The Merchant’s Guide to Transactions, Cards & e-Commerce
Digitizing international remittances ❱ Technology level resets the cheque landscape ❱ Why connected banking is the future ❱ Changing how Canadians pay
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Spring 2020 Volume 11 Number 1 Editor-in-Chief Steve Lloyd firstname.lastname@example.org Editor Brendan Read email@example.com Contributors Hamed Arbabi; Cyrielle Chiron; Viktoria Galociova; Chris Harris; Peter Maoloni; Jason Schwabline; Raju Vegesna; Bill Waid Creative Direction Jennifer O’Neill firstname.lastname@example.org Photographer Gary Tannyan President Steve Lloyd email@example.com For subscription, circulation & change of address information, contact firstname.lastname@example.org
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International Payments 4 Digitizing international remittances Cash & Cheques 6 Technology level resets the cheque landscape
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The implications of Google chequing
Connected & Open Banking 10 Why connected banking 12 Making the open is the future
Features 14 Changing how 16
Canadians pay Capgemini on Canadian payments trends
Conferences 21 Industry Events
18 Why turn to digital decisioning?
22 FEI Canada 2020
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Security, Fraud & Privacy • Payment Processors • Travel & Hospitality • Wireless Devices • Cards PAYMENTSBUSINESS
Digitizing international remittances 4
By Peter Maoloni
anadians have been early adopters of payment technologies that provide access to digital payments and money transfer capabilities. Payment providers and financial institutions (FIs) have made great strides meeting those needs domestically. But, the next frontier transcends our borders as attention turns to digitizing international remittance services.
A growing market Many Canadians have international roots. For good reason: Canada regularly ranks among the most desirable places for immigration thanks to favourable government policies, a highly multicultural population and a generally accepting attitude toward newcomers from all parts of the world. Canada’s appeal as a destination for highly skilled workers, many of whom still have families in their countries of birth, combined with the growing number of Canadian businesses operating in an increasingly global marketplace, have created a large market for international payments. According to recent figures from the World Bank, more than US$27.8 billion in international remittances were sent from Canada to other countries in 2018. Many people want to be able to send money to family and friends in their country of origin to help cover basic living costs, as gifts or to
FIs should provide safe, reliable and transparent international remittance services. help defray the expenses for major life events such as weddings and births. Statistics show new Canadians are among the most frequent and high-dollar-volume users of international remittances. They need access to financial services that serve their global needs in safe, secure and cost-effective ways. The surge in the use of money transfer options outside those traditionally offered by FIs indicates a dissatisfaction with the international remittance services that have been available to date. People are increasingly looking for options that offer the ease and convenience of digital and mobile payment solutions similar to those that are currently used across Canada.
Changing the game Interac has unique insights into how consumers and businesses are embracing digital payments domestically and how this knowledge can be applied to international remittances. For more than 35 years, Interac has provided payment solutions and access to money on secure, interoperable, reliant and efficient shared platforms. Based on those insights, Interac worked collaboratively with Mastercard to develop a game-changer in international remittance for consumers and for FIs. This new solution, International Transfer SPRING 2020
by Mastercard and Interac, will enable Canadians to send money to bank accounts, and eventually mobile wallets and cards, in other countries. The National Bank of Canada will be the first bank to pilot for its personal banking clients. The initial launch is to Europe with plans to expand further in the future. This new solution leverages both Mastercard Send and the Interac e-Transfer platform. Consumers will be able to access the solution through online and mobile banking in the same way they already use Interac e-Transfer for domestic money transfers. As with any new financial solution, the key to ensuring customer acceptance and use is to incorporate elements that meet consumer and business needs. The solution leverages the trust and reliability of the Interac and Mastercard brands. Funds are transferred using established banking procedures, backed by industry-leading fraud mitigation. Senders will have a seamless and transparent customer experience when it comes to moving their money to international contacts.
A new tool for FIs The growing international remittance market offers many business opportunities for Canadian FIs looking to attract new customers and retain the ones they already have. The integration of a reliable, low-cost and convenient international remittance service within a FI’s suite of services increases customer satisfaction, provides transaction integrity and security, and reduces the customer’s overall service costs. For current customers, having access to an easy-to-use, secure international remittance service enhances loyalty by removing the need to opt for third-party services outside the familiarity and security of their existing FIs. For potential new customers who want to be able to send money abroad, their choice of which FI to use could ultimately come down to the one that offers them a safe, secure and low-cost remittance service. With Canada relying upon new Canadians to continue growing our economy, providing “in-house remittance” services can give FIs the opportunity to win net new customers and provide a deeper and more meaningful engagement.
Why act quickly? The increasing adoption of digital payments by consumers and businesses, and the integration of these technologies into money transfers at home and abroad, will become even more ubiquitous as technology continues to evolve and improve. FIs of all sizes should move quickly to provide safe, reliable and transparent international remittance services to maximize their connection with customers, the efficiency of their transaction processes and the speed of real-time money transfers. This is particularly critical in Canada given its growing market for international payments as Canadians increasingly seek financial services that meet their global needs. For if existing payment providers and FIs don’t give customers what they want, they will turn to new entrants who will. Peter Maoloni is vice president, product & platform delivery, Interac Corporation.
CASH & CHEQUES
Technology level resets the cheque landscape
By Jason Schwabline
t’s simple. Consumers want convenience. And in today’s world of big-name online retailers, we’re conditioned to expect effortless and immediate responses with slick apps and eye-catching appearances. The banking climate is no different, putting pressure on long-standing, traditional brick-and-mortar institutions to adapt or be left behind. And because of this, it’s no surprise that we’ve seen such a tremendous growth of mobile banking and remote cheque deposit as compared to other in-person transactions. No longer is a physical branch location required to expand the client base and meet the needs of the customer, thereby eliminating what were once geographical inhibitors of growth. In fact, a December 2018 study from Abacus Data reported that 91 per cent of Canadians believe technology has made banking more convenient, with mobile and app-based transactions continuing to grow. 6
CASH & CHEQUES
Meanwhile, many financial institutions still struggle with data silos and disparate systems, each with different business rules and other internal blockades that don’t allow for a unified customer experience or data sharing for business intelligence and analytics.
Innovation expectations Providing access to innovative financial solutions, anywhere, anytime has become a minimum customer expectation. Although Millennials represent Canada’s largest segment of the population and account for nearly 36 per cent of mobile banking usage, 23 per cent of all other demographics are also following suit, according to the Abacus Data study. A true catalyst for change, technology is pushing financial institutions and the deposits market to meet the 24/7 needs of consumers and business customers alike. The latest findings published by Payments Canada in the 2019 Canadian Payment Methods and Trends report reflect the impact that technology has had on the payments landscape. According to the report, in 2018 the payments market in Canada grew to 21.1 billion consumer and business transactions worth more than $9.9 trillion. When compared to the data from five years ago, it’s clear that a transition is underway as Canadians continue to expand their use of mobile and electronic payments.
can be deployed across all channels i.e. omnichannel. This is a blend of full- and self-service cheque acquisition, whether from a mobile phone or tablet, kiosk or desktop computer. As these remote cheque deposit capabilities continue to grow with banks, other non-traditional or smaller financial services organizations are starting to look for ways to increase their customer bases and transaction volumes through similar offerings.
What once required a visit to a retail location to cash a cheque can now be done from one’s home. What once required an in-person visit to a retail location to cash a cheque can now be done from the convenience of one’s home with the same mobile technology as a hosted offering or even as a service. Scalable, secure and able to provide a seamless UX, this cloud-based offering enables cheque cashers, merchants and smaller institutions that don’t have the same IT infrastructure as a national bank to offer a similar self-service experience.
Business intelligence key
Moving to omnichannel deposits
With new technology breaking down barriers to entry, and levelsetting the remote cheque deposit and cheque cashing landscape, banks, credit unions and non-traditional financial services organizations will surely look to the business intelligence linked to these applications and their usage. Not only does data analysis help to mitigate risk, it enables the organization to track trends, pinpoint shortfalls and enables the management of an effective payments ecosystem. With the technology available today there is no reason why mobile cheque deposit cannot be leveraged to deliver cross-border payments capabilities to customers. This unified UX approach to cross-channel cheque acquisition also translates into simplicity for the financial institution: a simple and centralized reporting structure that turns otherwise idle information from various silos into a consolidated, usable resource. According to the Canadian Bankers Association, more than 76 per cent of Canadians banked through online and mobile channels last year. With features like mobile cheque deposits tailored to both consumers and small business clients, and solutions scalable for institutions of all sizes with measurable benefits and tangible data assets, this figure is sure to grow into this year and this new decade.
The true test of efficiency and convenience, however, comes when the same simple and intuitive user interface and user experience (UX)
Jason Schwabline is chief strategy officer, Alogent.
Electronic fund transfers and cheque and paper transactions still dominate the overall transaction value. The strength of cheques While cheques are slowly declining due to the entry of other electronic payment types, Canada still sees nearly one billion cheques processed each year and a growing self-service channel. In addition, Payments Canada data shows that while debit and credit cards continue to make up the largest portion of the transaction volume, electronic fund transfers and cheque and paper transactions still dominate the overall transaction value. In 2018, the total value of cheque and paper items decreased by 4 per cent, marking a disruption to the previously established fiveyear average of 1.5 per cent annual value growth. Still, in 2018, even with fewer cheque items written, the average value of a cheque was $5,833: over 50 per cent higher than it was in 2013 ($3,737).
CASH & CHEQUES
The implications of Google chequing
By Chris Harris
ig Tech’s entrance into payments came swiftly in 2019 with the introduction of Apple Card, as well as rising expectations that Amazon, Facebook and Google would also be looking for ways to play in the banking game. Despite Apple Card’s big splash, Apple has not released, at press time, any numbers on growth. But Apple does not need to gain dominant market share to change the industry. That’s because there is something different about this credit card from the others on the market; it is the first to differentiate itself on user experience. This is reflected in Apple’s tag line “created by Apple, not a bank.” Apple Card has redefined the process of applying for and using a credit card, and it has bridged the divide between a physical and digital card. Soon, all consumers will know this can be done and expect it from their financial institutions.
Enter “Cache” Now, Google is entering banking and appears poised to provide the same user-experience layer that Apple has provided with Apple Card. When Google “Cache” — the code name for the chequing account project — was announced in November 2019, the initial information provided was minimal. What we know is that Google is partnering with Citigroup and Stanford Federal Credit Union to provide smart chequing accounts in 2020. 8
CNBC reported that Google refers to its forthcoming offering as a “smart checking account,” but the details were left up to interpretation. But providing an experience layer means providing interactions for customers, and that’s something that should make financial institutions sit up and take notice. There are now two tech giants saying, “We can do this better than banks.” And at least two others are also potentially trying to disrupt this industry.
Google will see a huge opportunity to enter the Canadian payment space. What will Google gain? Google’s potential gain from Cache remains speculative. But there are some likely insights we can pull from our knowledge of the company. First, it is no secret that data is at the core of Google’s business model. From search to advertising, knowing how consumers think and behave is key to the company’s success. One of the biggest gaps in Google’s data is how consumers spend their money. This data would allow the advertising giant to better target ads (and charge more for these ads) based on actual spending SPRING 2020
CASH & CHEQUES
behaviour. Google would then also have insight into the everyday transactions that occur through demand deposit accounts including deposits, transfers and bill pay, providing it with information on consumer expenses, how much money they hold and where they store funds. Second, an additional benefit is that insights into personal accounts would help drive adoption of Google Pay. A survey conducted by Harris Poll on behalf of Ondot Systems found that 64 per cent of Americans would consider purchasing or applying for financial products from a tech company. Also, more than half of Americans (58 per cent) say if they purchased or applied for a financial product from a tech company, they would allow them to use their spending data. Even if banks don’t go the way of BlackBerry and Nokia, this survey is a clear sign that financial institutions need to improve the user experience to keep and attract customers.
Will “Cache” go to Canada? Globally, it remains to be seen whether Google will offer “smart checking accounts” in other regions. Google Pay was released in the U.S. in 2015 and expanded to Canada in 2017, suggesting what might also happen with Cache. Google currently holds over 90 per cent of the search market share in Canada and — if predictions regarding Google’s motivation to enter payments hold true — the company will see a huge opportunity to enter the Canadian payment space. The Canadian banking market is an attractive target for FinTech companies and disruptive entrants like Google. Canada has more financial institutions than most developed nations, providing multiple potential clients, but is consolidated enough that it is approachable, compared to the over 10,000 financial institutions in the U.S. Additionally, Canadians are quick to innovate, taking major implementation steps in the past year with Payments Canada’s payments modernization initiative. The potential ease of access to the Canadian banking system may be a welcome change for Google and its tech giant siblings. Regulation in the U.S., by contrast, is less flexible in how it’s interpreted, which can hinder innovative solutions to problems. It is no longer a question of whether Big Tech is entering payments, but rather how quickly it will penetrate. It is essential for issuers of all sizes to ensure they are able to meet the increasing demands of today’s consumer. FinTech partnerships are one opportunity for community issuers to retain their customers while staying up to date with escalating consumer expectations. Ondot Systems, for example, recently launched Card App at Money 20/20 in Las Vegas, Nev. Card App enables smaller banks and credit unions to offer an Apple-card like experience to their clients. Partnerships like this can serve as a template for how community issuers can provide gold-standard customer experiences on top of their existing infrastructure: without massive upfront investments.
Who will be on the new $5 note? Canada’s currency continues to evolve with new bank note designs. And, following the success of the $10 Viola Desmond note, there will be a new $5 note that is planned to enter circulation in a few years. The individual who will be portrayed on the new $5 note will be revealed later this year, drawn from public nominations. And, like the new $10 note (see July/August 2018 Payments Business), it too will have a vertical design. The Bank of Canada ran a public consultation campaign for the new $5 note from January 29 to March 11, 2020. “When we launched the last round of consultations, we never could have anticipated the enthusiasm of Canadians, both for the process or for the historic bank note that featured a Canadian woman for the first time, civil rights pioneer Viola Desmond,” said Minister of Finance Bill Morneau in a statement. “We’re excited to see who the public will nominate for the $5 bank note and look forward to celebrating another incredible Canadian.” The nomination and selection process is similar to that which led to the redesigned $10 note, which won the Bank Note of the Year Award from the International Bank Note Society. • The $5 note nominees must have met all the following criteria: • They are a Canadian by birth or naturalization who has demonstrated outstanding leadership, achievement or distinction in any field, benefiting the people of Canada or in the service of Canada; • They have been deceased for at least 25 years (before March 11, 1995); and • They are not a fictional character. Participants can suggest images and symbols they associate with their nominee(s). An independent advisory council composed of eminent people from academia, the cultural sector and civil society will review all nominations that have met the criteria. With the support of historical and public opinion research, the advisory council will develop a short list of candidates for submission to the Minister of Finance. The minister will announce his decision on the portrait subject of the new $5 bank note before the end of this year. The Bank of Canada will then begin the design process for the new bank note. From the start of the public consultation campaign, it takes three to four years to design, produce and issue a new note. Bank of Canada Governor Stephen Poloz encouraged Canadians from all parts of the country to nominate people who have inspired them and to talk about their achievements. “This open call for nominations is another great opportunity to highlight the many stories of heroes, sometimes unsung ones, who have helped shape the Canada we live in today,” he noted. “I hope this process sparks conversations and encourages us all to learn more about our great country and its remarkable people.”
Chris Harris is a senior director at Ondot Systems.
CONNECTED & OPEN BANKING
Why connected banking is the future
By Raju Vegesna
n 1994, in the heyday of Microsoft Windows PC, Bill Gates bragged that “banks are dinosaurs… we can bypass them”. With digital money increasingly found inside the smartphones of today’s consumer, it seems his 26-year-old prediction came true. Cash and traditional bank deposits are now competing with Big Tech “e-money” from the likes of Apple, Amazon and Facebook. While customers are embracing FinTech solutions for their convenience and ease of use, traditional banks are building their own digital strategies and leveraging traditional in-person touchpoints at branch offices. Big Tech’s strategy is to instead seize customer relationships within their online, mobile platforms and offer a seamless on-the-go financial service experience. As Bill Gates surmised, Big Tech would indeed challenge big banks. Despite Apple, Amazon and Facebook’s entry into financial services, let’s explore why “connected banks” are still likely to lead the digital economy of the future.
Legacy and trust Unlike Big Tech, traditional banks have existing relationships with customers that span years, if not decades. Through these longlasting financial relationships customers develop trust with their respective banks. Within this traditional model, banks introduce other banking products to customers that provide stickiness for all their financial 10
needs. Subsequently, customers are unlikely to leave their banks and take their financial services elsewhere. Now let’s compare the same customer’s relationship with Big Tech: an industry fraught with privacy issues and breaches of trust. Do people really want to give Facebook access to their financial data? I think not. Given the speed at which this industry is moving, most banks simply do not have the money and time to create sophisticated digital platforms from scratch. The ideal scenario is merging the technology of Big Tech within the platforms of big banks. But banks are more likely to embrace technology from FinTech vendors that easily integrate into their own digital banking platforms: which may not necessarily be from Big Tech companies. New digital services should be built by FinTech vendors that understand banks’ legacy systems. By adding new technology within the constraints of specific banking platforms, these suppliers can add their expertise to existing digital banking ecosystems.
Acquisitions and upsells Banks are known to do “banking things” well, such as issuing large loans, risk intermediation and liquidity transformation. What they are not known for is innovation and, let’s face it, providing superior customer service. It is no wonder that most of the connected banking solutions occur through acquisitions, rather than being built internally. Banks understand that the expectations of the modern banking customer SPRING 2020
CONNECTED & OPEN BANKING
are changing. Banks also recognize that they might not have the skills to meet these changing needs. Acquisitions of FinTech start-ups allow banks to move into ecosystems beyond their traditional core of product and services. They can tap into their existing client base and operation capabilities to strengthen engagement in mobile payments and capture necessary data to provide a complete view of customers’ mobile financial and payment needs.
Banks might not have the skills to meet changing needs. In this scenario, banks can offer a curated and compliance vetted mix of traditional and third-party products and services. Aggregating all financial products through acquisitions provides customers with a one-stop solution for financial needs through a single, integrated channel from their trusted financial provider.
Compliance and regulation Regulation and compliance dominate the banking industry. It is no wonder why consumers go to their neighbourhood bank for mortgages, auto finance, credit cards and lines of credit. While Big Tech is excellent in recognizing consumer pain points and providing quick solutions, banks guarantee stability. SPRING 2020
Lest we forget the underlying reasons why Big Tech is pursuing entry into financial services. It is all part of their broader plan to touch more parts of their customers’ lives and businesses without relying on external vendors. In a “perfect Apple world”, iPhones are also Apple bank cards without any involvement of traditional banks. As FinTech companies, Big Techs like Apple, Amazon and Facebook are unproven. Banks have a legacy of trust and consistency, especially when it comes to financial transactions through cash, credit and electronic payments.
Financial services of the future There is no doubt about the disruption facing the global financial and payment processing industries across the globe. Cryptocurrency, nofee credit cards and new end-to-end payment processing are being introduced by Big Tech giants like Facebook, Apple and PayPal. The race to capture the digital wallet has energized innovation in the payments industry. The quest to offer better customer service for mobile financial services will determine success in all payment, transaction and card-based operations around the globe. Suffice to say, big banks are here to stay. Their legacy of trust, history of regulation/compliance and strategic acquisitions will forever give them a strategic advantage over Big Tech in the global financial services industry. Raju Vegesna is chief evangelist at Zoho.
CONNECTED & OPEN BANKING
Making the open banking transition By Hamed Arbabi
he rise of FinTech companies around the globe opened the Pandora’s box on the question of who owns the financial data and what will they do with it? The way that the current financial services ecosystem operates in Canada, and in most countries, other than notably the U.K., is that the banks, not their customers, own customers’ financial data. At least not yet. Moreover, this financial data, such as balances and transaction histories, are often unorganized and siloed, so much so that it limits a bank’s ability to access and use them in a meaningful way. Even when the information is accessible, a bank’s IT infrastructure often cannot compete with innovative FinTech startups that are more agile and hyper-focused on solving specific financial challenges. Consumers (especially Millennials) now expect — and demand — the same level of choice, control, user experience, security and innovation that they receive from other industry’s products and services. Consumers are, as a result, fuelling a major disruption in the financial industry, turning partially (if not wholly) to bank alternatives. To help smooth the transition into a future with superior financial services, a collaborative model between financial institutions and FinTechs aims to bridge the gap between data, banks, consumers and technology. It’s called open banking. SPRING 2020
CONNECTED & OPEN BANKING
What is open banking? Open banking is a much bantered and hyped term. So, what is it, exactly? Open banking is a collaborative model or set of objectives for how banking should and could work. As my company's FinTech partner Flinks puts it, it’s “The promise of access to data across platforms and institutions.” In this new banking model, banking data is shared between major banks and third-party players, such as FinTechs. But ultimately, open banking gives consumers control over their own financial data. The consumer — and only these individuals — decides how, when, where and whom to share their financial data. For example, if they decide to purchase a flight online using their debit card rather than with their credit card, they can grant access to their financial data for that particular use case. In an open banking ecosystem, the consumer’s major bank would allow the third-party application to access their information.
Open banking is a set of objectives for how banking should work. Open banking in Europe and the U.K. Open banking regulations came into effect in Europe in 2015 in an effort to bring innovative, new businesses to the financial industry and lessen some of the hegemony of European banks. In 2016, the U.K. used this same set of rules to force major banks to collaborate with FinTech companies. This meant that if and when a consumer requested or allowed a FinTech to access their financial data, the bank must allow it. Perhaps unsurprisingly, open banking use-cases are gaining momentum in the U.K.. According to reports from the Open Banking Implementation Entity, there were 110.5 million successful use cases of open banking APIs (application programming interfaces) in August 2019, up from 4.2 million in August 2018.
Open banking is coming whether we like it or not. Open banking in Canada and the U.S. The Canadian government announced in 2018 that it would explore the merits of open banking. Since then, legislation has been slowmoving for various reasons, including privacy and security concerns and its potential impact on the stability of the Canadian financial system. SPRING 2020
Likewise, 2018 research in the U.S. suggests that customers have trust issues when it comes to their financial data. Almost nine in ten American consumers said they are concerned with sharing their financial data with third-party services. Yet 56 per cent would like to control the access to their information: which is inherently baked into the set of guidelines of open banking.
Adopt and adapt According to Accenture’s open banking report, open banking is coming whether we like it or not. Already, nearly one-third of banking customers already use FinTech apps. As with all disruptive technologies, there are early market adopters, mainstream adopters and skeptics or late adopters. Regardless of where along the adoption curve consumers fall, banks must position themselves to empower customers with the choice to adopt or not and make it a seamless transition when they do. Open banking — and the future of financial services — requires collaboration, cooperation, innovation, security and trust between all parties involved. “That is their biggest challenge,” said Andrew McFarlane, Accenture’s managing director, Canadian Payments Practice Lead and Global Open Banking Lead. “Can [banks] be innovative and offer new products and services, or will they stay cautious and be unable to face down FinTechs and challenger banks that are waiting for the start of open banking?”
Banks must position themselves to empower customers with the choice to adopt or not. Open banking payments FinTech companies, such as VoPay, bridge the gap between major banks, consumers and businesses. They offer technology that allows businesses to accept, collect and send direct bank payments just like credit cards, meaning they can instantly access all available funds for consumers while reducing of costly non-sufficient funds (NSFs). These tools validate bank account information without having the customer’s bank account details ever be visible. Unlike traditional bank account payments, they generate and share a token, rather than actual bank information, for every linked account. This gives the consumer the security and privacy of knowing that no account details are shared and gives the business greater assurance of getting paid. It’s time to adapt and adopt. Or risk getting left behind. Hamed Arbabi is founder and CEO at VoPay.
Changing how Canadians pay By Cyrielle Chiron and Viktoria Galociova
he payments ecosystem is rapidly evolving in Canada and around the world in response to the growing demand for digital payment options. Globally, contactless and mobile payments are becoming the norm as consumers become more familiar with digital options in many aspects of their lives, not just with financial services. This trend is prominent in Canada where electronic payments, such as debit and credit cards, continue to rise while paper-based methods of payments (i.e. cash and cheques) decline each year. According to the 2019 Canadian Payment Methods and Trends report, published by Payments Canada, and which highlights payment consumer trends, debit and credit cards are the top two methods of payment in terms of the total volume share in Canada (29 and 28 per cent, respectively). Cash takes third place, with the total number of transactions at 21 per cent.
The diminishment of cash and cheques Although cash remains a popular choice for low value payments, for example paying for a morning coffee, in the last few years contactless debit and credit payments have been growing significantly. As a result, our report showed that the volume of cash payments dropped by 9 per cent from 2017 to 2018 while their value declined by 7 per cent over the same period, and by 40 per cent and 32 per cent respectively since 2013. Not surprisingly, automated banking machine (ABM) volume has plummeted by 40 per cent and the value of their transactions by 11 per cent from 2013. Overall trends are likely to rise even more as a result of a new Payments Canada rule that aims to enable a broader range of pointof-sale debit card acceptance. A key driver behind its creation is to accommodate the use of point-of-sale debit payments for transit. The new rule will also enable other possible use cases, as examples, payments at parking meters, for on-board purchases (airline/ferry/ train) and for vending machine purchases. Similarly, cheques and paper have declined by 29 per cent from 2013 to 2018. However, their transaction value increased by 10 per cent over that period. The cheque/paper volume decline is caused by more and more Canadians choosing to use Interac e-Transfers and other methods of 14
payment in lieu of cheques. At the same time, we find businesses are still using cheques: which is where most of the value is carried.
Explosive online transfer growth Outside of the rise in contactless payments, the highest growth in consumer use can be attributed to online transfers (which includes mostly Interac e-Transfers), growing by 52 and 44 per cent since 2017 in terms of volume and value, respectively. Online transfers are commonly used as a convenient way to send money to friends, and to make payments such as rent. They also have become a popular means of sending money internationally; about 17 per cent of Canadians have transferred funds to recipients in other countries in the past six months. Most Canadians send money internationally in order to pay for goods or services or to send money to family and friends using PayPal or via their financial institution. For Canadians, the U.S. is the most popular destination for international funds transfers. And about one in four customers who make international transfers are sending less than $100 per month.
B2B payments digitization In the past weâ€™ve seen consumers digitizing their payments more quickly than businesses. This in part could be because itâ€™s easier for consumers to change their behaviours. However, businesses are now catching up as 38 per cent of total business expenditures are completed with electronic funds transfers. Looking ahead, our prediction is that we will see an increase in business adoption of digital payments, over legacy payments options, such as cheques, as a result of the implementation of ISO 20022 across Canada's modernized payments system. Payments Canada will continue to invest in research and data in 2020 as we monitor ongoing trends on how Canadian consumers and businesses choose to pay for everyday expenses. The speakers at this yearâ€™s Payments Summit, which is taking place May 25-27, will touch on these trends, how best to respond to the challenges and to move on the opportunities presented in them. Cyrielle Chiron is head, research and strategic foresight, Payments Canada and Viktoria Galociova is an economist at Payments Canada.
Capgemini on Canadian payment trends By Brendan Read
apgemini is a leading global consulting and technology services company, with expertise in digital transformation, including financial services. Each year the company publishes the World Payments Report (WPR), which covers global and regional non-cash payments trends, the key regulatory and industry initiatives (KRIIs) and payments environment changes. Payments Business recently interviewed Soumya Ghosh, who is head of banking, Canada, Capgemini, to get his insights on Canadian payments. Soumya Ghosh
Payments Business (PB). Canada has been embarking on payments modernization. How will this shape the payments landscape and how should industry participants (e.g. banks, credit unions, FinTechs, processors, merchants) prepare? 16
Soumya Ghosh (SG). The Canadian payments market continues to be influenced by domestic and international payments innovations, payment service providers (PSPs), payment systems modernization and by regulatorsâ€™ efforts to reshape the payments industry for the future. In fact, the WPR 2019 data shows an increase of non-cash volume for Canada between 4-5 per cent, which is on the low end compared to other markets (double digit growth). Infrastructure renewal should be translated into customer-facing innovation (use of real-time payments for example), but this requires wider effort in the market by the participants Industry participants should take a more holistic approach to fraud management and address concerns around identity verification, data privacy/data theft management and transaction monitoring. Additionally, the industry should focus to improve their payment offerings and provide a more engaging customer experience that requires reimagining and redesigning the payment journey, personalizing/tailoring to customer needs and rewarding payments. SPRING 2020
“Increasingly, users are looking for speed and convenience.” PB: What payment methods will heat up and which ones will cool down?
more agility and being more open to using third party infrastructure, there is a lot of potential for the credit unions to move ahead.
SG: Credit card transactions have actually grown by 10 per cent from 2016-17, driven by a growth of tap-and-go payments; in Canada, Visa is seeing 26 payWave transactions per second. Increasingly, users are looking for speed and convenience, which is being witnessed in the growing volumes of Interac e-Transfers, making more purchases online and in-app and leaving behind traditional forms of payment, like cash and cheques. Cheques and electronic funds transfer dominate the remote transaction environment, but credit cards and online transfers continue to have strong growth. Card transactions contributed to about 80 per cent of total payments volume. However, the growth was driven by mobile payments, in-app purchases within game consoles and smart speakers: which are emerging as fast and convenient payment channels in Canada.
PB: What actions do you see Canadian regulators taking and in which areas?
PB: Canada’s big banks appear to be using a “hold your enemies closer” approach to FinTech competition (big and small tech alike). But banks privately admit they are less swift footed there than their competition. Please comment on the effectiveness of the banks’ strategies. SG: Canadian banks realize the need to transform themselves with changing demographic and technology requirements. The Canadian Bankers Association (CBA) stated that from 2012 to 2017, 298 bank branches have closed. Major banks are also undertaking digital transformation initiatives. Canada’s market adoption rate of FinTech stands at a pretty significant level; it is ahead of that in the U.S., France and Japan but still behind China and India. Canadian banks have been very open to look at solutions that would help them differentiate from their competitors and help drive better client experiences. Their innovation strategies include inhouse development of new technologies, technology sourced from or developed in partnership with FinTech companies and banks as tech incubators in collaboration with the FinTech community.
PB: Credit unions play an important role in Canada’s financial landscape. Where do you see them going in the payments space? SG: Credit unions have started to realize the need to transform. Several of them have made a strong digital push and have launched digital platforms. They realize the need; what is holding them back is the lack of capital. The Canadian credit union sector is working with partners to offer payment options that members want. Recently, they’ve expanded mobile payments with Interac Debit on Google Pay. With SPRING 2020
SG: Currently, an increasing number of standardizations focused on KRIIs are being introduced. While the earlier ones were aimed at ensuring a level playing field, those recently introduced facilitate a balance between regulatory supply and market demand. The Canadian federal government’s 2019 budget supported payments innovation and changes to safeguard the funds and payments data. Most notably to the payments ecosystem is the government’s proposed functional, risk-based approach to retail payments oversight. This will, among other things, regulate nonbank payment services.
PB: Instant payments (IP) and open banking will reinforce each other, driving the need for back-office rationalization. Do you see this happening in Canada? SG: I do see the global trend of request-to-pay service that is overlaid on financial processing systems, and which is already being seen in the U.K., happening in Canada. There is a convergence of payment methods and instruments can support existing instruments including credit transfers, direct debits, cards and cheques as IP-based offerings. Back-end infrastructure can be rationalized on IP rails to process transactions. This, in combination with open banking, will allow banks to explore new revenue streams and service offerings.
PB: What do expect Canada’s payments landscape to look like in 2025? SG: Canadian retailers are responding at a faster pace and investing in digital platforms for meeting customer expectations and to ward off competition from the global eCommerce players. While cards are the most prominent method, digital wallets are witnessing increasing share. The implementation of an IP system will lead to instant settlement of low-value payments that is expected to promote innovation in overlay services. Canadian banks are following the examples of Sweden or the Netherlands and the developments there as these countries also have the same concentrated banking sectors, based on which innovations can happen much more easily. In the future, with the ongoing payments infrastructure modernization initiatives, banks, merchants and non-bank players are enabling themselves for an open ecosystem of tomorrow.
Why turn to digital decisioning? By Bill Waid
cross industries companies are waking up to the fact that customer experience (CX) is the pillar on which their fortunes rest. Consumer expectations are on the rise as they demand highly personalized engagement and in real-time. Fortunately, there is an overwhelming amount of data available which can be leveraged to better meet those expectations. Studies like from Qualtrics have found that investing in CX initiatives can up to double their revenue in as little as 36 months. As the financial services industry strives to meet consumer expectations, traditional banks and challenger FinTechs are turning to advanced analytics and digital decisioning in order to gain market share. According to Forrester, “A key challenge of digital business is deciding what to do in the customer’s moment of need — and then doing it. Digital decisioning software capitalizes on analytical insights and machine learning models about customers and business operations to automate actions… for individual customers through the right channel.” Ideally, organizations are able to gain customer insights and act at the exact right moment. The core requirement to achieving this 18
goal is access to greater amounts of data, from disparate sources and in a timely manner. With this data, financial institutions (FIs) can automate key decisions around many interactions and continuously improve those decisions with fresh insights. There are several areas where digital decisioning can be applied.
Streamlined onboarding Digital decisioning can enable and expedite online account opening, from chequing and savings to credit cards and loans. It’s not unusual for customers to never step into a brick-and-mortar location in the onboarding process. Automating routine processes not only reduces cost it also supports customers who increasingly prefer digital interactions. By using additional consumer data beyond credit payments and scores, such as savings and non-loan payments, banks are able to better identify creditworthy consumers.
Speedy response Consumers are used to 24/7 real-time access and support from the retail sector and often expect the same from other industries. With digital decisioning, banks can offer products of interest to a customer at any hour of the day, whenever they access their account. SPRING 2020
FEATURES With more data, banks can make faster and more accurate decisions. Customers are looking for banks that proactively identify their needs and are prepared to offer those solutions with selfservice options. Ideally, your customers should be a few clicks away from an automated approval.
Improved fraud detection As real-time payments continue to grow in use with customers accessing and sending funds from a variety of devices, we’ve seen new forms of financial crime targeting mobile payments. Thankfully, FIs are leveraging anti-money laundering (AML) machine learning models and analytics platforms, such as Falcon X, to streamline both fraud detection and AML processes. As a result, banks improve efficiencies by merging fraud and compliance while protecting their customers by detecting and preventing criminal activity before real-time transfers occur.
Additional products and services Consumers can also be presented with ways to improve their financial health — from tips on improving their credit scores — to tracking spending or saving for retirement. FIs can use digital decisioning to show personalized suggestions for tools, accounts or even advisory services to help achieve their financial goals. Forrester senior analyst Vijay Raghavan said: “By using predictive analytics and machine learning, insights are now dispensed in real time, with a focus on helping customers look ahead by providing alerts and recommendations on what to do next or even acting on behalf of the user. By 2022, leading wealth management firms will be doing the same, using digital decisioning software to make asset allocation, investment selection and tax recommendations to investors. Investors will be able to bank, save and invest, monitor their financial goals and receive intelligent advice from digital decisioning software through a single interface.”
Connecting the business A decision management platform is the connective tissue for FIs to transform data into insightful decisions while automating valuecreating actions. This platform approach creates efficiencies with a connected asset repository that is used across the business, from retail banking to credit cards to mortgage loans. Within this collaborative environment, IT, data scientists, analysts and business users have visibility into where decision assets are being used, how they impact decisions and how they’re being improved. The platform aligns all stakeholders on how best to use the data to get the most relevant customer insights that will drive the right actions. FIs can also re-purpose decision and analytic assets because the platform creates a core set of customer insights that can be used for different decisions. When one decision is successfully automated, it is easier and faster to apply that model and automate additional decisions. This can reduce the cost for future initiatives. By re-using the assets and models, the more initiatives that are launched, the more growth you can drive with a smaller, incremental SPRING 2020
expense. Banks and FinTechs can accelerate time-to-value and claim a vastly better revenue-to-expense ratio. Re-purposing decision assets also increases consistency across the organization and throughout the customer life cycle. As a result, customer interactions will share a unified voice across all line of business. Customer expectations are going to continue to evolve driven by choice. Digital decisioning enables FIs to not only deliver, but perhaps overdeliver on the CX. Financial institutions are banking on access to unparalleled types and volumes of data, driving real time, highly relevant and personalized insights in order to ultimately grow their market share. Any organization that isn’t moving toward this goal will be left behind. Don’t let it happen to you. Bill Waid is general manager, FICO Decision Management.
Keys to success By relying on automated, digital decisioning driven by advanced analytics, innovation is progressing at a rapid pace around the financial services world today. To achieve the most out of digital decisioning there are five keys that will open the doors for financial institutions to success. 1. Adopt a unified, scalable decision platform across the enterprise that optimizes and monetizes the use of people, data and analytics. 2. Create personalized customer treatments while addressing economic, business and regulatory challenges. 3. Empower business users to create and manage the strategies, rules and analytics that drive decisions and actions: without IT intervention. 4. Re-use connected decision assets across the customer lifecycle to improve decisions, while making them transparent and explainable. 5. Validate decisions before they are put into production, with dashboards displaying predicted and compared-to results. By applying these principles, banks can improve agility, deliver profitable decisions at scale and innovate faster, while reducing risk. Using digital decisioning and advanced analytics, we’ve had customers experience: • Increased revenue: one financial institution grew bookings by 29 per cent; • Increased profits: one lender improved profits for personal lines of credit by 300 per cent; and • Reduced risk: another lender used just 31 days of data to improve risk predictiveness by 45 per cent. Bill Waid, FICO Decision Management
ISSUES & EDITORIAL THEMES
Key theme: International Payments— shrinking the globe one payment at a time
Key theme: Security, Fraud & Privacy— protecting payments from dynamic international threats
Vendor roundtable: Issuers
Vendor roundtable: Payment Processors
Market report: Events & Entertainment
Market report: Travel & Hospitality
Hardware report: ATMs & ABMs
Hardware report: Wireless Devices
Pay channel: Cash & Cheques
Pay channel: Cards
Editorial deadline: February 7th
Editorial deadline: May 8th
Key theme: Data Analytics—Harnessing descriptive, predictive and prescriptive analytics
Key theme: 2021 Payments Forecast— Industry leaders share their vision for the future
Vendor roundtable: Loyalty & Points programs
Vendor roundtable: Acquirers
Market report: Retail
Market report: B2B
Hardware report: POS & mPOS
Hardware report: EMV Card Technology
Pay channel: Mobile
Pay channel: Points & Rewards
Editorial deadline: July 31st
Editorial deadline: November 13th
Payments Business is your partner in leveraging editorial opportunities. We can facilitate your advertising needs, as well as developing online campaigns, editorial roundtables, and more. Phone: 905-201-6600 • Toll Free: 1-800-668-1838 • www.totalﬁnance.ca
2020 Industry Key Events theme http://airlineinformation.org/upcomingevents2/567-fintech-connects-atps.html
april 2020 April 21-22 Canadian Open Banking Forum Toronto, Ont. https://infonex.com/1357/
June June 3-4 Digital Marketing for Financial Services Summit Toronto, Ont. https://www.financialdigitalmarketing.com/
April 21-23 Canadian Fintech Summit MaRS Discovery District, Toronto, Ont. https://fintechsummit.ca/
June 3-5 2020 Perfect Vision - FEI Canada National Conference Banff, Alta. https://feicanadaconference.ca/
April 23 2020 Prepaid Symposium Toronto, Ont. https://cppo.ca/prepaid-symposium/
June 9 Open Banking Expo Canada Toronto, Ont. https://www.openbankingexpo.com/toronto/
MAY May 19-21 Fintech Connect: Airline & Travel Payments & Fraud Summit 2020 Montreal, Que.
You’re Invited to…
September 22-23 Canada Conference 2020 Vancouver, B.C. https://www.atmia.com/conferences/canada/ September 22-23 Women in Payments Symposium Toronto, Ont. https://www.canada.womeninpayments.org/ events/symposium-2020 September 29 Accounting & Finance Show Toronto 2020 Toronto, Ont. https://www.terrapinn.com/exhibition/ accounting-finance-show-toronto/index.stm
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The Giving Report 2020: Online Giving on the Rise
March 31st, 2020
Be one of the first to hear the results from CanadaHelps’ The Giving Report 2020. Get the answers to the questions we are asking about the state of overall giving in Canada, including new insights on online giving. Be part of the discussion, ask questions, hear insights and analysis. Take away data you can act upon to prepare, adjust, improve, expand and evolve. Your organization must be present. Sponsored by
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Fairmont Banff Springs Hotel
FEI Canada 2020 Annual Conference to focus on resources, technology
EI Canada is holding its 2020 Perfect Vision conference in Banff, Alta., at the Fairmont Banff Springs Hotel, June 3-5, with over 400 senior financial executives expected to attend. So, it is not surprising, given the venue’s location less than two hours west from the energy capital of Calgary, that a significant and timely part of the planned agenda covers resources, Indigenous relations and sustainable finance.
Here are the highlights: • Keynote speech on the “Economics surrounding the energy industry in Western Canada” by veteran energy executive and founder, Viewpoint Group, Mac Van Wielingen; • Keynote speech on “Climate change, carbon politics and the future of fossil fuels” by author/ writer, energy policy analyst and oil service executive advisor David Yager; 22
Mac Van Wielingen
• Keynote panel on “Partnerships, sustainability and Indigenous relations” with Holly Cooper, director of Indigenous Relations, ATB Financial and Steve Saddleback, director, Indian Resource Council of Canada; and • Keynote panel on “Sustainability and the finance industry”. It will feature Sean Cleary, executive director, Institute for Sustainable Finance, Andy Chisholm, director, RBC and member of Canadian Expert Panel on Sustainable Finance, Margaret Gunawan, general counsel and chief compliance officer, BlackRock and Craig Stewart, vice president, federal affairs, Insurance Bureau of Canada.
The 2020 FEI Canada Annual Conference will be delving into the issue of technology changes through two panels: • “Transforming digital identity for Canada and beyond” with Chiel Tom Hendriks, executive, global key accounts, Google and Greg Wolford, founder and CEO, SecureKey; and • “Managing technology’s impact on your organization’s future” with Winnie Leung, CFO, Moneris Solutions, Pamela Steer, CFO, Payments Canada and FEI Canada’s 2019 CFO of the Year and Keith Steeves, CFO, NAL Resources Ltd. The conference will have an exhibit hall sponsored by DFIN and several networking opportunities, including the ever-popular FEI Canada-Robert Half/Protiviti golf tournament. “FEI Canada’s 2020 Annual Conference is brimming with senior financial executives seeking in-depth concurrent workshops, impactful keynote speakers, thought leadership, exciting social activities as well as fun-filled networking events,” said conference chair Nathan Reeve Nathan Reeve. “This year will not disappoint.”
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