unsophisticated subset of the range of solutions needed to meet the demands of the connected customer. MGI Research's State of Monetization study notes and underscores why companies are moving away from basic subscriptions. MGI Research has found that “subscriptions are too simple,” and that sophisticated hybrid pricing is needed for the connected customer. Hybrid recurring revenue models are expected to increase by one third by 2018. As part of this shift, Forrester also updated this year’s report The Forrester Wave: Recurring Customer and Billing Management, Q3 2017. As Lily Varon of Forrester writes, “In the 2015 Forrester Wave evaluation of this market, Forrester called this technology ‘Subscription Billing Platforms.’ However, the term ‘subscription billing’ is now too limiting for what these solutions manage.” The increasingly connected world (IoT, connected vehicles and homes, wearables, etc.) is also driving the need for agile billing and monetization engines that can support companies’ customer demands on a global scale. Alas, it’s no surprise that companies across all industries and of all sizes are renovating their monetization capabilities to support current customers, capture new ones, open new markets and create new revenue opportunities. High profile innovative enterprises such as Adobe, Amazon and Pitney Bowes have redirected their strategies to leverage sophisticated hybrid pricing models, which combine (for example) simple subscriptions with tiered pricing, usage and volume purchasing options, with much-acclaimed success. What results are shorter product cycles, sophisticated data insights and nimbler organizations. The MGI Research numbers tell the story: 44 per cent of companies note that their legacy system is a barrier to growth and 30 per cent 12

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indicate that billing issues are impacting their financials. Also, as MGI’s study dug deeper into monetization strategies and tactics, there are at least five reasons that surfaced, indicating why the old way is hitting the highway: 1. One time purchases are “out.” The one-time darling is expected to generate only 11 per cent of revenue by 2018. The rush to recurring revenue and increasingly complex pricing and packaging schemes is on. 2. Keeping pace with the business and the competition. Being able to quickly create product and pricing bundles is critical in today’s hyper-competitive business world. According to MGI Research, time to market is projected to accelerate by 40 per cent by 2020; 56 per cent of companies would like to introduce new pricing plans in less than four weeks; and 32 per cent of those companies are already experiencing “time to market challenges” due to new pricing plans. 3. Minimizing customer friction. In an increasingly customer-driven economy, satisfying the almighty customer is still a challenge. MGI Research indicates that “59 per cent of companies cite significant customer friction due to billing disputes.” Not to mention that in the “era of the customer” when customers expect to get what they want, when they want it, time to market matters. 4. Automating when possible. In a digital world, companies are looking to eliminate manually intensive billing processes and error prone spreadsheets, with 12-14 per cent average errors, according to Aberdeen Group. What results is a more accurate product that is delivered quickly without added headcount. 5. Reducing lost revenue. Consider that 42 per cent of MGI Research’s surveyed companies report revenue leakage and 81 per cent of all companies say that overcoming this is driving their interest in new monetization schemes and tools.

What it takes It’s no easy task to pull off hybrid monetization successfully. It takes significant digital and cloud expertise to simultaneously support subscription, usage and traditional pricing models in any configuration. And even more expertise to do so dynamically and at the speed Continued on page 22

September/October 2017


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Feature

Self-sovereign identity: Diminishing the surveillance economy By Andre Boysen

I

dentity is an interesting concept. While we all technically have one, proving who we say we are is more complicated than ever—and the ways by which we verify our identity varies across different parts of the world. Evolved, dynamic cities such as Toronto, Vancouver and New York (to name a few) face the issue of having too many identities. Consumers may start with standard identification documents—such as a driver’s license, health card or social insurance card—yet may be victim to the same problem: several fake accounts posing as the user and fraudsters finding multiple means of exploitation. As we continually move to a more sophisticated digital world, we are implementing solutions to bring the number of digital identities for each person down to just one, while still allowing for unique personas on different websites. For example, I will want to use my real identity in healthcare, but I may want to continue with my screen name online and provide only age and residency when I vote. On the other hand, we see individuals in developing countries face identity issues of a different kind. They have difficulty accessing even one form of identity, as there are no institutions to help citizens prove their identity. Unlike developed countries such as Canada and the U.S., developing countries may not have government entities, financial institutions or telcos to vouch that they are who they say they are. In fact, the World Bank estimates that in the last couple of years alone, over 50,000 Syrian refugee children have been born and over 70 per cent are not registered at birth, making it nearly impossible to prove citizenship at a later date. It’s a vicious circle— consumers can’t get other forms of personal ID without an existing form of ID.

The surveillance economy The World Bank also states that an estimated 1.1 billion people in the world are unable to prove their identity. That is one in every six individuals, with the majority living in Africa and Asia. Without identification, they are often prevented from accessing financial services, healthcare, education and social benefits. In One World Identity’s State of Identity podcast, Timothy Ruff, CEO of Evernym Inc., referred to the current state as the “surveillance economy.” Governments, trusted third-party providers 14

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and organizations alike have access to heaps of consumers’ data, allowing them to—if pieced together—track our every move. This ultimately boils down to the notion of control. Regardless of location, consumers’ control over their personal identity has been lost online. In the developed world, consumers have lost control to the hundreds of thousands of criminals that are equipped to steal anyone’s identity at the ready. In the developing world, consumers aren’t able to control or build an online identity as the government hasn’t provided the tools to do so. So, the question is: is it possible that individuals, regardless of location, can construct an individualized identity without relying on major institutions to do so?

Enter user-centric identity While far from simple, there is an answer. The only plausible fix is the concept of building a decentralized, user-centric or self-sovereign ID system, where the standard method of identification—such as a driver’s license—isn’t the only way to identify oneself. The concept of user-centric identity is that consumers and organizations can own and store their own identity data on their own devices. Since first being introduced in the early 2010s, this concept has been addressed by many individuals and organizations as a way not only to own data, but to give consumers back control over their digital identity. User-centric identity is designed to allow people to create identities at will, allowing individuals who don’t have an identity to create one. The basic concept is based on data ownership. While this addresses owning identity, it does not fully tackle control. Our model complements sovereign identity by utilizing trusted institutions’ digital identification process to verify the consumer’s identity under their control. Among its vast number of benefits, the real opportunity self-sovereign identity has is enabling the 1.1 billion people in developing countries that do not currently have identification with something they can use to prove who they say they are in a user-centric format. The concept is both a technology and a trust framework together. However, allowing people to create their own identity comes with risks. The problem is provenance—anyone can create an ID including the real person, masqueraders and synthetic IDs. Knowing if the September/October 2017


Feature identity is real, unique and belongs to the person presenting the ID is a harder problem, and it is not a problem that can be solved with a technology and a user in isolation. A trust framework is required to understand the basis on which the identity was generated—to what standard and with what limitations. It is also important for the consumer to know who they are sharing the data with, to know that they are not being phished and that the proper privacy protections are in place. We can expand on this user-centric format of self-sovereign identity by utilizing a digital identity ecosystem, which brings together organizations across industries to create a safe and secure security framework. Through this model, trusted institutions provide agency for consumer identity, allowing customers to leverage the trusted credentials and level of security they have come to expect from institutions—such as attributes from financial institutions, telcos and government—to confirm their identity and always with their control.

What’s next?

Most recently, the Dubai government partnered with ObjectTech to use blockchain technology to bring a digitized passport to the airport. Using the concept of self-sovereign identity, the passport will allow for passengers to control the end users that can view their personal information. While only one example, this demonstrates the need for a digital future that takes control away from the larger powers and puts it back into the hands of the consumer. We need trustworthy identity that works online, in person and over the phone, that facilitates informed user consent and is easy and convenient to use—all while eliminating surveillance and unauthorized sharing of data. When it’s all said and done, sovereign identity provides opportunity to those who have nothing. But in markets where we already have an identity, a user-controlled institutional model is needed for certainty and security. Andre Boysen is chief identity officer for SecureKey, responsible for growth strategy, cultivating opportunities in new and existing markets, and promoting demand for the company’s solutions globally. He serves as SecureKey’s digital identity evangelist and is recognized as a global expert on the topic of identity.

While the concept of self-sovereign identity has circulated for over a decade, there is still no clear definition of what exactly it is or how it can be implemented.

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September/October 2017

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Feature

The opportunity and the challenge of cross-border trade By Matthias Setzer

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he trade of goods across borders has been around since the days of barter and is often cited as being at the forefront of economic globalization. Indeed, following the advent and uptake of m-commerce, cross-border now represents one of the biggest business opportunities available to merchants around the globe. Recent estimates have the cross-border market growing from $401 billion in 2016 to $994 billion in 2020. And nearly two-thirds of cross-border business is expected to come from high growth markets such as Asia and Latin America. However, as is often the case, opportunities come hand in hand with challenges and many determined merchants are being held back by cumbersome cross-border payment infrastructure and processes which are hindering their ability to meet and transact with potential consumers.

Consumer expectation is growing Consumers purchasing behaviours have evolved remarkably in recent decades and the global rise in smartphone adoption has only served to exponentially speed up this evolution. With this has also emerged a growing demand and expectation for cross-border trade, with a recent survey by Payvision finding that almost a quarter of respondents thought that m-commerce would be the “biggest game-changer’ for cross-border e-commerce. Indeed, increasingly tech-savvy consumers the world over expect the one-click convenience they’ve grown used to. They know frictionless payments are technically possible and they fully expect the market to cater to their demands regardless of whether they are shopping with a merchant based in the same town as them or 9,000 miles away. However, the reality is cross-border trade has not yet caught up to this customer expectation, with a recent survey finding that while China is the top cross-border online shopping destination, only one quarter of its top retailers sell internationally.

No two markets are the same As mentioned, the payments ecosystem, historically burdened by complicated infrastructure and out-of-date processes, is one the biggest challenges of cross-border e-commerce. 16

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Attempts to offer a seamless cross-border experience are further complicated in high growth markets where alternative payment methods still represent as many as two-thirds of all payments. By way of contrast, in more established markets local payments preferences are still evident and prevalent. For example, in Poland the most popular payment method, used by 62 per cent of Polish e-consumers, is real-time bank transfers called ‘pay-by-links.’ In order to break down these market nuances interoperability and open platforms are critical to the FinTech companies, financial institutions and businesses that are trying to encourage cross-border trade and operate internationally.

Bringing down barriers The good news is we’re already seeing examples of regulators attempting to tackle these issues. In Europe, for example, the scheduled implementation of the Payment Services Directive 2 (PSD2) in 2018 aims to break down the bank’s monopoly on their user’s data. In short it will allow merchants to retrieve account data from a consumer’s bank with permission. At PayU we are also trying to do our part to make cross-border trade easier for merchants and consumers alike. Earlier this year we launched the PayU Hub platform. PayU Hub aims to use technology to solve cross-border commerce challenges by using a single API integration to access 2.3 billion potential new customers in the major high growth markets across Asia, Central and Eastern Europe, Middle-East, India, Africa and Latin America PayU Hub’s hyper-local direct connections to acquirers and alternative payment methods allow merchants to see increased card approval rates and reach entire markets through alternative payment methods. This also ensures that local consumers in high growth markets can pay for their purchases using their preferred payment method.

Access to consumer credit Credit is another significant challenge for many cross-border merchants as there remains a reliance on traditional methods of credit authorizations. By way of example, merchants from mature markets are often hesitant to lower their risk threshold and rely Continued on page 22

September/October 2017


Feature

Equifax’s epic fail By David E. Johnson

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quifax’s crisis communications strategy dealing with its security hack has been an epic fail and the credit reporting giant continues to make the situation worse. Each day it seems that something new comes out that Equifax did not reveal when the story first broke or of a mistake it has made in its crisis communications response. The latest revelation was Equifax had to apologize for linking people via social media to a fake online site that mimicked the link on its site for its massive September 7th security breach. People who clicked on the link got this headline: “Cybersecurity Incident & Important Consumer Information Which is Totally Fake, Why Did Equifax Use A Domain That’s So Easily Impersonated By Phishing Sites?” This comes as Equifax is still reeling from the damage done to its reputation from the security breach. The original story of the security hack at Equifax is well known. The breach lasted from mid-May through July of this year with hackers obtaining the personal information of 143 million people. This information included people’s names, Social Security and Social Insurance numbers, birth dates, addresses and driver’s license numbers. Compounding the problems for Equifax—three officers of the company sold stock shares worth a combined $1.8 million just before the breach was detected. Successful crisis communications requires: 1. Being proactive In this Equifax failed as they waited six weeks before revealing the hack. This delay has raised questions of why did they wait and raised suspicions of a cover up. This was worsened by the revelation that company officers had sold stock just prior to the detection. Had the company got out in front of the story, particularly during the slow news period of August, it would have earned kudos for being honest and would have drawn less coverage than it has now when reporters and the public are back from vacation. Had they done so, they would have been able to control much of the narrative. That is why being proactive in crisis communications is essential. Now, rather than controlling the story, they are caught playing defense daily which leads to the second point needed for successful crisis management. 2. Transparency When a crisis hits, it is essential to be transparent in communicating to the public, policymakers, vendors, employees and the media. Again, Equifax failed. The full story has been coming out slowly with each day a new revelation. First it was that Equifax did not implement a security patch in March that could have prevented the hack. The following week it was linking people to a fake online site that mimicked the link for its site on its massive September September/October 2017

7th security breach via social media. Who knows what it will be next. Transparency requires getting everything out at once—the good and the bad. Rather bits and pieces have been coming out each day since the initial revelation. This is a failure of crisis communications 101. The failure to get everything out at one time in an open manner is making Equifax look like the gang that can’t shoot straight and is leading to increased suspicion that the company is hiding something. All of which could have been and should have been avoided by a strong, detailed and transparent announcement about the breach initially. 3. Empathy During a crisis, it is critical to show empathy toward those who have been affected. Equifax has done the opposite. Rather than getting its CEO out as the face of the company who could express empathy and apologize for what has happened, the company has hidden behind press releases. Its offerings to help victims have fallen far short and appear in the fine print designed to avoid litigation. The company and its employees have been tone deaf. This goes all the way to employees in the company’s call centres, who have been reported to be rude and flippant to consumers. 4. Social media Social media drives narratives. A brand’s social media message must reflect what it is communicating in the traditional media during a crisis. Consumers and reporters check social media for current trends and news. It is a way brands and leaders communicate (just ask Donald Trump). Equifax seems to have overlooked this fact. When the scandal first broke, its social media seemed to be ignoring the story, immortalized by its infamous tweet the day the scandal hit of “Happy Friday.” Now it has been caught using social media linking to a bogus website which, fortunately for consumers (and the company), wasn’t a hackers site. 5. No solution The final aspect of successful crisis communications is a solution for how an issue like this will never happen again. In this too, Equifax has failed. So, what should the company do now? 1. Get all the information out immediately. No more slow drip. If anything else is there that might be damaging to Equifax, the company must get out it in the open. The worse thing that could happen is for a reporter to find something that the company has not already acknowledged. It cannot keep taking the hits it has sustained by not revealing everything much longer before irreparable damage is done. 2. Have the CEO become the face of the company, offer a sincere Continued on page 22

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Feature

Making ISO 20022 work for Canadian corporations By Kate Risch Choi

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n Canada’s rapidly modernizing payment environment many companies are getting a jump on the ISO 20022 initiative by taking on their own migration to this growing industry-standard format for financial messaging. Like the varied industries across Canada, there is no one way to tackle this kind of change. We’ll provide some background on the ISO 20022 standard itself, the benefits and risks associated with the adaptation of this new format and two different approaches to making the switch. We’ll also provide some additional food for thought on the pros and cons to making the move right now.

What is ISO 20022? “The adoption of ISO 20022 is part of a larger Payments Canada initiative to modernize the Canadian payments ecosystem. The use of ISO20022 as a common standard message format will result in greater consistency and efficiency in payment processing,” says Derek Vernon, head of enterprise payment modernization at BMO. “ISO 20022 will help companies further improve their reporting and 18

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overall business intelligence, mitigate risk and, most importantly, increase the amount of time spent running the business and less time on day-to-day cash management tasks.” ISO 20022 is effectively a new format for file-based communication with your bank. It can be used for payment and direct debit initiation (pain.001 and pain.008), receivables reporting (camt.054) or current and prior day balance and transaction information reporting (camt.052 and camt.053). ISO can replace many of the disparate payment type-specific, proprietary and geography-specific file formats that have muddied the treasury waters in the past. By blurring the lines between clearing systems, companies can reduce the amount of IT expertise required to use and maintain a multitude of file formats, while expanding the reach of their processes. When we talk about Payments Canada moving to ISO, what we really mean is that Canadian banks will be required to communicate with each other in “pacs” messages—Payments Clearing and Settlement messages. The latest advice is that this will be enforced in the 2019 timeframe for direct clearing banks. This does not necessarily mean that Canadian companies will be forced to use ISO messages in 2019. In other clearing systems September/October 2017


Feature where ISO has been adopted for many years, there was a multi-year transition time, where banks will accept and produce legacy formats to give companies a chance to catch up in the move to ISO. So, while the time is not imminent where a forced migration is in play, many companies take a more proactive approach to capture the benefits of ISO right away, instead of waiting. This strategy comes with both possible benefits and risks.

What are the benefits and risks of using ISO 20022 right now? Benefits: • Companies can prepare themselves for Canada’s move to ISO on their own timeline. • The same process can be used for global payments and/or reporting. • Reduced IT support costs through centralization or format standardization. • Data can be stored and more easily accessed with a data tagging system, through the use of XML or another markup language. • The native format of many ERP systems is ISO 20022, and this can be used instead of format mapping between proprietary or special-purpose formats. Risks: • Banks are often translating to and from legacy formats as part of today’s ISO offering. This can limit the capabilities of ISO based on the existing legacy format. • While banks intend to minimize client impacts as a result of ISO usage before Payments Canada defines the requirements, changes are still possible. • Banks are in varying places in terms of ISO build-out, from scoping and pilot phase through general availability.

Where do I start? One of the main drivers of ISO adoption is a move toward centralization of payables and reconciliation functions. Evaluation of historical processes is a good place to start as companies seek to achieve economies of scale in their AP processes. Many companies that have grown through acquisition find that divisions are running their own ERPs and have a variety of ways to initiate payments with what are often legacy or non-relationship banks. Some of these methods are manual, others don’t meet corporate guidelines for security and control and others do not utilize services of the bank group. To address these challenges, we often see companies begin a campaign to streamline and centralize treasury operations. This could be in conjunction with a move of all entities to a single instance of the ERP, through format standardization while keeping different ERPs, or a move toward a shared service centre or Payment Factory model. The choice will depend on the needs of each corporate and can be dictated by legal or compliance needs for integration or separation of entities, particularly as it relates to intercompany loans, that can be produced in a fully centralized model. There are two ways to approach this adoption. September/October 2017

The Big Bang approach The first way to move toward ISO adoption is with a Big Bang approach. This could work for companies that are moving all entities to a single instance of their ERP, for companies that are already centralized for payables or receivables reporting purposes or that have an executive mandate to consolidate banking providers or move to ISO by a specific deadline. Companies that take this path generally have a “cutover date” where, after penny testing of the new process, volume begins to shift from the old to the new, and the legacy methods are maintained for a set period of time for contingency, before being retired completely. Companies choosing the Big Bang approach sometimes issue an RFP for services or make a provider switch to improve pricing or functionality in conjunction with a move to ISO.

The phased approach The phased approach is a bit different as the focus becomes garnering a small success with ISO before rolling the new process out to the entire company. Companies may opt to choose a single type of payment such as payroll or vendor payments, or a single entity to kick off a pilot program. The pilot participants will often then become the champions of the project and use their experiences with implementation to market and troubleshoot issues for the other divisions. This approach works well with companies that are decentralized and may be undertaking a format standardization exercise instead of a true move toward centralization.

Next steps ISO 20022 is viewed by many as the future of financial messaging or a best practice communication format; however, making the move to ISO format without an underlying pain point to address doesn’t make business sense. If your current processes are working well, you have high levels of standardization and automation and you’re already on a single instance of your ERP, then congratulations! You’re already doing great. If that’s not the case for your company and you are looking to make some changes, then a look at the efficiencies that ISO can offer is a good place to start. For any new ISO project, it’s important to have executive sponsorship within the company, to hold the project accountable and measure the success along the way. Companies can effectively move their payments, receivables and information reporting to ISO 20022 with either a Big Bang or phased approach, depending on the structure and centralization capabilities of the company. A great first step is to engage your banking provider to learn about their ISO offering and understand what is involved with implementing this new format. Once ISO is up and running, companies can begin to reap the benefits as the company grows, along with ISO’s industry adoption. Kate Risch Choi is a senior product manager at BMO Harris Bank N.A., specializing in helping clients establish and optimize file-based communication between their ERP systems and the bank. Kate managed the rollout and enhancement of ISO camt reporting in a previous role and is now leading BMO’s Pilot Program for ISO pain initiation functionality.

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Points & Rewards

The survival factor for legacy retailers: Creating brand loyalty through analytics By Kevin Deveau

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s brand loyalty dead, or is there still a way for organizations to win the hearts of consumers? In a world of online shopping and limitless buying opportunities the task is challenging—but not impossible. A 2017 study by Customer Thermometer shows that 91 per cent of consumers who recognize an emotional connection to a brand view it positively. Consumers will and do often shop passively and, therefore, do not need to feel a connection to any particular brand to make a buying decision. However, Harvard Business Review’s research shows that emotionally connected customers can be 50 per cent more valuable to brands. So, the question is, how can businesses connect with their customers to improve their relationships and improve bottom lines overall? 20

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Digitization has become an omnipresent threat to traditional brickand-mortar retailers with e-commerce platforms eating up more and more of the market share. Those traditional retailers who are slow to recognize this are doing so at their peril. Take the recent downsizing announcements of brands like Macy’s, American Apparel, Teavana and The Gap as examples. In most of these cases, the retailers’ offerings to customers have remained relatively unchanged over the years. The retail landscape is changing and organizations are scrambling to keep pace with consumers’ shifting demands. Other retailers should heed this as a warning. The key to establishing a connection with customers is primarily to show care for them. Sixty-five per cent of surveyed consumers cite the feeling that a brand “cares about people like me” as the main driver for the emotional connection. This is where analytics come into play. Retailers have been increasingly turning to analytic tools to better September/October 2017


Points & Rewards understand their customers and to provide unique, individualized experiences to build these connections. Loyalty programs have emerged as successful tools for retailers to not only get to know their customers, but to also reward them for their business. In exchange for select data, customers are rewarded with exclusive offers, points or access to brands, keeping the retailer top of mind and continuously building the relationship. One of the most well known cases of leveraging analytics to improve customer experience in Canada is Loblaws‘ PC Plus Program. The program, which launched in Canada in 2013, uses analytic tools to analyze each user’s buying behaviour and, as a result, offers them personalized deals each week. The more customers scan their PC Plus cards at checkout, the more data they share, and the more personalized the offers become. This means shoppers will receive offers on the brands they love and the products they need. Users can also adjust their settings to acknowledge dietary restrictions and preferences, like vegetarianism. In return, customers are more likely to choose to do their shopping at Loblaws than at competitors. Customers receive points which can be converted into money off future purchases and the brands on Loblaws' shelves receive added marketing to their key audiences. It becomes a win-win situation for all the stakeholders involved in the transaction. Everyone likes to be rewarded and by adding an element of reward to an everyday task like grocery shopping, Loblaws makes the experience more enjoyable for their customers. Further yet, studies show that customers who are emotionally connected are less price sensitive. There are plenty of great examples of organizations who have managed to leverage analytics to benefit their customers and their bottom lines. However, all good analytic loyalty programs are built on three main factors. Personalization: Consumer experience matters and how consumers engage with brands is critical for influencing purchasing

decisions and building lasting relationships. Consumers want to feel like they can connect with the brands they love and are more likely to respond positively to tailored messaging that relates to their specific needs. By analyzing data effectively, businesses can personalize their offerings to fit each individual customer by anticipating their future buying patterns. This not only helps businesses optimize ordering, stocking and spending practices, it ensures customers are constantly being reminded of the products they carry that appeal most to them. Trust: Trust is the foundation for developing strong relationships with customers and driving brand loyalty. By analyzing consumer data, companies are able to provide consistent experiences and messaging that can build trust based on what works for their customers so they can better meet their expectations. Fifty-seven per cent of consumers cite feelings of trust as the main emotion they associate with the brands they are loyal to. Value: To execute this kind of program successfully, customers must see the value of it. Consumers’ data is incredibly valuable—and they know it. In exchange for it, organizations must take measures to ensure they are providing consumers with a return offer, not just targeting them. The entire premise of a loyalty program is to reward the customers who return time and time again. Taking the time to learn what kinds of offers mean the most to them pays off in the long term. Data-driven business strategies prove to be advantageous for brands and consumers. By providing insight to customer preferences and behaviours, companies that strive to leverage analytics in a meaningful way from the data they have access to are more likely to develop positive user experiences while building and nurturing relationships with customers, which ensures that. Kevin Deveau is the head of Canadian operations at FICO. He has more than 30 years of experience in information technology solutions.

September/October 2017

Leapfrogging international payments innovation Continued from page 4

Frictionless experience As smartphones become ubiquitous, consumers naturally seek frictionless payments that cater to their expectations. The better the experience on offer, the quicker the uptake. One of the key challenges for innovation in high growth markets is the ability to offer a wide breadth of payment options. Indeed, in high growth markets like India alternative payments still represent as many as twothirds of all payments. Subsequently, while regulatory and legacy system barriers don’t exist, offering a frictionless customer experience remains operationally challenging and cost intensive.

Regulatory support The impact of regulation in encouraging the innovation agenda cannot be ignored. By way of example the Payment Services Directive 2 (PSD2), set to be enshrined in EU member state law by 2018, has the intention and potential to improve innovation exponentially. Interoperability and open platforms are critical to help break down barriers when considering how to best support multiple payment types. High growth markets are showing the first signs that they will follow suit, looking at their local capabilities and infrastructures and how to make these more open. This progressive approach was evident in the Reserve Bank of India’s November demonetization announcement, which laid out the mandate for the removal of as much as 86 per cent of bank notes from the country. While the announcement was a curve ball for many citizens who have historically relied heavily on cash, the impact of this move forced change in the way people viewed and used digital payments platforms. At PayU, we saw our daily transaction volume skyrocket by 80 per cent immediately after the announcement was made. It then settled to a 25 per cent increase compared with prePAYMENTSBUSINESS

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Feature demonetization—still a significant number. While the long-term outcome of the demonetization exercise is still to be determined, the side effect has certainly been a large scale uptake of payments innovation, made possible by a regulator ready to disrupt the market.

Tech workforce Here at PayU we are working with entrepreneurs from India to Israel to bring world-leading tech to market and local market insight is a powerful thing. We’ve encountered startups and growth companies such as Creditas in South America and Zest Money in India that offer world-class solutions to advance access to financial services in high growth markets. Where once India, like many other high growth markets, was widely regarded as a commoditized, service/call centre-based tech economy it has evolved into a hub for technology in its own right—and is giving Silicon Valley a run for its money. There are of course many contributing factors to supporting payments innovation, but arguably the combination of consumer demand, access to credit, a supportive regulatory environment and a dynamic workforce can empower emerging markets to leapfrog their established counterparts and give the likes of London and New York cause for reflection. Laurent le Moal is the CEO of PayU.

real-time personalized recommendations and split-second account updates have set a bar everyone else must now meet. But in traditional industries like automobile manufacturing and mailing services, digital and cloud technology is not by design and the hybrid monetization goals of companies like Pitney Bowes could not be executed using their legacy, largely on-premises infrastructure.

Don’t get left behind What should companies with legacy infrastructures wanting to grow recurring revenue do? The hunt is on for solutions that improve business and technical agility, automate key aspects of customer life-cycle engagement and integrate with existing CRM, ERP, e-commerce and other back end systems. And that doesn’t stop with subscription, as company’s look to capture all recurring revenues. Arun Thakur, senior vice president of global services at Aria Systems, has 25 years of experience in strategy, transformation and business process improvement, managing teams and projects exceeding $100M. At Aria Systems he leads teams that ensure the rapid and profitable use of Aria’s cloud-based billing and monetization products and services for global enterprises.

Continued from page 12

customers have come to expect. Media darling Amazon has been hugely successful but had a big advantage: it was built from the ground up as a digital company. It’s been able to grow its own technology solutions or buy up companies that had what it needed. It has the cloud down cold. AWS powers 40 per cent of SaaS businesses. On the speed front, the company’s 22

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Matthias Setzer is PayU’s CCO.

Equifax’s epic fail The opportunity and the challenge of cross-border trade Continued from page 16

Five factors driving the shift from simple subscription to recurring revenue models

At PayU we are developing and supporting these new techniques and their potential to unlock credit and financial services for underserved populations. Our record €110 million investment in Kreditech means that we have a joint partnership to create credit ratings and provide finance to people who may not have traditional credit histories. With the growth of cross-border trade predicted to more than double in under three years the opportunity to open up the trade of goods internationally is undeniable. Consumers expect to be able to trade freely regardless of location and merchants the world over want to increase their potential customer base. However, if the predicted growth of cross-border trade is to be realized complicated and out-ofdate payment infrastructure and processes need to be addressed. In my opinion these opportunities—and the challenges that come with them—are what makes the cross-border market one to watch.

on non-traditional payment verification models—which in turn can be intrinsically prohibitive to connecting customers and businesses with each other. On the flip side, a consequence of the rise in smartphones is that it brings with it a corresponding rise in data regarding a customer's spending and earning habits. As the amount of data increases, new techniques are being used to build credit intelligence and more accurately understand an individual’s credit rating. For example, AI and machine learning are being incorporated into credit models, enabling underwriting which uses thousands of variables all changing in real time.

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apology and address all stakeholders— consumers, vendors, policymakers, stockholders and employees. This means taking responsibility and speaking publicly through interviews and social media. Mary Barra of General Motors offers a perfect example of how this was done correctly. 3. Offer a solution for moving forward. Equifax has failed crisis management 101 and is will be served as a textbook example of how not to handle crisis management. Until it takes corrective measures the company will continue to suffer and offer an example of what not to do during a crisis. David E. Johnson is the CEO of Strategic Vision PR Group, a public relations and branding agency. Additional information on Mr. Johnson and Strategic Vision PR Group may be obtained at www.strategicvisionpr.com.

September/October 2017


FinTech

Experience matters as FinTech becomes the global payment norm By Mark Frey

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s Canada’s economy is heavily weighted in international trade, it makes perfect sense for a global payments company to be born and grown in this country. Twenty-five years ago, when Canadians Jacques Feldman and Bernard Heitner started Cambridge Global Payments, cross-border payments was an analog process, where batch-based systems meant end-to-end money transfers took days. Payment technology was nascent and focused simply on transaction capture, while domestic client-facing systems were rudimentary and were not well integrated with the processing and trading engines that connected to the outside world. Even then, the industry was ripe for disruption as there was a need for real-time global payments, while meeting various specifications and protocol requirements. Since then, financial technology has evolved along with the needs of both businesses and consumers. While “FinTech” has become a buzzword synonymous with financial services moving from faceto-face to exclusively online banking and payments services, it has been an active part of the evolution of global payments for the last quarter of a century. The payments industry has experienced rapid change as businesses move toward the acceptance of new technologies, slowly dislodging incumbent business models and traditional FX trading desks that prevented many companies from adapting. While these legacy systems and business models were reliable and got the job done, due to the nature of their permanently changing landscape they are now quickly becoming obsolete, posing operational risks for companies that held off on replacing them. In order for companies, including financial institutions that offered cross-border payments, to remain competitive they had to modernize their technology, replacing outdated systems that prevented them from offering innovative services while remaining flexible to varying payments September/October 2017

processes globally. Non-banks and financial institutions that offered global payment services, such as Cambridge, increased technological capabilities by replacing legacy systems. Over time, the desire for efficiency and delivering what businesses wanted led many of these organizations to become very focused on technology solutions, both in their customer-facing platforms and back-end processing systems. While many non-banks and financial institutions were becoming less client focused, applying a more generic approach to their customer service, there was still a need for integrated global payments to proactively evolve service offerings by building customized solutions that still provided high-touch services, while remaining ahead of the curve on financial technology adoption. Naturally, through continual investment and a focus on enhancing the cross-border payments process for businesses, payments services in Canada took shape through an evolutionary process, delivering progressive yet practical solutions to meet unique business requirements. Payments firms, like Cambridge, began to invest heavily in systems that would allow individuals with payments expertise to scale their reach and service to increase the number of businesses they deal with. While many non-banks switched gears and focused on improving technology to develop a one-size-fitsall approach, we identified and focused on delivering a rich online experience to customers, coupled with a high touch, personalized level of expert service, while remaining efficient with straightthrough processing. For instance, payment rails—the core banking systems that enable cross-border account payments and transfers—have been widely adopted by companies like ours as they have simplified global payouts. That is why the bank-owned Society for Worldwide Interbank Financial Telecommunication (SWIFT), continues to sell software and services to financial institutions to handle international financial transactions for use on the SWIFT network. While these systems have provided businesses with greater PAYMENTSBUSINESS

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FinTech capability to service their customers, an increasing share of their existing payments are migrating from using SWIFT to in-country payment channels such as distributed ledger or blockchain-type technologies, that allow for digital information to be issued but not copied, to make payments and share information across financial intermediaries. As blockchain and distributed ledger technologies are quickly emerging in the market, replacing legacy systems for exchanging financial information and conducting transactions, there will be a continued focus on adapting user experiences from the world of consumer financial transactions to the more complex international business transactions. This means the pace of technological adoption in the enterprise market is now keeping pace with that in the consumer market after years of lagging behind. However, SWIFT technology will not be replaced entirely. For instance, Cambridge operates on both SWIFT and alternative payment rails, which allows us to position ourselves as a partner for new technologies and firms. Moreover, as the evolution of the industry moves toward in-country payments, international wire transfers, correspondent banking with associated lifting fees and outdated technologies are losing out to more dynamic, efficient and timely clearing systems. That is why the international payments market is now following other financial sectors in terms of transparency to the end-user, utilizing speed of execution and efficiency in terms of cost as the best way to deliver through new technologies. While Canada’s financial institutions and non-bank services have made strides in adopting technology to improve global payments, domestic regulatory bodies still lag behind in providing favourable

guidance and regulation in the FinTech space. In the U.S. alone, nine states have regulations that are favourable towards FinTech as many states such as Tennessee, Illinois and New Hampshire are aiming to attract new corporate business. Meanwhile, Switzerland has become a haven for FinTech companies to experiment with cryptocurrencies in a controlled environment. Switzerland’s head of the Federal Department of Finance Ueli Maurer made a promise to re-evaluate banking legislation to exempt smaller companies from rules that larger banks must follow in an effort aimed at spurring innovation. As global payments companies, like Cambridge, look to the future, changing technology and regulations will constantly be reviewed for consideration to ensure global payments offerings continue to stay ahead of business needs. One such example is Cambridge’s acquisition by FLEETCOR Technologies Inc., which brought together FLEETCOR’s payments strength and know-how in the U.S. with Cambridge’s global reach and expertise. Through this combined business, we are now able to provide our capabilities in cross-border payments, while leveraging in-country clearing networks and global reach to meet FLEETCOR’s domestic expertise. The future of global payments is an exciting place. As technologies such as blockchain and SWIFT continue to evolve and global regulatory bodies adapt to the changing payments space, cross-border payments will become more seamless and safer from potential fraudulent activity. Cambridge will be right there, ahead of this change. Mark Frey is chief operating officer, Cambridge Global Payments.

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September/October 2017

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Opinion

Cryptocurrencies are here to stay By Chris Horlacher Chris Horlacher, CPA, CA, is CEO of Equibit Group.

I

n a world where trust in institutions and figures of national authority is becoming scarce, a financial system based on distributed network consensus should not only be welcome, but enthusiastically embraced. Digital currencies offer a very real reason for institutions built on centralized authority to be concerned and for their leaders to risk internet backlash for declaring they’ll never have longevity or mass adoption; cryptocurrencies are disruptive to their business. In early September, JPMorgan CEO Jamie Dimon very publicly commented that Bitcoin is a “fraud” and will eventually “blow up.” These statements compounded onto the downward momentum from China’s regulatory news, sending the price of Bitcoin down from about US$5,000 to roughly $3,000. Following this news, some speculated that Dimon may have said such things in an effort to manipulate the market and purchase at the dip, and they may have been correct. On September 15th JPMorgan Securities Ltd. reportedly purchased “massive amounts of Bitcoin XBT, an instrument tracking the price of Bitcoin, through a Swedish exchange,” as reported by The Merkle. To the uninitiated, cryptocurrencies may appear like financial rogues, without tangibility or underlying value, but this is not the case. Their inherent values lie in the decentralized, global communities that support them, both in miners producing

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digital tokens and market participants investing in and transacting with the various currencies. They are the ultimate network effect; just like social media networks rely on community use for their value, so too do cryptocurrencies. Cryptocurrencies demand proof-ofwork in order for tokens to be added to the ecosystem; mined via hash algorithms that establish blocks of market data on the blockchain. In order to perform this proofof-work, miners must front the costs and power necessary, thus demonstrating a genuine commitment to the growth of the market and use of the currency. This explains why Bitcoin is often likened to “digital gold;” people believe so strongly in the value of Bitcoin that they are willing to expend real resources in order to retrieve it. But their use and worth extends far beyond market transactions. Acting as an incentive for the mining process and a vehicle for the transfer of value, these network utility tokens are the foundation of new, decentralized economies. Because distributed ledgers facilitate secure, peer-to-peer transfers, blockchain technology holds innovative promise for many industries including finance, shipping, food distribution and health record management. Blockchainbased platforms developed to simplify and enhance these industries require a native access token that enables use of the platform. Without it, what would the miners be expending resources for? This is the case when it comes to Equibit Group. The Equibit blockchain allows companies access to primary and secondary capital markets, liquidity and an opportunity to control their own share issuance, governance and investor communications

and services. Our token, EQB, acts as the key to the platform, enabling issuing companies to provide stores of value and investors access the marketplace. EQB is our platform currency, but more importantly, it is a token that provides a public utility to users. Evident in the burgeoning marketplaces of Bitcoin, Ether, Ripple, and soon Equibit, priorities are shifting towards distributed trust, collective data security and transparent market movement. Following Dimon’s remarks, Arthur Levitt, former and longest-serving chairman of the U.S. Securities and Exchange Commission, told the Washington Post, “Cryptocurrency is with us for the future. I don’t know whether it will be Bitcoin or Ethereum, to name just two. But it’s here to stay because of the disparity between countries where a monetary system is robust and countries where there is virtually no monetary system. This comes up as an alternative currency.” Architected to democratize financial power and access, cryptocurrencies offer an attractive alternative to fiat currency. With no central access point, markets are distributed across the globe, free from intervention or even manipulation by a regulatory body like a central bank. Decentralized trust and security empowers the unbanked, removing traditional barriers to access in the financial system. “But will cryptocurrency go away?” wrote Bradley Tusk, founder and CEO of Tusk Ventures in an op-ed for CoinDesk. “No. This is not a monetary version of Esperanto. Faith and trust, like anything else, needs somewhere to go during a vacuum.” At Equibit Group, we agree. Cryptocurrency represents an evolution in the global marketplace and its value is too great to be ignored.

September/October 2017


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Payments Business Magazine Sept/Oct 2017