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November / December 2019

C a n a d a’ s m a g a z i n e f o r f i n a n c i a l e x e c u t i v e s

REPORT ON SECURITY, FRAUD & PRIVACY From combatting payment card fraud to minimizing data breaches, the experts say it’s time to get serious about security

also in this issue:


❱ Preparing for the Unexpected ❱ Canada’s payment standards:


ISO 20022 ❱ Currency Risk and International Payments



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NOVEMBER/DECEMBER 2019 • www.totalfinance.ca

Table of Contents

Departments & Columns 5 Industry Watch

Treasury 8 FEI Policy Forum’s top 10 issues for 2019

10 FEI Funding Rules


13 Employee Transition: Are Your

Employees Ready for Retirement?

FinTech 16 FinTechs: Friend, Foe or the Future? 18 FinTech Right at Home in York Region



20 Q&A with Dr. Scott Zoldi, FICO’s Chief Analytics Officer

22 Trends Driving Transformation in Global Payments & Regulation

24 The Pulse of FinTech in Canada 26 Canada Among Leading Digital Payments Markets Worldwide

Managing Risk

24 AUGUST 2019


28 The New Normal

How to prepare for a data breech



Table of Contents November/December 2019 Volume 1 Number 1

30 Enhance Risk Management with Advanced Location Analytics

Your Business


32 How to Fuel Business Growth with Working Capital

Payments 34 Enabling Faster (and Secure) Payments

Publisher / Corporate Sales Mark Henry mark@totalfinance.ca Managing Editor Brendan Read brendan@totalfinance.ca Contributors Michael Garrity, president & CEO, Financeit Paul Roman, vice president and general manager, global commercial payments, American Express Canada.

Ryan Wilson, STO, security, Scalar

Robert Szyngiel, director of product management, DMTI Spatial

Lian Zerafa, national consulting financial services industry leader, KPMG Canada

36 The Truth About AI and Fraud 38 Preventing ATM Cash-Outs


Sanjay Tugnait, CEO, Capgemini Canada

Stephanie Zee, TTS payments regulatory head, Citi

40 The Value of Robust Surveillance

Creative Direction / Production Jennifer O’Neill jennifer@totalfinance.ca

42 How to Outwit Fraudsters

Photographer Gary Tannyan

44 Responding to Evolving Cyberthreats

President Steve Lloyd steve@totalfinance.ca

46 Why Compliance for Blockchain/ Cryptocurrencies?

48 Tackling the Regulations Challenges

For subscription, circulation and change of address information, contact subscriptions@totalfinance.ca

50 The Reality of RTP 52 Rejuvenating Payments


54 EMV Snapshot

Asset-Based Finance 56 U.S. Market on Expectations Roller-Coaster

60 Canada’s Business Aviation Spreads its Wings

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61 Chorus Aviation Continues Upward


62 Leveraging Technology to Go Green

Ontario Interactive Digital Media Tax Credit



Made possible with the support of the Ontario Media Development Corporation


Industry Watch

Red hot Canadian VC at $2.9B for first half of 2019 TORONTO--Canadian venture capital disbursements for the first half of 2019 set a torrid pace, with 264 financings completed totaling $2.9 billion, according to the Canadian Venture Capital Report by CPE Media Analytics, the data analytic service of CPE Media Inc. Led by Sonder Canada’s $286 million blockbuster deal, large deals continued to play important role in the first half, 2019. 8 deals1 of $50 million or more raised $910 million in aggregate, accounting for 30% of total disbursements. H1 2019 Disbursements

Top five provinces: Ontario led all provinces and captured $1,484 million or 51% of the total disbursements. Driven by Sonder Canada financing, Quebec raised $751 million or (26%) while British Columbia raised $422 million (15%), Alberta raised $89 million (3%), and Nova Scotia raised $48 million (2%). Top five municipal cities: Toronto led with $928 million (32%) followed by $562 million raised by Montreal, $272 million by Vancouver, $142 million by Hamilton and $130 million by Kitchener. 44 Canadian cities attracted VC funding. Series B deals garnered largest Series-financing share with $809 million (28%), aside from the unclassified deals which raised $986 million or 34%. ICT and biotech companies raised $1,411 million (58%) and $652 million (23%) million respectively. H1 2019 Funding sources

Canadian companies secured funding from investors from 25 countries or overseas territories. US investors alone accounted for 47% of the total disbursements, comparing to 43% by Canadian investors and 10% by other foreign investors. Top five investor types: private VC funds invested $1,343 million (46%), followed by $559 million (19%) by Corporate, $272

million (9%) by Family Offices, and $183 million (6%) each by Government and Angels. US private VCs invested $899 million, accounting the largest investor type share of the total disbursement (31%). US private VCs led Canadian private VCs with a ratio of 2.39. H1 2019 – USA and Foreign Investment Breakdowns

Ontario attracted the largest share of US investments, raising $803 million from US investors, accounting for 59% of the total US investments or 28% of total Canadian disbursements. Western Canada, including BC and the Prairies, attracted the least amount of US and foreign investments, with 38% of the total amount coming from US and foreign sources. US and foreign investors dominated Series B and later rounds, investing 72% of the total amounts. Other observations

39 funds raised $3.2 billion, of which $1.935 billion by 28 private VC funds. Top active VC law firms: Osler, Hoskin & Harcourt LLP, Fasken Martineau DuMoulin LLP, LaBarge Weinstein LLP, Dentons Canada LLP “Barring a total collapse in the second half, Canadian VC disbursements are on track to go past the $5 billion mark for the first time since 2000. As US and foreign investors continue to play a very important role in the Canadian VC ecosystem, CPE Media Analytics is proud to release the first ever analysis sorted by US and foreign investors. Further detailed analyses can be performed from our sophisticated and advanced all financings database. Contact us if you would like more granular information,” said Ted Liu, President of CPE Media Inc. The full report can be downloaded from financings.ca website: https://www.financings.ca/reports/

Survey highlights trends in economic assumptions in accounting for the costs of defined benefit pension plans, says Morneau Shepell The Actuarial Standards Board (ASB) of the Canadian Institute of Actuaries has announced that it will not move forward with an updated mortality improvement scale in the upcoming revised pension Commuted Value Standards. It has also stated that the revised pension Commuted Value Standards will be released in the early fall of 2019 and will not come into effect before the end of this year.

survey found that discount rates as at December 31, 2018 had increased from the prior year; more than three quarters of the companies surveyed used a compensation increase assumption between 2.5 per cent and 3.5 per cent; the median assumption for the short-term medical cost trend rate was 5.7 per cent, and more.

Survey highlights trends in economic assumptions for accounting

Ontario releases proposed legislative amendments to electronic pension plan communications

Morneau Shepell has issued its 19th annual survey on economic assumptions in accounting for the costs of their defined benefit pension plans. Among other things, the

On August 6, 2019, the Ontario Ministry of Finance released draft amendments to the Pension Benefits Act that would permit pension plans to use electronic communications as a




Industy Watch

default method for providing information to their members. The proposed framework will permit plan administrators to provide notices, statements and other records to current and former members in electronic form based on deemed consent. Ontario updates pension fee assessments and British Columbia proposes fee increases

Ontario’s Financial Services Regulatory Authority of Ontario (FSRA) and the Financial Institutions Commission of British Columbia (FICOM) have recently announced updates to the fees and assessments payable by the pension sector in those provinces. On June 8, 2019, FSRA released a new rule governing fees and assessments. Following this, FICOM released a consultation paper proposing fee increases to pension assessments in British Columbia, which it says are currently insufficient to cover operations. Retraite Québec provides additional information on annuity purchasing policy

In July 2019, Retraite Québec updated its website to include information on the annuity purchasing policy, which may be used by a pension plan administrator to discharge its obligation to pay a pension benefit by purchasing an annuity from an insurer. The website describes the process for introducing an annuity purchasing policy, the categories of annuities available, the effects of plan termination and employer withdrawal and more. Tracking the funded status of pension plans as at July 31, 2019 – Morneau Shepell describes the funded status of pension plans over the first seven months of 2019 based on three typical investment portfolios. A graph shows the changes in the financial position of a typical defined benefit plan since the end of 2018. A table shows the impact of past returns on plan assets and the effect of interest rate changes on solvency liabilities of a medium duration pension plan. The impact of pension expense under international accounting as at July 31, 2019

Morneau Shepell has shown the evolution of the pension expense for a typical defined benefit pension plan. Since the beginning of the year, the pension expense has increased by 33 per cent for a contributory plan due to the decrease in the discount rates, despite the good returns on assets (relative to the discount rate). Morneau Shepell is the leading provider of technology-enabled HR services that delivers an integrated approach to well-being through our cloud-based platform. Our focus is providing everything our clients need to support the mental, physical, social and financial well-being of their people. By improving lives, we improve business.



Avison Young bolsters global finance team with five strategic appointments TORONTO--Mark E. Rose, Chair and CEO of Avison Young, the world’s fastest-growing commercial real estate services firm, announced today the strategic appointment of five highly regarded finance and strategy professionals to enhance the company’s global expansion program. The appointments include the promotions of two Avison Young finance leaders and the hiring of three leading professionals to newly created positions. “We’re thrilled to expand our finance leadership team during our global expansion program,” comments Rose. “These strategic promotions and hires will bolster the team as we continue to deploy a tremendous amount of capital and expand our global footprint through more recruitment, mergers, acquisitions and new-office openings.” Rose continues: “The finance team comprises thought leaders who have proven track records and understand the financial intricacies of the commercial real estate business and other industries. They have confidently—and competently —navigated companies through exponential growth while minimizing disruption and enhancing shareholder value. Working closely with our Chief Financial Officer Christine Battist, they will lead Avison Young’s global finance operations, oversee the aforementioned capital deployment, help implement our investment strategy and manage day-to-day accounting operations as we expand further.” The following appointments are effective immediately.

Tom Morande is promoted to Chief Financial Officer, North America: Morande will serve as a strategic business partner to the U.S., Canada and Mexico leadership teams and Managing Directors. He will also be responsible for providing leadership on long-term and short-term strategic planning and growth, profitability, financial planning and analysis for these markets. Morande, a Principal, has served as Avison Young’s Chief Accounting Officer since joining the company in 2015 and has 22 years of commercial real estate industry experience. Ricardo (Rick) Jenkins is promoted to Chief Accounting Officer: Jenkins will be responsible for all aspects of reporting on financial and operational performance against both the annual budget and the company’s long-term strategy while also overseeing financial planning and analysis. Jenkins, a Principal, has 13 years of commercial real estate experience and was previously Avison Young’s Global Controller. He joined the firm in 2016 from JLL, where he served as a leader within the Americas finance team. Robert (Rob) Dunlop joins as Global Treasurer: Dunlop will be responsible for overseeing and directing Avison Young’s global treasury function, including capital structure and strategy, banking relationships, cash management, hedging and debt compliance. Dunlop brings 25 years of treasury and finance experience to Avison Young.


© 2016 Citigroup Inc. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world.


Every day, in cities around the world, people are doing amazing things. They’re creating, innovating, adapting, building, imagining. What about a bank? Shouldn’t we be equally ingenious? Strive to match our clients’ vision, passion, innovation? At Citi, we believe that banking must solve problems, grow companies, build communities, change lives. With a network spanning the world and a comprehensive suite of treasury and trade solutions, Citi brings Canada to the world and the world to Canada. To learn more, visit: Citigroup.com/Canada




FEI Policy Forum’s top 10 issues for 2019 Compiled and prepared by Norm Ferguson, Chair, Policy Forum

Co-Author, Laura Pacheco. As Vice President, Research and Education, Laura manages FEI Canada’s research studies which are produced by the Canadian Financial Executives Research Foundation (CFERF), and strategic partnerships in driving and promoting thought leadership at FEI Canada.

Corporate Reporting 1. Member preparedness for a more challenging and demanding reporting environment in a costconscious world: Financial executives are well aware of the pressures to control or reduce costs while at the same time adding value. The financial reporting environment continues to exert increasing demands on finance organizations, whether it is new auditor reporting standards requiring more detail in their reports, certification of financial controls, implementation of new and complex financial reporting standards or increased transparency of reporting. What are the implications for organizations and boards and what actions do they need to take? 2. Corporate reporting—More than accounting: In today’s complex business world, there is data, there is information and there is Key Performance Indicators (KPI). KPIs are fast and efficient tools used to measure business performance, helping decision makers adjust to the business realities in a more timely fashion. Financial executives are facing increasing challenges to identify, measure and disclose the most useful business analytics and KPIs, that help guide their company’s success (please also see the CCR’s paper on non-GAAP measures).

Governance and Risk 3. Ensuring risk management capabilities effectively address increasing pace of change and disruption: Effective risk management, should both create value for an organization and help deal with



uncertainty. An organization’s ability to swiftly and effectively identify, assess, and manage existing and emerging risks is an important competitive advantage that should be integrated into business processes. Ensuring that frameworks and practices suit the organization’s culture and business model, which can change over time, are keys to ensuring a successful and sustainable program. This is even more important in today’s environment where change, whether from political, technology or other risks, is constant and rapid. For example, technology is reducing barriers to entry and enabling new and more cost-effective business models, which are disrupting entire industries. Risk management programs need to keep pace and ensure that organizations have the appropriate tools and processes to meet these challenges. 4. Incorporating sustainability/ESG into business strategy and operations: From changes in customer and investor preferences to dealing with potential physical risks (e.g. water shortage) to new regulations and reporting requirements, sustainability (also referred to as Environmental, Social, and Governance (ESG)) factors are affecting organizations’ business strategies and operating processes. For example, there is increasing focus on climate change and a move towards a low carbon economy, including carbon pricing and decreasing use of carbon-based fuels. Effectively identifying and managing ESG risks and opportunities is becoming increasingly important for organizations to


Treasury succeed in this environment.

Treasury and Capital Markets 5. Cash flow best practices, treasury risks, and raising money/financing: A critical priority for senior financial executives is understanding and managing the cash flow of an organization, as well as having the ability to assess risks to an organization’s cash flow. Treasury faces risks that include those posed by fluctuations in foreign exchange, interest rates and commodity prices as well as political and regulatory risks. In order to raise money and obtain financing, it’s important for Treasurers to keep abreast of the latest issues and opportunities affecting public and private companies as well as other organizations. In addition, FEI Canada’s treasury and capital markets committee maintains a focus on the unique needs of the smaller, entrepreneurial business and has been working on a cash flow model as a tool for members. 6. Raising capital for private companies: One of the unique challenges that private company CFOs face is that their entrepreneurial owners expect them to be finance experts when often they have only dealt with their local banker. With a myriad of alternative capital providers focusing on SMEs —asset-based lenders, subordinated & mezzanine debt providers, private equity and Crown Corporations—FEI is creating a platform within FEI Chapters to inform, educate and mentor the many private company members on how to access the right financing with the right financial partner.

Taxation 7. Income Tax simplification: We asked, and you responded: Nearly seven in ten members who answered our recent tax simplification survey rate the current Canadian corporate tax system as complicated and we have passed this message in a submission to a House of Commons Finance Committee studying the issue. The Tax Policy Forum Committee is also advocating


for Tax Policy initiatives to make Canada a more competitive landscape for financial and human capital.

Pensions 8. Financial Literacy: Financial literacy in Pensions is a challenge for both employers and employees. Within an organization, pension expertise is generally limited and in addition to the operations and executive team, members of the Pension Plan Board need to be financially knowledgeable to fulfill their fiduciary responsibilities. Pension Plan members can be particularly at risk due to low financial literacy which can significantly impact their retirement preparedness including how much they need to save to maintain the desired standard of living. Financial literacy is also important for Pension Plan sustainability ensuring decisions are based in fact. For these reasons, The Pension Policy Forum will focus on improving the financial literacy for financial executives and our FEI community at large.

Information Technology 9. Cybersecurity and business continuity: Beyond their traditional roles in Finance, many CFOs also have assumed responsibility for IT. As IT grows more complex, so does the burden of keeping up with developments. The importance of business continuity is reiterated with every flood, storm, power failure or other disaster, as well as simple human error. Likewise, threats to cybersecurity are increasing daily as hackers grow more skilled, creating more pressure on executives to stay on top of best practices. At the same time, many organizations are working with outdated infrastructure and budgetary constraints limiting their ability to stay current, train staff and update their hardware and software.

FEI Canada’s study Cyber Security and Business. Continuity also highlighted concerns with the readiness of Canada’s IT infrastructure; risks that could impact both the corporate world and

the public domain. We recommend the government create a task force to review this high-risk area and to implement cyber security standards and a policy that protects Canadians and the network infrastructure upon which our economy and national security depend. 10. Disruption through digital transformation and block chain technology, data analytics and big data: Blockchain is more than a fad, a buzzword, or even technical jargon. Block chain is a technological advance that will have wide-reaching implications that will not just transform financial services but many other businesses and industries. Read more to understand the probable impact digital transformation technologies may have on your business. Organizations are now grappling with data sets so large they present challenges such as data capture, storage, analysis, curation, search, sharing, transfer, visualization, querying, updating and information privacy. How will this be managed in the future while protecting privacy?

Want to read more from the FEI Canada Policy Forum? Read the Policy Forum’s latest comment letters, submissions, and policy papers for FEI Canada’s perspective on important financial management topics. Our Policy Forum and committees are comprised of expert financial executives across Canada, which regularly provide valuable thought leadership and guidance on current issues.

Interested in joining a Committee? Please contact:

Norm Ferguson, Chair, Policy Forum, NFerguson@ogilvielaw.com, 780 429 6277, or Laura Pacheco, FEI Canada VP, Research & Education, Lpacheco@feicanada.org, 416 366 3007 x 511




FEI Funding Rules By FEI Canada Pension Committee


n 2016, the Ontario government launched a public consultation and review regarding the funding of defined benefit pension plans. The objective of the funding review was to develop a balanced set of reforms that would focus on plan sustainability, affordability and benefit security, and take into account the interests of pension stakeholders—including sponsors, unions, members and retirees. The consultation resulted in new solvency funding legislation, which came into effect May 1, 2018, and many are asking the following questions:

◉◉ Do Ontario’s new funding rules find a balance between providing companies with funding/ cash flow predictability and providing security for workers/pensioners benefits? ◉◉ Are these new rules enticing enough to stem the flow of Pension Plan conversions from Defined Benefit Plans to Defined Contribution Plans or the elimination of Pension Plans altogether?

Given that Ontario represents a large proportion of Canadian pension plans and that the majority of large corporate pension plans in Canada are subject to Ontario regulations, this brief paper will attempt to: ◉◉ Analyze the main changes; ◉◉ Draw some conclusions as to the impacts of these changes on the broader Canadian ◉◉ pension landscape; and ◉◉ Raise certain policy issues regulators and plan sponsors may wish to consider.

Here’s a brief overview of what’s changed and what’s new for Ontario’s Defined Benefit Pension Plan funding framework.

What’s Changed? Solvency Funding

Top-up contributions now only required if pension plan assets represent less than 85% of Solvency liabilities. The top-up funding continues via special payments amortized over 5 years. Going Concern Funding

The going-concern funding bar is now higher



and includes a provision for adverse deviation (PfAD)—see section below for an explanation —meaning the going-concern liabilities under the new rules are higher than they were under the old rules. In addition, the amortization period for any going concern deficit is now 10 years whereas it was 15 years previously and the special payments schedule is refreshed with each valuation whereas the old rules carried forward the prior valuation’s schedule. Increased Transparency on funded status for Plan members

Plan member statements will be required to explain the difference between the new and old rules. Annual statements will disclose estimates of transfer ratios (solvency funding status) at end of statement period. Pension Benefits Guarantee Fund (PBGF)

This fund is intended to cover pension benefits (up to a specified amount) when a Pension Plan is wound up and there is a funding shortage. This will result in increases in the annual assessment fee for the plan sponsors and a higher minimum guaranteed pension provided to pensioners.

What’s New Provision for Adverse Deviaions (PfAD)

The new rules introduced a Provision for Adverse Deviations (PfAD)—a reserve within the Plan, which increases the going concern liabilities and current service cost —to be included in determining employer contributions. The PfAD amount will depend on two factors, whether the plan is open or closed to new members and the investment asset mix; with higher fixed income asset ratios resulting in lower PfAD’s, and a corresponding lower additional funding requirement. Benefit Improvements

Plan sponsors will be allowed to improve plan benefits if both the solvency ratio and going concern funding ratio (without PfAD) after the improvement are both 80% or if a


Treasury top up contribution is made equal to the improvement and both the solvency and going concern ratios after the improvement are at least what they were before. If new rules result in increased contributions then the additional contributions can be phased-in over 3 years. Contribution Holidays

Contribution holidays have been restricted to improve benefit security. Contribution holidays are permitted if the plan is fully funded and transfer ratio is at least 105%. PBGF Fee

The Pension Benefits Guarantee Fund (PBGF) fee can be paid for the pension trust if the plan is in surplus.

Who Benefits from these Changes What impact will these new rules have on the other Pension Plan jurisdictions in Canada? While Quebec eliminated solvency funding as the primary basis for pension funding in 2016, Ontario chose not to eliminate solvency funding but instead shifted the emphasis to going concern funding. Solvency Funding assumes the Plan is to be wound up and calculates the funding obligation based on Canada bond rates. Going Concern Funding typically eases the burden on companies as it assumes the Company (Pension Plan Sponsor) continues indefinitely and calculates the funding obligation based on expected future stock market and bond returns reflecting how the pension assets are actually invested. The going concern assumption usually appears to be a reasonable one until such time as financial disaster strikes. Sears Canada is one such example. Sears employees have had their Pension payments reduced by 20% as a result of the Pension Plan being underfunded at the time of the bankruptcy. What must sting for the retirees is the fact that Sears paid hundreds of millions in dividends to its investors over the years leading up to the bankruptcy while the Pension Plan was underfunded by $260M. Although the dividends have been described as excessive, Sears was nevertheless fully complying with the funding requirements under the Pension Benefits Act (PBA).


Their retirees have been significantly negatively impacted by this shortfall and at a time in their lives when they have no opportunity to supplement foregone income. Is it the government’s responsibility to have stricter funding guidelines or do Boards of Directors have to do a better job of balancing their responsibility to shareholders with their fiduciary responsibility to retirees? Will the decisions made by the Sears Board of Directors influence fiduciary responsibilities? The reduction in the amortization period from 15 years to 10 years for Going Concern funding will, all other factors being equal, increase the funding of Pension Plans. The shorter the amortization period, the higher the contributions. The introduction of the PfAD also increases the going-concern funding requirement. The Pension benefit provided by the PBFG in the event a Pension Plan is wound up and at the time of the wind up has insufficient funds to pay its pensioners, increases under the new rules from $1,000/month to $1,500 month. This represents a 50% increase and is a significant improvement in the protection of pensioners. The increase in this benefit is supported by increases to the PBFG fees assessed to plan sponsors. The increase in benefits funded by the increase in the PBGF assessments demonstrates the balancing act Ontario is trying achieve. Ontario is the only jurisdiction in Canada to have a program such as this. Is it sustainable and would it be necessary if Pension Plans were required to be fully funded? Why should companies with

Defined Benefit Pension Plans be required to pay insurance premiums in the event of another company’s bankruptcy? The increase in transparency on members statements is an effort by the Ontario government to ensure Plan members have the most current information available to them. However, Pension Plan member apathy is a real challenge for employers. Will the increase in information included in statements awaken the Plan members and/or cause unnecessary concern? The new rules linking benefit improvements to minimum funding requirements is prudent and ensures alignment of increased benefits with funding and affordability. It prevents providing enhanced benefits today by eroding the funding status to the potential detriment of future pension benefits. The ability of plan sponsors to use pension surpluses and contribution holidays has always been controversial and the tightening of the rules as well as the increased transparency to Plan members should be seen as a reasonable compromise.

Summary of Changes by Primary Beneficiary The table below provides a high level summary of the major changes and who the primary beneficiary will be. It illustrates the net result of the government’s attempt to find an appropriate balance between the interests of plan sponsors (employers) and plan members (employees and pensioners). Ontario’s new funding framework for Defined Benefit Pension Plans clearly tries to find an appropriate balance between protecting and maintaining retirement



Treasury benefits while enabling companies to have more funding flexibility to grow and be more competitive. The new rules increase the complexity of Pension Plan funding requirements and we recommend plan sponsors work closely with its Pension consultants and/or Actuaries in developing appropriate pension management and governance strategies.

Conclusion The above analysis demonstrates that the new Ontario pension funding legislation does indeed attempt to achieve a balance between the interests of employers and plan members. Although it is difficult to determine who benefits the most, it does appear that the gains made by plan sponsors are relatively more meaningful than those made by plan members. Since the changes provide plan sponsors with some additional funding flexibility, the

new rules may result in a slower rate of conversion of defined benefit to defined contribution pension plans. However, the fact remains that defined benefit pension plans create complex financial risks for plan sponsors and that compliance with government regulations will continue to be administratively burdensome. Consequently, the new Ontario rules combined with the expansion of the Canada Pension Plan are unlikely to persuade employers contemplating the creation of a new pension plan to opt for the defined benefit variety over the less risky (from a plan sponsor perspective) and easier-to-administer defined contribution variety.

is wound up today. A deficit exists if the Plan assets are insufficient to pay all of the benefits. Going Concern Funding – Assumes the Pension Plan sponsor continues indefinitely. Actuarial calculations are based on numerous assumptions, the most important of which is the interest rate assumption, expected returns of different asset classes and longevity. Transfer ratio – solvency assets divided by solvency liabilities Closed Pension Plan – A DB Pension Plan that does not allow new members to join and accrue benefits


Solvency Funding – Calculates the funding required to pay all of the benefits owed to its members assuming the Pension Plan

FEI Canada Pension Committee: Kevin Sorhaitz; James (Tony) Hooper; Jayne Connolly; Don Wishart; Gerry Wahl; Rolland Morier; May Han.

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Employee Transition: Are Your Employees Ready for Retirement? by the FEI Canada Pensions Committee


y the time the youngest of the baby boomers turn 65 in 2030, it is expected that close to one in four Canadians will be aged 65 years or older which is a significant component of the Canadian workforce. In addition, a recent Sun Life report shows that 60% of people expect to work past the age of 65 and more and more workers are delaying their retirement. With so many working Canadians approaching age 65, how ready are your employees to transition to retirement?

The Problem Employees nearing the end of their career are at a high risk of not being financially prepared to transition to retirement. For members of a Capital Accumulation Plan (i.e., Defined Contribution Pension Plan or Group Retirement Savings Pension Plan), the risk is even greater as compared to those of a Defined Benefit Plan. As was described in the threepart series on Pension Plan de-risking for members of a Capital Accumulation Plan, the investment and longevity risk are borne by the plan member, not the employer. Members of a Capital Accumulation Plan (CAP) do not know what retirement income they will have when they decide to retire and start to collect their pension benefit. As CAPs do not guarantee a benefit or income level, each member’s plan value at time of retirement will determine their retirement income. Furthermore, employees of CAPs typically have low to medium knowledge of investment management or often


have little interest in being involved in managing their retirement income as an employee or a retiree. In most cases, employees cannot remain in the company’s CAP once they retire and start to take money from their account. This leaves members at the mercy of the marketplace that can increase investment risk as well as higher investment management fees, resulting in high Management Expense Ratios (MER) at a time when their net asset values and wealth accumulation are near their highest values. An employee’s primary focus in a CAP is sufficient savings and asset/wealth accumulation. The shift of focus from asset accumulation to ensuring adequate retirement income and decumulation strategies, combined with the risks noted above, can be daunting.

Contribution Pension Plans guidance on information required to provide members who are approaching this phase and includes options available to the member, any actions the member must take, any deadlines for member action, any default option that may be applied if no action is taken, and the impact that the termination of plan membership will have on each investment option There is an array of options available to Plan Sponsors to assist employees’ transition into retirement. The remainder of this article will focus on why employers should consider doing more to support employees looking to retire, making the transition easier and more financially viable for their employees, and to outline the options available to accomplish this.

What is meant by Decumulation?

Why should an employer choose to enhance retirement transition services and how can CAP Sponsors provide such services without increasing their fiduciary responsibilities and creating additional administrative costs? Employees are delaying retirement, in part because of their financial unpreparedness and in part because of a lack of education and transition support. The delay in retirement can create bottlenecks in the workplace as employees hold on to jobs longer, and can limit hiring and upward mobility for younger workers. In addition to the Human Resource implications such as morale and employer attractiveness, there is also a cost impact as those nearing retirement typically earn higher wages and incur more

Decumulation is the way in which you convert retirement savings into retirement income.Decumulation strategy is a rapidly growing area within the Pension industry, in part due to the aging population and in part due to the shift from defined benefit to defined contribution or capital accumulation plans. This component is critical to understand as it determines the retiree’s monthly income for life!

Employer Responsibilities What responsibilities does an employer have to help their employees’ transition to retirement? Communication becomes key to helping employees be prepared for the transition into retirement. CAPSA Guideline No. 8 provides Defined

Why Should Employers Care?



Treasury expensive benefit costs such as health care. By enhancing transition services, an employer can improve employee morale and ultimately engagement, lower costs and become a more attractive place to work.

What Can Employers Do? ◉◉ Provide Targeted Education. Providing targeted financial and investment education to employees is a very good starting point. Education can increase their financial literacy and empower employees to be better prepared for retirement. Studies suggest that more than 50% of retirement income is funded by returns after retirement. Enhancing employees’ knowledge through education can impact their investment decisions and ultimately their retirement income. Examples of targeted education may include things such as investment lingo, investment basics, and financial literacy. ◉◉ Negotiate Lower Fees. Something as straightforward as investment management fees can have a significant impact on investment returns. The difference between retail investment management fees and institutional investment management fees can be between 1% - 1.5%, depending on the size of the sponsors’ Pension Plan and the rates negotiated. The increase in investment management fees that members can face when their assets are transferred out of their company’s pension plan can reduce their retirement income by the equivalent of approximately three years relative to

Retirement Investment Funds (RRIF’s), or annuities. ◉◉ Educate about the Lifestyle Change in Retirement. Another overlooked aspect of preparing for retirement is that many employees don’t feel ready for retirement simply because it is such a big change. If retirement was simply about finances it would be less of an issue. After working for many years and having established daily routines and working relationships the fear of the unknown i.e. “what will I do with my time” is often a significant fear factor. Sponsors can help in this area! Talking about retirement, providing information and life style planning in advance of retirement can help employees to think about and prepare for the change.

what they would have achieved had they been able to leave their pension assets in their employers’ plan. ◉◉ Let Retirees Stay in the Plan. Employers are in a position to further assist their employees by allowing them to stay invested in their Employer’s plan after retirement. This provides benefits to both the employees/retirees and the employer in the form of a positive view of the employer, higher engagement and morale. It provides the employees/retirees with lower investment management fees and improved financial management and performance. The employer benefits from a lower Management Expense Ratio, better leverage due to higher plan asset values, and it can lead to improved employee relations. The monthly administrative cost charged by the Plan administrator could be paid directly by the retiree to completely eliminate this out of pocket cost for the employer. Allowing employees/retirees to remain invested in their DC plans provides benefits to employees, retirees and employers without increasing fiduciary responsibility meaningfully beyond what Plan Sponsors have today. ◉◉ Provide Decumulation Options. Providing information on decumulation approaches moves retirement transition services a step further. Plan sponsors could suggest a number of possible approaches and solutions like lower risk investment solutions which would be in addition to or in combination with Life Income Funds (LIF’s), Registered

Highest user adoption

Lowest cost of ownership

Speak to your Plan Administrator or Consultant on how to implement some of the solutions and services outlined above. The suggested ideas above will help you to better educate and prepare your employees for an easier transition to retirement while helping them build a bigger nest egg and monthly income during retirement. For employers, this may provide additional flexibility in the development of younger employees as the path to upward mobility begins to open. Written and submitted by the FEI Canada Pensions Committee: Co-Chair: Kevin Sorhaitz, Toronto; Co-Chair: Tony Hooper, Toronto; Jayne Connolly, Halifax; Rolland Morier, Montreal; Gerry Wahl, Vancouver; Don Wishart, Halifax.

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2019 FEI CANADA ANNUAL CONFERENCE #DISRUPTION #NAILEDIT SURVEY Disruption risk may be defined as the risk(s) that would lead to fundamentally altering the financial prospects of an industry and companies operating within it. Which of the following disruptors do you think will have a material impact on your organization over the next 2-3 years? 0%




Emerging Techologies




Regulatory Changes


Changing Demographics/ Societal Preferences


Which of the following best characterizes the potential impact to your organization from disruption risk?

Threatens viability

Poses significant downside risk

Difficult to determine at this point





Which of the following emerging technologies could have the most significant impact on your organization in the next 1-2 years? Rank Top 3. 100%











13% 13% 7%

42% 21% Artificial Intelligence/ Congnitive Technology* 2

Internet of Things

Digital Reality


*Artificial Intelligence/Cognitive Technologies (e.g. machine learning, robotic process automation, natural language processing)

What is the biggest challenge your organization faces in effectively addressing disruption?

Uncertainty with respect to nature of disruption


Lack of appropriate sufficient employees/skillsets Lack of funding/liquidity

7% 16%


Resistance to change of current workforce Other





40% 20% 0%

11% Internet of Things

Artificial Intelligence/ Congnitive Technology*

Digital Reality

*Artificial Intelligence/Cognitive Technologies (e.g. machine learning, robotic process automation, natural language processing)

What government policy changes would be most beneficial in helping your organization address disruption?

Not being able to implement change fast enough

26% 16%



Which of the following emerging technologies, if any, is your organization currently developing or implementing, or has already developed or implemented?






40% 20%


Presents Presents opportunities opportunities for growth and for growth and expansion in expansion in new markets current markets

35% 11%

Increased investment in innovation initiatives Decreased regulation Increased training/education programs/support

9% 10%

18% 17%

SURVEY DEMOGRAPHICS 109 respondents | Respondents were all financial executives, spanning a variety of industries. 50% of respondents represented private companies | 27% of respondents – public companies | 23% of respondents – other 51% of respondents were C-suite executives (CFO, CEO & COO), of which, 42% of respondents were CFOs

Fewer barriers/costs to international trade Lower taxes Other

Survey period: May 8 – May 27, 2019


FinTechs: Friend, Foe or the Future?





By Michael Garrity


n recent years, there have been two main narratives on the FinTech industry. The first and most prominent is that FinTechs are “disruptors,” innovators shaking up the Canadian finance landscape. The second is that as these disruptors gain market traction, they are bound to be swallowed up by the established banks. I believe both of these narratives are short sighted. First off, the “us-versus-them” mentality isn’t in keeping with how the industry has evolved, and this is evidenced by recent developments involving FinTechs and Canada’s big banks. Many banks have already recognized that FinTechs shouldn’t be viewed strictly as rivals. They bring agility, ease-of-use and speed of service that can, in many cases, complement what the banks offer. They also might answer a need from businesses or consumers that might not align with the banks’ core competencies or business priorities. Secondly, the idea that FinTechs are just innovating to get acquired has also been challenged in the reality of the way that the market has evolved. One has to look no further than the FinTechs already on or focused on the public markets, such as LendingClub, Ondeck and Element Financial. Financeit’s own example of this trend occurred this past September, when we unveiled our first-ever major acquisition and announced that we acquired TD Bank Group’s indirect home financing assets in partnership with Concentra Financial (a partnership of Canadian credit unions).

Why now? If you’re not familiar with Financeit, we’re a point-of-sale financing platform for businesses looking to offer their customers competitive and innovative financing options, anytime, anywhere they do business. While financing solutions involving installment payment plans have traditionally been associated with big-box stores, the simplified Financeit platform enables businesses of all sizes to take advantage of a fast, easy digital solution so


they can offer customers an alternative to credit cards or traditional lines of credit. Financeit isn’t new on the alternative lending scene. We’ve been around since 2011 and we’ve processed more than $1.6 billion in loans in Canada and the United States. So why was now the time for a significant acquisition?

Bolstering our industry focus Over the past year, the home improvement industry has become a key area of focus for us. This shift comes at a time when many Canadians are opting to renovate their homes for varying reasons, including aging Canadians who may be choosing to invest in their current home rather than move to a new one, or those who might be making upgrades to prepare a home for sale or rental. A recent report from the Canada Mortgage and Housing Corporation (CMHC) revealed that Ontarians spent an average of $25 billion on renovations last year. The same report predicted that renovation spending will continue to increase over the next few years. Financeit has a nationwide footprint in the home improvement industry and has increased lending activity in the market by 200 per cent since 2015. Among the largest adopters of Financeit are businesses focused in the areas of roofing, HVAC, pools and spas, windows and doors, decks and plumbing. Through this recent acquisition, more than 800 of TD’s home improvement merchant dealers were assigned to Financeit, with Concentra purchasing approximately 45,000 TD loans. Given the high demand for renovations across the country, this addition of new merchant dealers means that even more businesses across Canada have the option of increasing their revenue by offering Financeit’s unique program to their customers. We’re excited to help drive sales for home improvement professionals from across the country.

Fueling growth through investment Like many FinTechs, we’ve been hyperfocused on an accelerated growth strategy. In order for FinTechs to compete

on a large scale, we turn to investors who see the potential that our unique approach brings to the market. In our case, the recent acquisition was made possible because of a US $17 million investment round led by The Pritzker Organization, DNS Capital and existing investors. This capital raise followed a minority equity financing round in October 2015, led by Goldman Sachs. A recent report from Accenture found that the first half of 2016 saw U.S. $4.58 billion in FinTech investments, through to July 31. This represents more than 500 deals. There’s no doubt that FinTech companies have proven we’re here to stay, and investors have helped fuel this change.

Looking ahead For Financeit, we’ve made an acquisition that perfectly complements our growth strategy by strengthening our position in the home improvement financing space. We’ll continue to place our focus on being an innovative financing partner for merchants in this industry and in our other core verticals. I anticipate that the Canadian FinTech industry will continue to evolve. FinTechs will benefit from new opportunities, as banks refocus their business or look for opportunities to strategically partner with FinTechs. Similarly, banks will benefit by collaborating with companies who offer cutting edge solutions for Canadian consumers and businesses. We are already seeing this happen regularly. CIBC recently partnered with both Thinking Capital for small business lending and with Borrowell for access to the company’s personal loan adjudication technology. Earlier this year, Scotiabank announced a partnership with U.S.-based Kabbage, enabling Scotiabank’s customers in Canada and Mexico to apply for small business loans. Just as there are opportunities for collaboration, there is always room for competition. FinTechs and banks will continue to challenge one another to bring modern, flexible and effective financing options to Canadians. Michael Garrity is president and CEO, Financeit.




Tom Di Emanuele, partner, Ernst & Young, delivers the keynote address at the first annual York Region FinTech Summit.

FinTech Right at Home in York Region The audience listens to The Future of FinTech panel discussion at the York Region FinTech Summit.




Regulatory Fintech news

By Sarah O'Connor


n October 28th, York Region hosted the first annual York Region FinTech Summit in the Town of Richmond Hill. The Summit’s keynote was provided by Tom Di Emanuele, partner, Ernst & Young, who spoke about the state of FinTech in Canada. The Future of FinTech panel featured Alexander Peh, head of market development and mobile, PayPal Canada; Bianca Lopez, Bioconnect; Deepak Chopra, Clearbridge Mobile; and Eva Wong, Borrowell. Other topics addressed included the FinTech revolution and an investors’ perspective on FinTech. When asked whether he was excited about the potential for FinTech to take off in York Region, panelist Peh replied “Absolutely! The region already has a number of successful FinTech companies including Clearbridge Mobile and with the support of organizations like The Regional Municipality of York, I think it’s only a matter of when, not if.” Innovative FinTech companies are located throughout the Greater Toronto Area with a significant number in York Region. These firms employ thousands of highly skilled people who are developing new technologies, processes, products and business models to benefit global businesses and consumers. Representatives of many of these firms were present at the summit to network and share their insights. “Overall the feedback was extremely positive and York Region businesses appear to be excited about the opportunity FinTech provides them, not only locally, but internationally,” continued Peh. “As a global FinTech company, PayPal not only powers the payments for over 250,000 businesses in Canada, we are also passionate supporters and advocates of the Canadian FinTech industry. Unlike other industries, FinTech knows no boundaries, so we look forward to seeing success stories sprout up and flourish across Canada.” Doug Lindeblom, director of economic development for York Region, says the event was conceived in response to trends that his team had been observing for some time. “[York Region has] one of the largest information communications technology (ICT) clusters in Canada,” he notes. “What we were finding was that a lot of the technology companies we were running into, more and more were saying, ‘we’re in the FinTech business’ or ‘we’re heading into the FinTech business.’ There’s this growing area of activity that is starting to cross over between the ICT side and the financial services side.” Lindeblom says that the Region has identified about 60 local companies that are directly involved in the FinTech sector and he expects that number to grow. “York Region has a strong financial services base and its got a very strong ICT base, so we weren’t surprised [to see FinTech growth take off]. I think its been evolving over the last number of years as of course that business has grown up. We’re seeing research and we are hearing it from our businesses and so that’s really where [the Summit] came from—ground up, grassroots.”


Companies involved with the York Region FinTech Summit include: Paymate Software Corp. provides payroll, HR and time and attendance software solutions to organizations. Paymentus provides payment platform services, including paperless billing and payment solutions. Securter is developing a payment platform that enables making convenient and safe online payments. The company has patent pending payment platform adapting and extending conventional EMV payments of physical Point of Sales (POS) to secure for contactless EMV web payments. SmartworX capital provides foreign exchange trade services. The company researches and develops algorithmic models which are used to automate trading of futures. Its proprietary suite of models, Tempo, runs on the NinjaTrader trading platform and can be applied in most market environments. Tempo could automatically manage trades in multiple instruments simultaneously and takes both long and short positions. STJ Retail provides consulting services, software development and support services to retailers and payment clients using POS systems. Strategic Information Technology develops software for banking companies such as RBC, CIBC and Scotiabank and FinTech software to help its customers disrupt their markets. Its software, used to lend, collect and manage money, is also used by credit unions, automotive lenders, mortgage companies, trust companies, government lending programs and more. Terminal Management Concepts provides Point of Purchase terminal technology solutions, offering debit and credit application software for major terminal providers, host interfaces to major retail and hospitality systems and enabling integration with POS switches. For ISPs and banking institutions seeking secure payment technology, its secure hardware/software solutions integrate pinpad technology with Active-X controls for ease of integration to the PC application environment. XE provides online money quotes and easy online transfer options. The company serves over 22 million unique visitors monthly, using tools such as XE Currency Converter, forex market analysis, and XE Currency App, which has over 40 million downloads. Since 2002, XE Trade Money Transfers has processed more than $10 billion in global payments. XE Currency Data is used by thousands of businesses from SMEs to Fortune 500 companies. ZOMARON provides payment technology solutions, using Ingenico terminals.




Q&A with Dr. Scott Zoldi, FICO’s Chief Analytics Officer By Sarah O'Connor

“Machine learning techniques enable the fraud detection models to continually keep or exceed pace of the fraudsters and their shifting tactics.” 20



rexel University’s LeBow College of Business and CIO.com have named Dr. Scott Zoldi, chief analytics officer at analytic software firm FICO, one of the winners of the first Analytics 50 Awards. The awards program honors 50 executives who are using analytics at their organizations to solve business challenges. Dr. Zoldi received the award for his leadership in developing new analytic technologies to reduce payment card fraud, by detecting rapidly changing criminal methods. Dr. Zoldi led the development of a patented adaptive analytics technology and multi-layered self-calibrating analytics, deployed in the company’s FICO Falcon Platform, which protects 2.6 billion payment cards worldwide. This solution can leverage a client’s fraud experience in near realtime to adjust model weights, without the need for time-consuming offline training. FICO also created a patented technology called behaviorsorted lists, which identifies an individual cardholder’s specific spending patterns at preferred merchants and individualized

transaction patterns By adding adaptive analytics, one large U.S debit card issuer realized an 18 per cent improvement in real-time fraud dollars detected and a relative reduction of 11 per cent in account false positive ratio, saving millions of dollars per year and improving the customer experience for its cardholders. One international card issuer has experienced a 17 per cent reduction in false-positive cases with no negative impact on real-time fraud dollars detection rate. For transactions that occur at a cardholder’s favourite merchants, bank clients have seen a reduction in false-positive occurrences of 35-50 per cent, contributing to significant increases in customer satisfaction. “These pioneering analytics have enabled card issuers and payment processors around the globe to combat the evolving barrage of payment card fraud attacks,” Dr. Zoldi said. “I am honored that Drexel University’s’ LeBow College of Business and CIO.com have recognized me, my team and FICO for our work to improve the security of the global payments


Fintech infrastructure.” “With the ever-growing threat of data breaches and identify theft, predictive solutions such as FICO’s use of adaptive analytics are exactly the types of innovate safeguards needed to protect the consumer,” said Murugan Anandarajan, PhD, department head of decision sciences and MIS at Drexel University. Canadian Treasurer spoke to Dr. Zoldi following news of his award.


I think there is little doubt that predictive analytics are an extremely hot topic. In your opinion, what market forces are highlighting the importance of this new technology?


Fraud has been a problem that FICO has been combating since 1992 with predictive analytic models, and since that time we have continually seen the criminal element becoming increasing sophisticated and adjusting their tactics to circumvent fraud protections. The new advanced analytics associated with the Analytics 50 Award focus on self-learning analytics, a new breed of machine learning. These analytics continually adjust in real time, learning the ever-changing and sophisticated behavioral patterns behind fraudster attacks in the payments network. The payments industry relies on these adaptive behavioral analytic scores to make the best decisions on which transactions to block, whom to investigate and what to let through. Adaptive behavioral analytic technology is a key tool that protects consumers and minimizes fraud losses for issuers.


Are fraudsters also benefitting from these technological advances? In other words, are they also getting a lot better at what they do?


Absolutely. The most sophisticated fraudsters make use of machine learning to determine how to stage their attacks. They gather information from the darkweb, conduct experimental


design and sometimes build models to determine how to circumvent the issuer’s countermeasures. They’ve been doing this since the early 90s, but now the stakes are higher as the barrier to entry has essentially disappeared due to the increase in computing power and use of new easily accessible analytic tools. This is why our adaptive and selflearning technologies which adjust the model continually, in conjunction with the issuer’s strategies using these model scores, make it difficult for fraudsters to game the system and minimizes their financial take.


Since the analytic technology you have developed can detect rapidly changing criminal tactics without human interference, is it accurate to characterize it as “machine learning”?


Yes, technology behind selflearning analytics is a form of machine learning in which sophisticated analytic algorithms enable the computer to learn from fraud attempts and analyst feedback. The algorithm monitors subtle changes in features, distributions and recent attacks to retrain the model continually in response to the attacks. In today’s data-driven world, these types of technologies are key to solving problems in many different areas, such as cybersecurity threat detection, IoT security, risk management, compliance, model governance, operational optimization and many others. These machine learning techniques enable the fraud detection models to continually keep or exceed pace of the fraudsters and their shifting tactics.


One of the basic assumptions of predictive analytics is that the future will resemble the past, but of course that isn’t always the case. How does software you have developed at FICO use the past to accurately predict future behaviour?


FICO has the world’s largest payment fraud data consortium: We currently monitor about two-thirds of the world’s

payment cards for fraud. This is an incredible data set for data scientists and it goes back more than 20 years. This payment card fraud consortium allows us to build models that incorporate a huge set of observed fraud attacks and normal cardholder behaviors from all over the world, to create the best feature detectors. The consortium is a vital research data resource for us; hence FICO’s 83 issued fraud detection patents and 47 patents still pending. The artificial intelligence models we deploy start with a base neural network model (or other deep learning model) trained on this consortium data. Then we employ the adaptive machine learning techniques that adjusts this base neural network score based on real-time shifts in behavioral feature distributions and recent attack attempts by fraudsters in the production environment. This allows for an optimal combination of the past and future fraud behaviors in tackling fraud.


As impressive as the patented adaptive analytics technology deployed in FICO’s Falcon Platform is, I can’t help but feel this is only the beginning. Are there other ways that you believe predictive analytics will impact the payments industry?


Agreed—we will see continued analytic innovations in the payments industry. For example, one area that I am really excited about is the application of advanced analytic models to anti-money laundering techniques. Today this area is largely driven by Know-Your-Customer (KYC) strategies and transaction rules based on KYC. We’ve developed new predictive analytic models in this space, focusing on identifying real-time learning of behavioral archetypes, and changes in these behavioral archetypes that may indicate subtle money laundering activity. Coupled with a behavioral analytic model looking for similarities of account transaction profiles to past filed SARs, I expect that this new approach to AML will really revolutionize how AML is tackled in the years to come.




Trends Driving Transformation in Global Payments & Regulation P By Stephanie Zee

eer-to-peer payments, faster payments, enhanced data, straight through processing and straight through reconciliation—the expectations and demands of today’s corporate clients simply can’t be met by the legacy infrastructure we are still using today. Consequently, we find ourselves witnessing extensive change across all aspects of the payments ecosystem. Four key trends are driving transformation in global payments and regulation: infrastructure modernization, cyber security, new entrants and technology and regulatory diversity.

Infrastructure modernization

The risk of cyberattacks continues to increase, with the estimated global cost of cybercrime at $445 billion. 22


Infrastructure modernization is occurring across the value chain, not just within banks, and is all encompassing. It is truly end-to-end, stemming from both push and pull market activity. Clients are actively updating internal enterprise resource planning (ERP) platforms, payment systems and processes; in many cases centralizing accounts payable and creating a payments hub that often includes several or all countries. Clients are insisting on enhanced data, transparency and ubiquity of process and file type across their payment providers, while new entrants are challenging banks to abandon legacy systems and undertake their own infrastructure transformation to keep up. At the same time, financial market infrastructures are adopting the new messaging standard (ISO 20022), enabling the transfer of richer data, launching faster payment schemes and opening access to non-bank organizations adding to the pressure on banks. As payment infrastructures are being modernized in the domestic landscape, these solutions are creating momentum for neighbouring jurisdictions to also change and impacting cross-border schemes. Infrastructure modernization and faster payment systems have proven to be an enabler of business growth

in such countries as the United Kingdom, Singapore and Australia which have already gone live with these faster systems. Many other countries including Canada are in the planning/ exploring phase. Payments Canada (formerly known as Canadian Payments Association) is currently undertaking a multi-year initiative to modernize Canada’s payment infrastructure utilizing ISO20022 as the de facto standard. At the same time, the banks have come together to overhaul the cross-border payment experience. SWIFT’s Global Payments Innovation Initiative (GPII) is one of the ways that banks are collectively responding to improve cross border payments and address key client pain points. Launched in January 2016, the goal of GPII is to modernize the messaging system and improve transparency and predictability of fees, end-to-end payments tracking and transfer of rich payment information. More than 70 banks channeling payments into 227 countries have signed up. The results of a small pilot are expected in the coming months with a broader roll-out in 2017.

Cyber security The World Wide Web is now 25 years old and has transformed consumers’, businesses’ and governments’ approaches to shopping, procuring and paying. It has opened new markets and trade near and far, and has made a massive amount of information and data accessible to anybody and everybody. Global systems have been integrated and have enabled straight-through processing. At the same time, we have created the perfect environment for pseudo-anonymity and cyber-attacks. A cyber-attack is an attempt by criminals to access or damage a computer network/system in order to cause disruption or for monetary gain. The risk of cyber-attacks continues to increase, with the estimated global cost of cybercrime at $445 billion, as of February 2015 according to


Fintech Computer Weekly. In 2016 we have seen a marked rise in attacks targeting financial institutions, with the payoff in the millions of dollars for each attack. The rising financial impacts, the pace of change in the payments industry, and local and global system interdependencies have put cyber security high on the agenda of banks, financial market utilities and regulators. Implementing robust practices for system access such as multi-factor authentication, use of biometrics, and segregation of data and information are important elements of a security program. But cyber security is not just about technology. Investment in and execution of an organization-wide strategy to understand and combat cyberattacks is critical. Effective strategies include governance combined with a culture of prudent business control and risk management, including training, communications, documented business processes and being vigilant over different infiltration points such as email or access to company WiFi.

New entrants For several years FinTechs have been quietly and now loudly and explosively leading the charge to address the gaps identified by our clients to capture market share. New entrants and technology developments are driving business model disruptions where VBProfiles found that investments in FinTech reached more than $38 billion in 2015. The extensive scope of activities across the new entrants makes it difficult to know what to focus on and where the greatest threats or opportunities may be. Small but successful startups can pose legitimate threats to even the strongest companies by disintermediating the banks or relegating them to being the “dumb pipes.” Further, non-traditional financial services companies like PayPal, Google and Apple are leveraging cloud and mobile technologies as well as viral distribution to quickly start and scale business at low cost to address the friction clients experience. New technologies like distributed ledger or blockchain enable new paradigms for exchange of value and create new “rails” that sit outside of the traditional bank to Financial Market Utilities (FMU) payment infrastructure. Banks have stepped off


the sidelines with many having set up innovation centres to experiment with new business models and technologies. Some banks have invested in a range of different startups, and are collaborating and partnering with FinTech players.

Regulatory diversity As if infrastructure transformation, cybersecurity challenges and FinTech disruption were not enough, the industry continues to experience an amplification of regulatory oversight with increasing requirements aimed to protect the payment ecosystem, build resiliency of payment providers and utilities, and encourage innovation and competition. Multiple layers of governance over the ecosystem are in place from global oversight bodies such as the Bank of International Settlement, the Basel Committee on Banking Supervision, and the Financial Stability Board, to regional and local oversight such as Office of the Superintendent of Financial Institutions (OSFI), The Bank of Canada, The Department of Finance, The Canada Deposit Insurance Corporation and the Office of the Privacy Commissioner of Canada. The regulatory environment is complex with new requirements emanating from the different bodies to revitalize and address outdated legislation and regulation, and to address the payment market conditions. Heightened capital and liquidity requirements through BASEL III, operational resiliency and “living will” requirements, ongoing anti-money laundering and terrorist financing efforts, and cyber risk management controls are just a few of the topics impacting the payment world. To address the rise of cybercrime in particular, in 2016 The European Union adopted the Network and Information Security (NIS) Directive and General Data Protection Regulation; and in the U.S. the Cybersecurity Information Sharing Act was signed into law December 2015. In Canada the Government has articulated a cyber-security strategy and has created the Canadian Cyber Incident Response Centre (CCIRC) and is also considering legislation. For regulators and banks a conundrum exists with respect to FinTechs: Is a FinTech a technology company or is it a

payment provider that should be governed similar to a bank? If so, which regulations apply and which ones do not and what falls under the regulations? In the case of new technologies like Blockchain or virtual currencies like Bitcoin who do you regulate (FinTechs, exchanges, programmers, originators, beneficiaries)? How should they be regulated (legislation, acts, common law, civil law, codes of conduct, and what jurisdiction)? Many of these questions have yet to be answered. Regulations on FinTechs are nascent and vary greatly creating uncertainty for financial institutions that bank these firms and this uncertainty may constrain innovation among FinTechs. Various jurisdictions have introduced “regulatory sandboxes,” relaxing some of the regulatory requirements to encourage exploration and innovation in a flexible environment in which FinTechs can test technology and business models. Once the application has reached defined thresholds, commercialization generally requires full adherence to regulatory obligations. In some cases new regulations may be needed to ensure safety and security that reflect the unique characteristics of the new technology or business model. Examples of regulatory sandboxes include the United Kingdom’s Financial Conduct Authority, the Monetary Authority of Singapore, and the Australian Securities and Investments Commission. Systemic infrastructure change, new risks, new entrants and heightened regulatory pressure… it’s a frenzied pace but payments is the most exciting business to be in. Opportunities are everywhere to innovate, to deliver greater value to our clients, to enhance the client experience, create efficiency, effectiveness and transparency, reduce costs, drive new revenue, and enable a stronger, safer and more secure operating environment. Partnership and collaboration between the banks, FinTechs and regulators are the best way forward through these unprecedented times of change. As TTS payments regulatory head, Stephanie Zee leads a team responsible for creating and driving Citi’s strategy to meet regulator expectations and is responsible for the management of emerging risks across global payments.




The Pulse of FinTech in Canada T

By Lian Zerafa

It's an instant, mobile, cashless world and FinTech companies are its architects. 24


hese are transformative days for the world of financial technology. With echoes of the dotcom era, the FinTech market is filling quickly with innovative players intent on changing the industry or helping the industry change itself. Canada is emerging as an important player in the space, but it is not alone. This last year saw venture capital (VC) investments remain steady in FinTech companies in markets across the globe; most notably in Asia, where FinTech startups saw funding totals of $1.2 billion in Q3, up from $800 million in Q2. This total represented nearly half of global FinTech investments and has positioned the region as a leader in the FinTech space. Closer to home, FinTech investments in the U.S. and the UK have remained equally promising, albeit tempered in the latter half of 2016 by reservations over the latest U.S. election and UK Brexit vote. Nevertheless, these markets are expected to remain FinTech powerhouses as doubts subside and the competition for VC dollars intensifies with more smaller sized deals in play. Canada is also making its mark. In KPMG and H2 Venture’s 2016 FinTech 100, two Canadian companies were listed among the top 50 established FinTechs from around the world and four were listed as emerging stars. This is an improvement over 2015’s results, which

found Canadian companies listed only twice each among the top 50 and the up-and-coming startups. It’s an impressive standing, to be sure— especially considering our relatively small market size, heavily regulated environment and the competition our startups face worldwide. For the record, Chinese FinTech ventures represented four of the top five companies, once more signaling a clear leader in the FinTech industry. Driving Canada’s momentum in this space are the “herbivores” of the FinTech community. These are the players who are not as much interested in carving off a piece of the market for themselves (aka the “carnivores”), but eager to have their technologies become part of a financial institution’s ecosystem. Granted, it’s the carnivores who typically dominate the headlines, but it’s the herbivores working in quieter partnerships with financial institutions that continue to fuel the FinTech sector’s momentum, perhaps more so in Canada than elsewhere. We’ve already seen a number of collaborations between FinTech companies and the big banks. High-profile examples include the partnerships between CIBC and Thinking Capital, RBC and League, or TD for Me and Flybits—partnerships that have succeeded in giving banks instant access to greater efficiencies and modern solutions, while exposing their FinTech collaborators to an established customer base.


Fintech These partnerships are also proof that banks are not only noticing the FinTech industry, but actively supporting it and working with its innovators. This May, for example, TD Bank entered a collaboration with Plug and Play Tech Center, a California-based FinTech accelerator, to provide mentorship and development support to 23 FinTech startups. Elsewhere, a number of Canadian banks have created highly speculative investment funds for FinTech, patterned largely off the risk return profile of the dotcoms. The appetite for new and innovative financial technology is no doubt strong; and one need only look to the FinTech clusters forming in hotspots like the Greater Toronto Area, Waterloo, Vancouver and Montreal to see that there is no lack of players. Yet as promising as Canada’s FinTech market may be, there are challenges ahead. Working within one of the more regulatory controlled regimes in the world means Canada’s startups face more restrictions than their international peers. For example, requirements laid out in Investment Industry Regulatory Organization of Canada (IIROC)’s CRM2 regulations set a regulatory bar that impedes our industry’s ability to enter the wealth management services space as opposed to players in the U.S. who are not beholden to the same rules in their market. Even with these restrictions, Canada’s FinTech players are holding their own. This is despite an overall drop in VC funding across the globe owed to a mix of political shifts and the natural ebb and flow of the FinTech hype cycle. Certainly, while there was once a day when the pool of VC investments was big enough for every FinTech startup willing to take the plunge, the rising tide of market entrants is creating a new era of intense competition. That said, while the volume of available deals may be down, opportunities still exist for herbivores and carnivores alike.

Evolving the standards It’s an instant, mobile, cashless world and FinTech companies are its architects. Nowhere is this more apparent than in the realm of payments, where the likes of PayPal, Apple Pay, Stripe, Square and


Amazon (which is itself large enough to be a bank) are reshaping established systems and consumer expectations. The result is a movement toward real-time payments and a strong desire to reduce existing friction which impedes participating parties’ ability to execute payments efficiently. That movement, however, is being hindered by current legacy platforms that were never designed to handle real-time demands. Herein, countries are undertaking modernizations of their payment systems with help from innovators in the FinTech space. This includes Payments Canada, which recently began a modernization journey to rethink the fabric of payments in Canada to accommodate a mix of faster, more agile and real-time payment schemes that not only work together but with the world. For payment modernization to occur, we must all be on the same page. That’s why moving forward, it will be solutions like the emerging ISO 20022 standard that will help establish a common ground between the current and incoming wave of different payment models. For its part, Payments Canada announced it will be adopting ISO 20022 as part of its modernization; and while it will require significant replatforming in the years ahead, those efforts will open up a wealth of new possibilities in terms of how differing transaction parties will be able to interact. On a related note, it would be unwise to underestimate blockchain technology. With the potential to bypass central monitoring and control mechanisms, blockchain has the potential of circumventing current financial systems and changing the relationship between the consumer and bank. For this reason, payment authorities are now working to create a supportive ecosystem which will allow for alternative payment technologies such as blockchain into the mainstream environment. No one has the answer yet, but it won’t be a one-size-fits-all solution. It will, however, allow for multiple payment schemes to coexist in a controlled way. With the FinTech industry growing and new innovations entering the market at faster speeds, the question moving forward will be how to balance the need to innovate against the very real risks of cybercrime and online vulnerabilities. Do we wait until one

FinTech solution causes an incident, or do we tighten down the industry now and risk suffocating the next big idea? These are the questions regulators are asking as solutions like blockchain present great potential, and corresponding risk, to deal with some of the crime elements from a payment ecosystem, but can also facilitate crime in cases, as in the case of using bitcoin to make illegal and untraceable purchases on the now dismantled Silk Road. It’s a doubleedged sword and one that will challenge stakeholders to balance the need for protection against that of innovation. Regulatory apprehensions notwithstanding, it’s a good forecast for the FinTech market. The appetite for innovation among banks, insurance, and wealth management players is high; as is the appetite to engage differently with customers directly and provide services and products that offer an alternative from the norm. It may be crowded, and there may be speed bumps, but if 2016 is any indication both Canada and the world are on track to bring the FinTech industry into the fore. Lian Zerafa is the national consulting financial services industry leader at KPMG in Canada. He is a senior advisory leader in banking and securities with three decades of experience helping over 30 global financial institutions navigate through complex technology, strategy and regulatory issues.

2016 FinTech milestones

◉◉ Global investment in FinTech reached US$17.8B billion in funding by Q3 2016 ◉◉ North American FinTech companies raised more but smaller late-stage deals: median late-stage FinTech deal size in North America dropped to $21.9M, the second lowest quarter in the five-quarter trend, and a 73 per cent drop compared to the same quarter last year ◉◉ FinTech funding fell below $1 billion in North America in Q3 ◉◉ Corporates participate in more than half of all deals to VC-backed FinTech startups in Q3 2016



Regulatory news Fintech

Canada Among Leading Digital Payments Markets Worldwide By Sanjay Tugnait


he World Payments Report (WPR) is the leading source for data, trends and insights on global and regional non-cash payments and the key regulatory and industry initiatives (KRIIs) that govern them. Co-developed by Capgemini and BNP Paribas, the WPR 2016 explores how digital innovation is infusing the corporate world and its implication for banks and corporates. In this article, we focus on the data provided by Canadian participants in the global survey on which this primary market research is based and its significance for financial institutions in this market.

Digital payment transactions on the rise Global digital payment volumes continue to increase, with annual growth projected to be more than 10 per cent for the first time since the report was first published to reach 426 billion transactions in 2015, up from 8.9 per cent growth in 2014 (387.3 billion transactions). Overall, North America recorded a decelerated, but positive, year-on-year growth rate of 4.4 per cent in 2014 for the total digital payments volume for the region. Cards continue to remain the fastest growing digital payments instrument since 2010, while cheque usage continues to decline. In Canada, digital payments volume grew by a CAGR of 5.2 per cent from 2010 to 2014. This growth was driven primarily by the increase in card transactions. Technological enhancements related to security and infrastructure—and also innovations in consumer convenience such



as tap-and-go credit cards—supported this growth. Consequently, Canada also is now among the top 10 markets in digital payments growth (Figure 1). The number of non-cash transactions per inhabitant for Canada also grew significantly at the rate of 5.5 per cent as compared to the CAGR of 3.7 per cent during 2010-13. While growth in digital payments occurred across all regions, developing markets experienced the highest rates of 16.7 per cent with mature markets growing at six per cent, although mature markets— including Canada—still account for 70.9 per cent of total global volumes. Immediate payments, enabled by wireless mobile payments networks in geographically remote/isolated regions, have the potential to drive growth in digital transactions as an alternative to cash and cheques, but efforts are needed to educate stakeholders, provide more value-added services and upgrade infrastructure at merchants and corporates.

Banks everywhere need to ‘think digital’ to compete for market share The core theme for World Payments Report 2016 is the challenges and opportunities that exist in transaction banking. Amidst multiple internal and external challenges, including those from FinTech players, banks face increasing demand for seamless, secure digital transaction services for digital products and services (such as support processes of account management, compliance tracking and fraud detection and prevention) from corporate treasurers. This will require banks to accelerate investments and adopt a collaborative mindset with FinTechs

to thrive in the increasingly digitized transaction banking environment. Adding to this context is the fact that transaction-banking revenue is under pressure from a multitude of internal and external challenges such as lower fee income, lower interest income, pressure on foreign exchange service fees and corporate demand for digital payment services. Finally, FinTechs have raised the standard for retail-payment services and therefore corporate treasuries now expect similar digital products and services for their transaction-banking operations. Banks have multiple levers they can use to close the ‘digital capabilities gap’ that FinTechs have created. These include the development of application program interfaces (APIs) that open up their ecosystem in order to take advantage of the innovation of FinTechs, which builds their credibility as customerfocused businesses as it supports their market continuity. A number of banks have started to adopt this ‘digital-first’ mindset, leveraging the requirements of the Payment Services Directive II (PSD II) in Europe with a view to improving and enlarging their value proposition. PSD II also provides focus for the development of the technology infrastructure needed to make immediate payments a reality.

International regulatory environment pressuring all banks The multiple new and existing regulatory initiatives have added considerable operating complexity for banks and there are two key themes emerging in regulatory compliance around payments. First, the increased use of technology to ensure compliance and second, a


Fintech Figure 1: Number of non-cash transactions in the top 10 markets (billions) 2013-2014

facilitation approach that is being adopted by some regulators to enable businesses to accelerate their time-to-innovate within a ‘safe’ environment. The use of technology in support of regulatory compliance is being advanced by a niche set of FinTechs (aka “RegTechs”). They are making use of emerging, advanced technologies by providing services to automate more tactical compliance tasks and to help reduce operational risks associated with regulatory compliance. At the same time, the innovation environment is being developed through initiatives such as that of the UK Financial Conduct Authority’s Project Innovate. This initiative introduced the concept of a Regulatory Sandbox where the businesses can test their products and services in real-world scenarios without being subject to the usual regulatory consequences. In response, banks are taking steps toward holistic compliance; however, to date the implementation of these applications remains tactical rather than strategic and progress is often slow. In the U.S., several banks are adding “open APIs” to their existing systems for payment processors and RegTechs. They are also working with the Open Financial Exchange (OFX) standard. A transformative approach


to holistic compliance will help banks to implement best practices, mitigate the threat of heavy sanctions-related fines and provide the value-added services demanded by corporate treasurers.

The way forward: Collaboration and innovation Canada is on the verge of ‘catching up’ in terms of payment infrastructure in the move to instant payments (initiated by Payments Canada). As a result, banks need to upgrade their payment rails, which will allow innovative payment solutions provided by banks or in partnership with FinTechs. According to the first World FinTech Report (WFTR), published by Capgemini and LinkedIn in collaboration with Efma, half of banking customers across the globe are using the products or services of at least one FinTech firm. The WFTR found that traditional firms are increasingly pursuing a wide range of strategies in response to FinTechs. A majority of financial institutions (60 per cent) now view FinTechs as potential partners, but nearly the same percentage (59.2 per cent) are also actively developing their own in-house capabilities. To help traditional firms accelerate innovation and address current and future market disruptions, the WFTR has defined a four-

step framework to assess and respond to a growing number of prospective threats to the financial services business. Traditional FS firms can unlock innovation by: discovering new technologies, devising ideas and insights into business models, deploying aligned executives to support innovation, and sustaining innovation by improving efficiency and implementing best practices. The primary market research published in the annual WPR and this new WFTR speaks to the ongoing Capgemini commitment to serve the business-information and technology needs of the financial services industry and its constituencies. Leveraging its network of Applied Innovation Exchange locations, Capgemini is also working with traditional firms and FinTechs to support individual company initiatives, advancing digital payments capabilities to help them better serve their customers in Canada, North America and around the world. Sanjay Tugnait is the CEO for Capgemini Canada and the Chairman for the Canada Country Board. Sanjay has 24 years of experience in global leadership roles in strategically transforming leading corporations and is recognized as an industry leader for his professional contributions.



Managing Risk

The New Normal How to prepare for a data breach

By Ryan Wilson




hree words that most strike fear into the hearts of any IT worker and, increasingly, into the hearts of anyone in the c-suite of any organization: “We’ve been hacked.” Today the chance of a breach or hack is greater than ever—creating a unique challenge for any company, in nearly every industry. In the last year alone the increasing majority of Canadian organizations have seen an increase in the severity, sophistication and frequency of attacks on their business. Properly planning for an inevitable data breach is a critical consideration for many organizations when looking at business priorities. The numerous emerging threats and widespread outcomes of a breach can be overwhelming even before an incident happens—but nowhere near as overwhelming as dealing with the negative impact on reputation, customer retention, sales, share price and countless other business priorities that can be affected. Take, for example, the situation Yahoo! is currently facing. Shortly after Verizon agreed to purchase the long-time internet giant for U.S. $4.8 billion, news came to light that the

organization had suffered one of the single largest data breaches of all time—losing customer records of more than a half-billion people, including names, email addresses and passwords. Beyond the considerable damage to its brand reputation, Yahoo! now stands to lose as much as $1 billion of that original $4.8 billion as Verizon considers its options to deal with the potential fall-out of its newest acquisition target. So what can companies do to effectively defend—and in the worst case scenario, manage—a potential breach/hack?

Prepare. Prepare. Prepare. It can be difficult to dedicate time to an issue that hasn’t already happened, but one of the biggest factors in successfully defending or managing a data breach is being properly prepared. Dedicating the time to the creation of a thorough and detailed plan for a breach scenario can be the difference between effectively managing a breach or being caught off-guard and unprepared. The reality is that IT departments face a grim reality each day, in terms of potential data


Managing Risk breaches: to breach an organization, a hacker or bad actor only needs to get it right once. To protect a company, an IT department at an organization has to get it right each and every day. If and when a breach does happen, its impact extends far beyond IT and in to most other areas of the business. Additionally, the new Digital Privacy Act which was brought in to action in June of 2015 includes breach notification regulations coming into effect in 2017 that require companies to maintain a crisis communications plan in case of a data breach.

Bring everyone to the table early While security responsibilities ultimately reside with an organization’s IT department, a data breach creates a ‘perfect storm’ across an organization— with nearly all departments impacted. The possible range of outcomes from a breach are numerous and will require attention from multiple departments, meaning that a large number of people need to be engaged immediately. For instance, if a breach were to occur and result in the loss of customer and employee data, not only would IT need to be involved, but numerous others. Were employee SIN numbers or payroll information stolen? HR needs to be involved immediately. Customer credit card information stolen? Customer care and finance need to be involved a.s.a.p. Potential class action lawsuits and regulatory fines stemming from claims of mismanaged data? You better believe legal needs to know pronto. Are the media looking for confirmation and quotes about the breach? Communications needs to know yesterday. All of this is to say that while IT security may reside under the IT department on a normal day, data breaches make for anything but normal days and the sooner that all areas of the business potentially impacted by the breach are engaged in the response, the better. One best practice for all organizations to consider is to identity a data breach ‘go’ team. This team acts as the first contacts in each area of the business to be notified of any breach situation, in order to respond accordingly. By ensuring that


there is someone identified in each area of the business that could be potentially impacted ahead of time, an organization is in a position to ensure that immediate attention is being paid from every department that will be affected.

Consider all of the angles For years it was considered that customer financial information, things like bank account and credit card numbers, were the top target for hackers when attempting to steal information from an organization. But since 2014, a new and potentially even more damaging type of threat has emerged: organizational doxing. This type of breach has little to do with stealing financial data, and everything to do with acquiring and leaking sensitive and embarrassing information to harm an organization. Think about the hacks of Sony, Ashley Madison, Mossack Fonseca (Panama Papers) and the Democratic National Committee—in each instance customer financial records were, if included, a minimal target of the breaches. The goal was to acquire sensitive information like executive emails and corporate secrets to publicly embarrass each organization, as opposed to directly profit financially. But, while the hackers themselves won’t specifically profit, there will remain a very real cost to the affected organization, in terms of poor brand reputation, potential negative impacts to share price and possible fines and lawsuits brought on by regulators and affected parties. As the type of information that hackers target starts to shift, so too should the security priorities within an organization. Ensuring that securing all systems—both operational and financial—is a focus can help to reduce the ability of suffering a breach.

Budget accordingly The rule in security is that 15 per cent of an overall annual IT budget should be allocated towards security, yet many companies’ actual spend tends to be considerably less than that. While it can be difficult for some companies to justify added expenditures for a preventative measure that does not drive day-to-day revenue, the reality is that the typical

company loses roughly $7 million annually to dealing with cyber attacks. Organizations need to look at IT security not as an overhead expense, but as a strategic investment in the operation— one that can save the organization millions of dollars each year.

Work with trusted experts No matter how advanced a company’s IT department is, odds are that the requirements of ensuring an entire operation is running smoothly day-in and day-out means that there is little time for in-house professionals to keep up with the myriad of training requirements and new threats needed to truly be ‘ahead of the game’ in IT security. In fact, our recent study with Ponemon Institute showed that insufficient numbers of in-house personnel, along with a lack of in-house expertise, were two of the primary challenges faced by Canadian organizations. That’s why working with trusted external partners can make all of the difference during a breach incidence. Many organizations—especially those that don’t have the resources to employ thousands in their IT departments (see: most)—need to rely on qualified experts and partners to ensure they are able to improve their security posture. Whether your security operations are partially or completely managed by a partner, it’s important to remember that there’s no one single way to approach security—each organization has different needs. Because of this, it’s important to work with a partner that can customize a solution and approach to IT security to your specific operation not just from a technological standpoint, but from a strategic one. Today, the reality is that when it comes to data breaches, the question isn’t so much “if” as it is “when.” The companies that stand to be most able to weather the inevitable storm will be the ones that plan thoroughly and invest early in both their security posture and response plans. Ryan Wilson is the chief technology officer, security at Scalar, Canada’s leading IT solutions provider, focused on security, infrastructure and cloud.



Regulatory Managing Risk news

Enhance Risk Management with Advanced Location Analytics F

By Robert Szyngiel



inancial institutions rely on effective data governance to ensure the success of their risk management efforts. Unlocking new insights by combining business analytics with relevant and accurate data supports the constant quest to mitigate significant risks and gain a competitive advantage. One way financial organizations can enhance their risk management is by incorporating advanced geo-data and location analytics into

their operations. While robust geographic data has been largely absent from business analytic solutions previously, many organizations are now looking to intensify their use of this important data source to improve decision making.

Relying on standard address data impedes data quality Forward-thinking financial institutions are


Managing Risk

recognizing that standard systems of identifying addresses, such as those based on municipal registries or postal addresses, introduce inherent ambiguities into their databases. For example, many streets have multiple valid names, such as Highway 48, a roadway that runs north/ south in Ontario. This roadway begins in the south as Markham Road changes to Highway 48, becomes Main Street as it runs through Markham, then switches back and forth as either Highway 48 or Markham Road as it continues northwards. The ambiguity created by these multiple names is complicated even further by the fact that there is also a Main Street in Unionville, which is a suburban village of Markham. Another hurdle in location analytics is ensuring data quality. For instance, a city name might be spelled in multiple ways, or different abbreviations may be entered for the same location. Additionally, as organizations grow through mergers and acquisitions, the problem is compounded by inconsistent data entry and data definitions between various systems. All of these ambiguities potentially impact a financial organization’s ability to mitigate and manage risk. For example, in the case of a mortgage loan, it may be difficult to answer essential questions such as: ◉◉ Does the property actually exist? ◉◉ Is it identified consistently? ◉◉ Is everyone in the mortgage ecosystem referring to the same property? ◉◉ Is the property subject to any environmental or demographic factures that require further risk assessment or result in greater assumption of risk?

Location intelligence solutions are designed to overcome these kinds of obstacles.

The benefits of geo-coding for accurate location analytics Reliability: At the core of location analytics


is geo-coding, an identification method through which location data becomes geoenabled. Unlike standard address systems, geo-coding identifies a precise location through geographic coordinates (latitude/ longitude) with rooftop-level precision. The location data can be further verified through various external means, providing a high degree of reliability. Addresses can be assigned a unique address identifier that eliminates the risks of misidentifying the property. This approach, for example, enhances the effectiveness of collaboration among disparate parties in a property-based lending system by giving them a common denominator in the form of a unique ID to refer to a property. There is no possibility of an address mismatch, enhancing the decision-making process. Using geo-coding when referencing a property will overcome the ambiguities and inaccuracies of standard address systems, providing the reliability that financial institutions need to achieve seamless coordination and transitions among all those parties involved in financial transactions involving a location. Enhancing risk assessment: In addition to the benefit of enhanced data reliability and coordination, precise geo-coding can also improve risk analysis and management. Clean, accurate location data can be enriched with demographic data and displayed on maps to enable visualization of risk concentrations, trends and patterns that might otherwise be difficult to discover. Once the precise location identification of a given property is determined, location analytics can layer critical data to that property. By overlaying available data; past, present and predictive information can be incorporated into the analysis. Environmental, weather and demographic data can all provide insight into the potential risks from events such as floods, earthquakes, railways, pipelines, weather events, crime and more. Financial institutions can also incorporate risk mitigation/risk diversification strategies by infilling (or adding) addresses with specific territories that are not in their current database.

Improving fraud management: Another advantage of location intelligence and its geo-coding capability is the ability to improve fraud management. Fraud management represents a multi-billion dollar issue for the banking and insurance industries in Canada. Geospatial analytics tools can provide access to a rich library of address-related content relevant to fraud management, including names and phone numbers, demographics, firmographics, flood data, environmental risk information, land use data, earthquake boundaries and more, helping to unlock useful information that allows financial organizations to connect the dots on previously hidden fraud schemes. For example, accurate geo-coding can help verify property and casualty insurance claim locations, identifying whether a claim has originated in an area where a stated loss event, such as a flood or hail damage, actually occurred. Geospatial data can be used to identify the exact area affected by a natural disaster, which helps determine the aggregate amount of risk to insured properties and weeds out claims that are filed from areas not located in the affected zone.

The bottom line With the inherent accuracy provided by geo-coding and the analytic capabilities afforded from a vast number of related data inputs, location intelligence is a power tool for risk mitigation. Whether for data governance, risk assessment, fraud management or identifying and mitigating risk exposure, leveraging highly visual, interactive and user-friendly geo-location tools holds a host of potential benefits for financial organizations. Ultimately, building location intelligence into existing analytics will help organizations realize a competitive advantage through better decisionmaking informed by a wealth of locationbased information. Robert Szyngiel is the director of product management at DMTI Spatial. Szyngiel has 15 years of experience in the architecture, design and development of enterprise datasets for Canada. For more information, visit www.dmtispatial.com.



Your Business Regulatory news

How to Fuel Business Growth with Working Capital By Paul Roman


ike a plant needs water, every business requires a great deal of working capital to grow; however, getting access to capital isn’t always easy nor is finding the time within an ever growing to-do list to prioritize it. To create the cash flow necessary to fuel growth and capitalize on the next big opportunity the market affords, forwardthinking businesses must be resourceful. They also must recognize that how they manage their capital today will define their competitive position tomorrow. With that said, here are three smart steps companies can take to manage their cash flow and fuel their growth:

Eliminate operational inefficiencies The first step is to take a close look at your specific business—what are your cash needs and what is your current cash position? Will certain vendors offer you extended terms, volume discounts or early pay discounts? How are you paying for your business expenses and is there a more efficient or advantageous way to do so? Take a holistic look and explore ways to streamline



your processes, create efficiencies and maximize cash flow. Switching from paper cheques to electronic payments is one significant way to eliminate inefficiencies. With digital payment solutions, you can pay suppliers directly while getting a consolidated statement at the end of each month. In addition to reducing inefficiencies associated with cheques, your employees will be freed from cumbersome, time-eating manual calculations. You’ll also reduce your risk of fraud and gain better payment tracking and control. Keep in mind, having greater visibility into your business expenses will really help if you’re looking to renegotiate terms with your bank or lender.

Restructure payables and receivables Next, you need to reexamine how your business is distributing payments to merchants and vendors. Prioritizing them by due dates and interest rates and structuring your payables accordingly can add flexibility to your cash flow. Also think about utilizing a program or service to help your accounts

payable department make the process more efficient. Finally, make an effort to invoice quickly when pursuing receivables and consider offering incentives for faster payment. Be cautious, however. For companies with small margins, discounts for early payment may not make sense. Make sure your margin can cover it.

Create a mutually beneficial relationship with suppliers Taking advantage of available credit is an excellent way for your business to take greater control over your accounts payable, maintain liquidity and improve cash flow without negatively impacting your relationships with banks, lenders and suppliers. New working capital management solutions, such as American Express Buyer Initiated Payments, can act as a bridge, taking responsibility for financing your company’s payment terms with suppliers. Once you receive an invoice for the services/products, you can use the payment solution to settle up with your supplier immediately. Not only will the quick payment strengthen your relationship with your supply chain, you will then

receive an additional 58 days (or more, depending on the date the supplier submits the charge) to settle the payment. Essentially, this gives your business access to an alternative funding source that allows you to cover your payables while improving operational cash flow. And suppliers get paid sooner, so it’s a win-win. By following these simple steps, you might be surprised by how much additional cash flow you can create for your business. Organizations that focus on improving working capital can almost immediately lower borrowings, boost customer service levels and supplier relationships, increase profitability and, most importantly, free up cash for new initiatives/projects. Make no mistake, working capital is a competitive advantage that all Canadian businesses should be looking to capitalize on, and there’s no easier way to start than by setting up electronic payments. Paul Roman is vice president and general manager, global commercial payments, American Express Canada.


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Enabling Faster (and Secure) Payments D

By Arjun Kakkar

igital commerce is growing1, but it still represents less than 15 per cent of the total global retail business value2. One key reason is a far-from-seamless shopping experience. According to a study by the Baymard Institute, almost 70 per cent of U.S. shoppers end up abandoning their shopping carts3. Of these, about a fourth of users who were not just browsing abandon checkout due to a long or complicated checkout process. In Canada, six out of ten people surveyed say that a smoother checkout experience motivates them to choose one online retailer over another4. This hassle shoppers undergo extends to payments. In the U.S. last year, 97 per cent of physical store orders were approved by Mastercard. Yet barely 82 per cent of online orders were authorized5. This gap would be acceptable if it reflected elevated fraudulent attempts online, but that is not the case. According to a U.S.-based study, 25 per cent to 35 per cent of declined card not present transactions are false declines6.

Changing the rules

By giving consumers unrestricted access you risk high fraud and chargeback costs.



The resulting global cost of friction in online commerce could be well above a trillion dollars, according to estimates of my company, Ekata. What’s stopping us from capturing this massive opportunity? The biggest reason is the lack of trust between consumers and businesses. From the consumer’s standpoint, they may not trust the merchants or payment providers enough to start sharing data. In Canada, more than half the respondents to a recent survey were concerned about the security of open banking, which allows third parties to make payments on behalf of customers and get secure access to customers’ financial transaction data7. Meanwhile, merchants and payment providers struggle with the balancing act between the customer experience and fraud prevention. If you focus more on improving the user experience by giving consumers unrestricted access, you risk high fraud and chargeback costs.

Canada and other countries are moving to faster payments. But faster irrevocable payments also require faster fraud monitoring. If consumers can move money quickly, so can criminals, making it more difficult to trace the final destination accounts. On the other hand, if you focus on reducing fraud losses, you give your consumers a lousy user experience and lose lifetime revenue. Most importantly, in both these cases, the merchant loses customer trust. Fortunately, we can mold this dichotomy to lower friction and fraud by utilizing data and machine learning.

A practical faster fraud prevention approach We recommend three interrelated imperatives. 1. Utilize relevant data across the ecosystem. The first step is to utilize all data that could help with risk signalling, including the device, behavioural, identity (including name, e-mail, IP, phone and address) and transaction data. In our experience, risk signals based on customer networks are invaluable. Industry players should also collaborate to share data that aids risk decisions.

In a world where fraudsters are increasingly sophisticated in recreating customer identities, data from multiple sources will help find unique markers that identify the human behind a digital identity. Sourcing the data is only a part of the challenge, even after ensuring security and privacy. The more significant struggle is in putting this data to good use. 2. Use machine learning (ML) modelling before authorization to assess risk. The unique needs of real-time fraud detection, including large and diverse data sets, realtime decisions and continuous learning cycle times, make it an ideal candidate for ML models. We observe it in practice: our customers that use ML models realize disproportionately higher benefits versus those who use rule-based systems.

That said, ML for fraud is a challenging


Courtesy Ekata


problem. It is hard to get model training data since more than 99 per cent-plus of cleared transactions are not fraudulent. The data may not be labeled right since some of the "friendly fraud" or legitimate transactions may be marked as fraud. If your model is doing its job well, only the hard-to-find fraud will go undetected, and subsequent models you build on this new data will start getting worse at detecting the easier fraud. Finally, another problem with ML when you use diverse data sources is “preprocessing” or preparing data for modelling. These are hard but solvable problems, but you do have to invest in long-term capabilities to capture the power of ML in fraud. Merchants and payments providers also need to assess risk before account opening or payment authorization. The additional information is useful to determine the signup process. Without such a process, merchants tend to put all customers into a single high-risk high-friction bucket. For example, Europe’s new Payments Services Directive 2 (PSD2) directive requires “Secure Customer Authentication” or SCA, a high-friction authentication in case the payment service provider has not assessed the transaction risk.


3. Understand the customer's context to drive better user experience. Each merchant and payment provider need to earn consumer trust. It starts with ensuring security and privacy. Luckily, regulations, such as the Personal Information Protection and Electronic Documents Act (PIPEDA) in Canada, give us an excellent framework for taking responsibility for consumer data. They put the consumers back in charge of their data, and consumers will only share their data with the brands they trust. As a result, brands that consumers trust have a differentiated market advantage. For example, PSD2 has a provision that may let consumers whitelist a business and avoid the need for future high-friction authentication.

An excellent user experience also drives consumer trust. To build a better online user experience, you need to understand the context that brings consumers to your app and purchase your product. But there is no silver bullet to achieve this goal, and the context keeps changing even within each customer’s journey. The context during the purchase experience (which products does the customer care about?) differs from that during payment (which payment option to offer in an uncluttered interface, e.g. Amazon Pay for Prime

members). Remember, there is almost always a person, not a segment behind the digital data. The common thread is the need for reliable data that improves the consumer experience and helps catch fraud. It is not a zero-sum game for online commerce players in the overall goal to create customer value and grow the share of online commerce. Those who will collaborate will win. Together. Arjun Kakkar is vice president, strategy and operations, Ekata (www.ekata.com). He works with Ekata’s operating teams to drive customer value across e-commerce, payments, marketplaces and online lending verticals. Before Ekata, Arjun was a Principal with Booz & Company. He has a B.Tech. from IIT Bombay and an MBA from The Wharton School. 1 Global Ecommerce Association, “Global Ecommerce Report 2017”. 2 Corey McNair, “Worldwide Retail and Ecommerce Sales: eMarketer's Updated Forecast and New Mcommerce Estimates for 2016—2021”, eMarketer, report, January 29, 2018. 3 Baymard Institute, “41 Cart Abandonment Rate Statistics”, web site, 2019. 4 Payments Canada, “Payments Pulse Survey: Consumer Edition”, May 2019. 5 Mastercard, “EMV® 3-D Secure A new frontier in battling fraud in digital commerce”, infographic, 2019. 6 Vesta, “False Positives: The Undetected Threat to Your Revenue”, study. 7 “Payments Pulse”, Ibid.




The Truth about AI and Fraud M By Rich Stuppy

any merchants are increasingly turning to machine learning (ML) and artificial intelligence (AI) to help make faster and smarter decisions to automatically approve good transactions and reject fraudulent ones. The problem is that many companies that claim to use AI are just using rudimentary ML based on simple data. However, there is a better world on the horizon, where unsupervised and supervised ML come together and use technology to look at the patterns of safety that exist and weigh them against risk signals and anomalies to catch things that are “low safety” and high risk, including new types of fraud attacks. This is the sweet spot of stopping fraud and maximizing revenue.

Why AI

It’s essential for any fraud detection system to not restrict its focus to the payment instrument itself.

When it comes to fraud, AI has the ability to emulate the judgement and decision process of an experienced fraud analyst, yet do it faster, more accurately and at a much larger scale. It also can detect if a new type of attack is underway, thus greatly increasing the effectiveness of fraud prevention. Utilizing AI for fraud prevention is especially important in Canada where the digitization of payments is quickly evolving. Payments Canada reports that Canadian consumers are increasingly opting for digital methods of payments, such as contactless, online transfers and in-app purchases, rather than traditional forms like cash and cheques. For example, contactless transactions accounted for about 29 per cent of all point-of-sale card payments in 2017, up from only seven per cent in 20141. Here are best practices for deploying an AI fraud prevention solution that can truly help transform your digital business.

Implement supervised and unsupervised ML Here’s why. Supervised ML models, which are trained on past activity, can detect known fraud attacks, but they fall short in detecting new attacks.



Unsupervised models, for their part, can identify anomalous behaviour that indicate a new type of fraud attack. However, those anomalies are not always malicious. For example, maybe you just launched a new marketing campaign that went viral, and suddenly you have massive amounts of new customers making purchases that are different from what you’ve seen before. That’s an anomaly, but it’s not fraud. Once the anomaly is detected it still takes human intervention and supervised ML to make the proper judgement calls and ensure that these good transactions are not rejected. The combination of supervised and unsupervised ML then allows businesses to better weigh key variables and patterns against each other, so they catch high-risk transactions: while allowing legitimate transactions to move forward without any friction.

Build more complete digital identities It’s crucial to gather a lot more data than is typically collected by payments processors, whose ML models use just a handful of basic payment details—such as the credit card number, expiration date and postal code—to detect fraud. Instead, data sets should include additional critical information like e-mail addresses, device fingerprinting, mobile phone numbers and about how long those people have been customers. All that data can be used to build more complex ML models that are significantly better at detecting fraud. What’s more, building a more complete digital identity for each customer is increasingly vital, especially as payments today are becoming less credit card-focused thanks to the rise of digital wallets and mobile payment systems. It’s essential, then, for any fraud detection system to not restrict its focus to the payment instrument itself, and instead to piece together a true digital identity for each customer.


Courtesy Kount


Understand your risk tolerance Here’s an illustrative comparison. A gaming company that sells high-margin virtual goods typically doesn’t mind a little bit of fraud if it makes the buying process more frictionless for all their good customers. The gaming company wants to make sure they get as many transactions as possible with the lowest number of declines. By contrast, a business selling expensive diamond jewellery has a much lower tolerance for fraud. So, what is your tolerance for fraud? Can you afford to introduce more friction for customers in order to reduce your number of chargebacks? And can the AI and ML in your fraud detection system be modified


to support your level of risk tolerance? The ability to easily customize your AI to match your risk tolerance is a critical requirement.

Keep improving data quality Giving the right information to your ML model can vastly improve its accuracy and effectiveness. For example, there are many reasons a transaction can result in a chargeback, such as delivery delays. You don’t want your model to decline a transaction simply because it originated in an area that traditionally experiences a lot of chargebacks due to that factor. Providing the right data and proper tagging can help eliminate that issue.

Protecting data and ensuring the authenticity of every transaction is the key to earning and keeping the trust of customers. The biggest benefit of AI is the ability for businesses to quickly arrive at highly accurate decisions that not only reduce fraud, but also drive bottom-line outcomes, such as lower operational costs and higher revenue. Now that’s just smart business. Rich Stuppy is chief customer experience officer at Kount (www.kount.com). 1 Michael Tompkins and Viktoria Galociova, “Canadian Payment Methods and Trends: 2018”, Payments Canada, report, December 2018.



Regulatory news Payments

Preventing ATM Cash-Outs By Stacy Gorkoff


he ability to detect ATM cash-out attacks as they are unfolding—not after the damage is done— continues to be a priority for IT operations and payments security teams. In today’s complex and ever-changing threat environment there remains no “silver bullet” that provides financial institutions blanket protection from fraud. In fact, according to the 2018 True Cost of Fraud study, published by LexisNexis Risk Solutions, every dollar of fraud now costs banks and credit unions roughly $2.92 in associated costs, a 9.3 per cent increase over 2017. Early warning fraud detection is becoming more challenging due to: ◉◉ High-risk visibility gaps. Many of today’s advanced persistent threats are designed to fly under the radar of traditional singlepoint monitoring payment fraud defences or bypass back-end fraud management systems entirely; ◉◉ Increasing logical attack complexity and evolving criminal methodologies. New payments system vulnerabilities are being exploited through a combination of specially crafted malware, social engineering, siphoning and coordinated attacks; and ◉◉ Increasing infrastructure costs and resources. Many small to medium-sized financial institutions often have less sophisticated cybersecurity controls, fewer resources and smaller budgets, but face more third-party vendor liabilities.

Evolving fraud prevention requirements Cash-out schemes that involve multiple attack vectors over a very large attack surface continue to happen, despite the



high level of security implemented within many PCI DSS-certified environments. Here are several high-profile examples. May 2018. The Central Bank of Mexico announced that hackers had stolen as much as USD $15 million from five companies by tapping into bank payment systems and performing numerous fraudulent transactions, including cash withdrawals. August 2018. The Federal Bureau of Investigation (FBI) issued warning of a global ATM cash-out scheme. Within days of that alert, India’s Cosmos Cooperative Bank was attacked. Cybercriminals installed malware on the bank’s debit card payment system, access card information, remove fraud controls, such as maximum withdrawal amounts, and exploit unlimited network access via fake or proxy servers. Criminals made off with over USD $13.5 million, using cloned cards to orchestrate 12,000 ATM transactions over a two-day weekend across 28 countries including Canada, Hong Kong and India. October 2018. The United States Computer Emergency Readiness Team issued a joint Technical Advisory from the Department of Homeland Security, the FBI and the U.S. Treasury warning banks about the ATM cash-out scheme called “FASTCash”. In this attack, very specific financial request and response messages, for example ISO 8583, were targeted and fraudulent transactions went under the radar as traditional monitoring does not detect these kinds of attacks. This attack was also conducted across borders so that in-country controls were bypassed. January 10, 2019. Visa issued an advisory to U.S. payment card issuers, advising them to be on alert for suspected ATM cash-out fraud schemes. Card issuers have been asked to increase their monitoring of ATM traffic and report

any suspicious activity, especially ATM withdrawals involving prepaid cards. May 2019. Dutch Bangla Bank Limited (DBBL), a local Bangladeshi Bank, was hit with a USD $3 million ATM cash-out attack when a Russian hacker group installed malware on one of the bank’s switches, thereby creating a proxy switch that went undetected for months. The malware was only uncovered after Visa tried to settle payment transactions with DBBL. By routing transactions through the proxy switch, hackers were able to withdraw funds from ATMs located in Cyprus, Russia and Ukraine without the bank ever knowing.

There remains no “silver bullet” that provides blanket protection from fraud. Why a multi-layered approach Traditional fraud system management tools that make use of contextual information to analyze transactions will provide one layer of defence against cash-out attacks. But common single point monitoring solutions, such as those listed below, still run a risk of being compromised. MAC’ing. Message Authentication Code or MAC’ing solutions add an additional layer of security by ensuring message integrity from the sender (ATM) to the receiver (Financial Switch or Authorization Host). But sometimes the fraudulent transactions never reach the authorization realm that would normally perform MAC verification. In the case of the “FASTCash” attack, which in essence is a variation of the “man-in-the-middle”


Payments attacks we have seen in card-not-present transactions, this lack of visibility therefore causes MAC’ing to offer little in the form of protection. Transaction signing. Similar to MAC’ing, transaction signing may also fail to stop certain cash-out schemes. If the proxy switch or malware is inline, the transaction never reaches the real authorization realm and an ISO 8583 approval response is provided to any transaction being routed to the transaction switch, rendering transaction signing irrelevant in this situation. Malware management. In the case of the attack launched against Cosmos Bank, many banks may be inclined to assume that a malware management tool will suffice in preventing this sort of attack. Yes, malware management tools will be one layer of defence against such an attack, but it should not be the only one. These solutions can be compromised as well. EMV chip and pin. Another common layer of defence is EMV chip and pin, and this has definitely limited the number of ATM cash-out attacks happening in Canada. But if attackers are using terminals from across the world that allow fallback transactions, EMV chip and pin will not be able to stop this attack. Fraudulent fallback transactions would be intercepted and approved by the proxy switch or malware and would never reach the real transaction switch or back-end, meaning the EMV check is never done.

Adding real-time, transaction-level monitoring With the right set of real-time, statistical and machine learning techniques that build adaptive behavioural models, transaction-level monitoring and alerting has proven to be a reliable and cost-effective way to monitor for suspicious card activity and identify outlier transactions. Furthermore, it also provides the ability to monitor for message field tampering, missing transaction links and routing issues. Having a tool that independently analyzes every end-to-end transaction protects you from rogue switches approving fraudulent transactions. Multi-point, network-based data


collection capabilities give you the power to immediately identify potential fraud attacks, even if these transactions bypass fraud management systems or if the fraud management system has been overridden by malware. Risk scores can be assigned to each individual transaction. Flexible real-time alerts flag high-risk transactions and anomalies such as: ◉◉ Missing back-end transactions for identifying “man-in-the-middle” attacks. Fake processing where a transaction enters the payment switch, but never reaches the host for authorization due to switch malware or card compromise; ◉◉ A rise in transaction declines, unexpected EMV fallbacks, consecutive magnetic stripe transactions or reversal rates. They would be for a certain BIN (bank identification number) range, card type or group of devices; ◉◉ Excessive transaction clearing or standin transactions by the switch: over a set amount of time; ◉◉ Unexpected transaction anomalies and a rise in failed transaction rates. The transactions from a certain card or switch are failing or flagged as suspect activity due to high transaction volumes or unusual repeat card usage by device or geography; ◉◉ Increase in foreign card transactions. High volumes or unusual repeat foreign card usage from on-us and off-us locations. ◉◉ Status codes and response code errors. When a MAC or other TCP network error occurs, causing transactions to decline or be incomplete; ◉◉ Suspicious repeat terminal usage. This could be triggered by repeat card usage or transaction volume limits exceeded within a set amount of time; ◉◉ Isolating terminals used in a coordinated ATM cash-out attack. Creating visibility into implausible transacting scenarios, such as multiple devices or countries where the same bank card is being used in a limited period; ◉◉ High withdrawal velocity or abnormal numbers of high-value transactions. Flagging transactions based upon high volume, high amount or unusual repeat card usage at the same terminal or across an unlikely geographical area; and ◉◉ Distance-based card fraud. Knowing

when the same card is being used for two consecutive ATM transactions that are not physically possible or likely.

Extending real-time detection to real-time prevention Immediately detecting suspicious activity and receiving real-time risk advice for every transaction is a great advance in the battle against fraud: often helping IT operations and payments security teams evaluate and take action within minutes. While real-time suspicious activity monitoring is an essential layer to any fraud prevention strategy, it can still be too late to stop fraudulent transactions. When selecting a real-time transaction level monitoring tool, it is essential that it also include fraud prevention capabilities, such as intelligent infrastructure adaptation rules and port blocking that identify and reject transactions that do not conform to end customer behaviour patterns. With a combination of realtime fraud detection and prevention, IT operations and payments security teams can now halt fraudulent transactions before they are approved. By utilizing real-time alerts to instruct firewalls to block suspicious traffic in flight, you can stop fraudsters in their tracks before they impact your bottom line. In light of all the headline-grabbing ATM cash-outs and cyber security breaches we are continuously hearing about today, it’s understandable that your financial organization might be looking for ways to prevent being thrust into the spotlight. If this is the case, a multi-layered defence strategy will help you secure your systems and information assets, meet customer security expectations and be ready to defend against cash-out attacks. Stacy Gorkoff is vice president of marketing and channel development for INETCO Systems Limited (www.inetco.com). She is responsible for overseeing strategic marketing, brand awareness and communication initiatives. Stacy has over 15 years of experience working with leading edge network monitoring and application performance management companies in a marketing, communications and business development capacity.




The value of Robust Surveillance By Rick Snook


n 1957 a bank robbery in Cleveland, Ohio, where a man and his accomplice forcefully approached a teller, stuffed over $2,000 in a bag and ran out to their getaway car, became the first ever to be captured on film and caught soon after1. Fast-forward from that single analogue camera to today’s sophisticated digital security system and it’s clear that surveillance has come a long way. With every new step that financial institutions take, from adding more ATMs to launching mobile banking platforms, criminals try equally novel methods to circumvent security measures. While the age-old hold-up has given way to cybercrimes like sophisticated phishing campaigns and identity theft, it’s at the ATMs and the branch level where the final criminal acts are often committed. The losses are staggering. In 2016, Canadian banks reimbursed customers for more than $900 million in losses as the result of credit and debit card fraud, according to the Canadian Bankers Association2. A robust surveillance system based on high-definition (HD) cameras remains one of the best ways to investigate a crime while providing a deterrent. Here are the key areas that these systems can help. ATM vestibules. Most ATMs today have built-in cameras that can provide high-resolution images of the persons conducting the transactions while protecting the privacy of their PIN entries on the keyboards. A flexible HD camera installed discreetly can capture and identify features of the users. Comparing transaction data and tying it to the videos can be useful when investigating claims of card theft. In-camera analytics can detect “card mining”: when someone has been using multiple cards to withdraw money from multiple accounts for a prolonged period. Remote access allows you to facilitate investigations quickly without accessing the ATMs. An anti-tampering alarm will immediately alert security if someone has covered or redirected the camera and audio detection functionality sends an alert when specific sounds are produced, like glass breaking.




Payments Behind the scenes security. Bank and credit union branches handle significant amounts of cash, and supervision of areas behind the ATMs is therefore also required. Whether it is the process of reloading ATM machines or pulling out and reconciling the day’s deposits, transactions and cheques, this is a vital area that needs to be secured and monitored. Loitering and peeking. Another concern with ATMs is loitering: a predominant problem notably in urban areas where homeless people use ATM vestibules as shelters. Loitering software can detect when someone has been in the vestibule for a set period and will send an alert to a central investigation office or directly to security staff, who can move them along. While loitering is generally more of a nuisance than a crime, it does create a risk for individuals using ATMs and an uneasiness about the level of safety. In Europe, cameras with audio capabilities have been deployed to detect when a person comes too close to someone using an ATM. If this happens, it will queue an audio message that is played from a speaker to alert the ATM customer as well as prevent someone from creeping up and looking over one’s shoulder to obtain a PIN number. Entrances and exits. Branch exits and entrances should be secured with HD cameras that can capture clear facial shots, even in poor lighting, so that it would be possible to identify a person


if a crime was committed. Lightfinder technology allows for colour video even in very low light conditions, which can be of utmost importance for accurate identification of people, vehicles and/ or incidents. When most day-and-night cameras would switch to night mode and grayscale video, cameras equipped with Lightfinder technology keep delivering colour video at all hours of the day. Facial recognition software can be utilized as well, to flag people who’ve already been identified as a security risk, either from previous activities at that branch or as someone who is known to police. Teller lines. Robberies at the branch level still happen. Installation of HD cameras at teller lines have become the norm to aid with the identification of individuals. In the cash handling process, mistakes and light fingers can cost money. But with the right cameras in place, the smallest details can be captured in every situation, so you can determine what went wrong and who was involved, with video evidence captured for use in possible claims. If analogue cameras are still in play, they can be upgraded with digital encoders, allowing the entire system to record in digital format for easy search and advanced functionality.

experience. Camera analytics provide information of when peak periods occur by monitoring the foot traffic and length of time spent in the branches and at the ATMs. With this valuable data the bank or credit union can provide an enhanced customer experience by adjusting their branch staffing levels, opening additional tellers to reduce delays, and adjusting the number and location of ATMs and vestibule features, resulting in improved customer satisfaction. We’ve come a long way since the 1957 bank robbery video footage, and today’s changing threats and business needs require enhanced security solutions. With a robust network of HD cameras armed with analytics we are innovating for a smarter and safer world. Rick Snook is business development manager for Axis Communications (www.axis.com), which provides network video and security and surveillance solutions. He has over 34 years of sales, marketing, technical and design experience in the electronic security industry. Rick has been involved with industry associations such as the Canadian Security Association, ASIS and the Security Industry Association for many years. He was awarded the R.A. Henderson Award for his achievements within the security industry and making significant contributions to the

Analytics for branch and ATM transformation. Surveillance is primarily used for security purposes, but using it to enhance the business for operations, safety and marketing purposes can transform the customer

advancement of the interests of the entire industry. 1 Alaina Nutile, “In 1957, Cleveland was the first city in the world to capture a bank robbery on film”, Cleveland Scene, October 29, 2014. 2 “Focus: Protecting Canadians from Fraud”, Canadian Bankers Association, web site, September 20, 2017.




How to Outwit Fraudsters S By Greg Brown



tealing a person's hard-earned money is nothing new. However, in today's world of almost instant payments, the methods used by fraudsters for payment fraud have evolved. While the digitization of payments has made making financial transactions more convenient for consumers and financial institutions (FIs), it has also made detecting fraudulent transactions increasingly difficult. After all, instead of days, transactions worth millions can now be completed in a matter of mere seconds. On average, 12 million transactions are conducted via debit card in Canada each day, stated the Canadian Bankers Association. This makes Canadians among the highest users of debit cards and hence puts the group at high

risk for payment fraud. Most Canadian banks offer zero liability fraud policies. In 2017, retailers lost a total of $31 billion due to chargebacks alone. The industry is now losing 1.8 per cent of all revenue to fraudsters and related fees, according to Chargebacks911ÂŽ. Thus, the need for fighting payment fraud is very apparent.

Common payment fraud types With payments turning digital, fraudsters no longer need to be in the same geographical vicinity to steal a person’s money. Identity theft is the most common form of payment fraud. Given the ease with which information about a person is available on social media platforms, criminals can easily impersonate an individual


Payments the digital economy facilitates faster transactions between individuals, businesses and FIs, fighting payment fraud has become a priority. Existing security measures such as chip-based cards have already significantly reduced the extent of card-present fraud. FIs like banks and credit unions also advise consumers to follow simple strategies such as: ◉◉ Informing suppliers after invoices have been paid; ◉◉ Verifying requests for changes to supplier’s account details; ◉◉ Removing personal information from social media platforms that could be used to hack into your account; and ◉◉ Not divulging account and security details to anyone.

Here are several other key steps and tools to take to fight fraud.

and hack into their bank accounts. Once they have access to the individual’s card details, they can use it for card-not-present (CNP) transactions on online platforms. Other common types of payment fraud include false invoicing, which relies on individuals not paying adequate attention to invoice details, scam e-mails and phone calls. According to a report released by Emerging Payments Association, up to two-thirds of all payment frauds involve deceiving individuals into disclosing their security details.

Fighting fraud As the payment industry evolves and


1. Two-step authentication. In many cases, thieves can conduct fraudulent transactions by hacking into smart devices. Introducing two-step authentication makes conducting these transactions more difficult as long as the second step of authentication is through a different mode. One-time passwords sent to mobile numbers or e-mail addresses are the most common form of two-step authentication. 2. Biometric authentication. Biometric authentication uses an individual’s unique physical characteristics to verify their identity as an additional security layer. Fingerprints, voice recognition, iris recognition and face recognition are the most common biometrics used. Biometric systems are difficult to fool and are easily accessible. Embedding biometrics in payment systems ensures that transactions are being made by the person holding the account and not by an imposter. 3. Stringent Know Your Customer (KYC) procedures. These include electronic Identity Verification (eIDV), which is a tailorable process that helps secure financial transactions without compromising on convenience. Realtime authentication provides a quick solution to KYC by matching names to addresses. It ensures fast onboarding or e-commerce checkout while protecting against fraud and money laundering

without having to spend a ton of money.

Additional levels of authentication can be added on depending on a company’s specific sign-up process and risk management requirements. EIDV can check national ID and age, match against international watch lists and perform Politically Exposed Persons (PEP) screening. For this to be enabled, organizations must have access to reliable data that can be verified across multiple sources. This is known as 2x2 verification. Once completed, KYC procedures must also be constantly updated. Accurate customer identification not only protects the consumers, but it also protects FIs from transactions involved in money laundering, thus protecting their reputations. 4. Machine learning and behavioural analytics. Machine learning uses historical data associated with an account and complex data analysis to understand patterns of legitimate payment transactions. Combining this with human insight, it can help identify and prevent potentially suspicious or unusual transactions that may be fraudulent. Neural networks and artificial intelligence (AI) can also be used to spot suspicious or erratic card usage.

The bottom line When companies truly know their customers, they greatly reduce the risk of fraud and chargebacks, save time, money and resources and are able to provide more efficient customer service. As FIs and criminals strive to outwit each other, the combination of technology and human expertise will play a crucial role. Above this, it is also important for governments, law enforcement agencies and industry players to collaborate and work together to win the war on payment fraud. Greg Brown is vice president of global marketing, Melissa (www.melissa.com). Greg powers Melissa’s brand management, business-to-business, Internet and e-mail marketing strategies. He is an ANA-certified Marketing Professional and having worked for more than 15 years on both the client and the agency side, he brings a unique perspective to developing creative, results-oriented marketing programs to acquire and retain customers.




Responding to Evolving Cyberthreats N

By Roman Mykhaylyshyn

ew and constantly evolving technologies, including in the payments industry, are resulting in new products and services, and as such they have become an integral part of day-to-day lives: and this trend is far from over. However, as with most things, innovation comes with risks. With digital information becoming increasingly valuable, data breaches, private information exposure and cybercrimes (like ransomware, malware, cracking and social engineering) have caused disruption and have forced many organizations to invest in cybersecurity. But despite these security risks, the benefits of speed and convenience of these new technologies to the consumer (like contactless and mobile payments) can outweigh the risks of potential compromise.

Payment trends

…being proactive and prepared to respond to information incidents has become a critical element of successful breach response strategies.



A few industry-wide trends are evolving in the payment eco-space that have impact on consumer information and security: ◉◉ Payment streamlining. In the spirit of enhanced consumer experience, organizations will look to further improve payment processing by adopting innovative technology. With more players entering this space, data flow, crossborder information traffic, ongoing upkeep and maintenance of tech stacks—and encryption innovation and information security—will become even more important; ◉◉ Fraud. While traditionally considered a problem of financial institutions or individuals, organizations that process payments run the risk of improperly safeguarding consumer personal and financial information. In some instances, storing too much information or focusing on the transaction processing aspect of the interactions with cyber protection can be considered lower priority; ◉◉ Cost versus benefit balancing act. Frictionless transactions will demand

businesses to carefully consider the trade-off between potential fraud mitigation and revenue decline due to consumer attrition; and ◉◉ Cross-border transactions. With scale and market share gain being of importance to most businesses, especially in North America, one must be careful to determine the impact of data being shared across the border with regards to privacy and legal ramifications as well as data safeguarding.

While the onus and responsibility for above mentioned actions often falls on the organization, being proactive and prepared to respond to information incidents has become a critical element of successful breach response strategies. Mandatory security safeguards breach notification came into force in Canada as part of the Personal Information Protection and Electronic Documents Act (PIPEDA) in November 2018, and advanced preparations for incidents can be useful as a mitigating factor with regulatory bodies. Credit reporting agencies can help as they have access to personal and financial information of millions of Canadians. Some of them offer breach response solutions available to help manage the customer lifecycle in response to a data security incident. Organizations can embrace advanced solutions that provide a robust breach response toolkit, comprising products, services and consultative assistance.

Steps to take While each incident is unique and will require a tailored response, there are certain actions organizations will need to take, regardless of the nature of the incidents. Investing in breach response solutions that assist in protecting consumers from potential identity theft and the preservation of organizational reputation and credibility is no longer an option for organizations.


Payments An organization’s cyber protection framework can be built on three key pillars. 1. Readiness. “It is not a matter of if, but when and how badly” is not just a catch phrase. Having a proactive plan and arrangements in place could save a lot of time and cost, especially in a crisis. In the event of a breach, it’s important for organizations to prepare and activate a response plan to help protect their customers, and to have the right processes and partnerships in place to minimize potential damages. 2. Response. Credit monitoring is often considered as a default breach response tactic. While credit reporting agencies provide these services, organizations should continuously look to assist consumers by not just offering access to credit scores and credit alerts, but by also incorporating relevant value add enhancements. Examples of such enhancements can include identity theft insurance, dark web monitoring and identity restoration.

3. Remediation. While providing consumers with a level of protection is important, it is also important to have frameworks that can empower impacted individuals with relevant and timely education. Understanding “what” usually comes first, followed by “what do I do now?” Providing educational information through online resources, coupled with expertise and guidance facilitated by the dedicated breach call centre agents, can go a long way.

In today’s reality, any organization with digital access to consumer information is potentially vulnerable: from financial institutions, consulting firms, retailers and healthcare providers through to government institutions. In the event of a breach, it’s important for organizations to prepare and activate a response plan to help protect their customers, and to have the right processes and partnerships in place to minimize potential damages.

In today’s reality, any organization with digital access to consumer information is potentially vulnerable

Roman Mykhaylyshyn is head of consumer solutions at TransUnion Canada (www.transunion.ca).

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Why Compliance for Blockchain/ Cryptocurrencies? Amber D. Scott

By Amber D. Scott


ost compliance professionals first hear about cryptocurrencies, like bitcoin, and blockchain projects in terms of risk. Questions then arise: from whether these products can be used to launder money and finance terrorism (yes, as can every other payment method, but they aren’t great for this purpose), to whether or not it’s prudent to expose personal information on a public blockchain (it isn’t). Nonetheless, there is a massive potential for both good and malfeasance. As a result, the Financial Action Task Force or FATF has recently issued guidance related to anti-money laundering (AML) for virtual assets and virtual asset service providers1. While bitcoin wasn’t the first cryptocurrency, it may have been the first to garner something resembling longevity and widespread adoption. Two of the most common questions that I hear from the “traditional” financial world about bitcoin are why any Canadian use would it, and whether it is only useful for criminal enterprises.

Why use or accept bitcoin? On the first question, it’s important to set the stage. When I’m making or receiving payments within Canada, in Canadian dollars, I generally have a lot of choice. The banking system is stable and connected. Snafus happen from



time to time, but they get sorted out. This is all true: but in each of those instances, I am relying on “trusted” third parties to complete my transactions and hold my funds. For anyone who has escaped an oppressive regime or survived the type of economic event where funds are seized or otherwise disappear from bank accounts, there will be a degree of discomfort in trusting any third party entirely. While Canada’s economic system is relatively stable and well-regulated, this discomfort remains. The ability to have financial sovereignty, and to complete transactions without intermediaries, is a significant part of Bitcoin’s value proposition. Beyond Canada, different payment challenges emerge, even within G-20 countries. Paying a vendor, even a vendor using the same bank in another country, can be expensive and arduous. Now imagine that instead, you could pay that vendor directly. Imagine that once that transaction is confirmed on the blockchain (a public ledger that can be verified by anyone), it is complete and irreversible. Imagine that this process generally takes less time than it takes to brew a pot of coffee, regardless of the amount that is sent. Imagine that the fees to send a transaction are a fraction of what you would pay to send a wire via a bank. This is how Bitcoin has been operating. It is the most hassle-free way that I’ve experienced


Payments to handle international settlements: even when accounting for learning about security, the technical jargon and bitcoin’s price fluctuations.

this is bad news for criminals that think of bitcoin as being an anonymous and untraceable way to move value.

The dark web of payments?

Nonetheless, there are real compliance challenges. Regulations that will see “dealers in virtual currency” regulated as money services businesses in Canada has just been published and will come into force in 20202. While many Canadian exchanges have already put compliance programmes and other controls in place, this is not always the case. Moreover, some of the tokens that have been traded on exchanges have been deemed to be illegal securities offerings (although most Canadian exchanges have been relatively conservative and have not offered this type of product). There are some fascinating problems (such as clear custody, auditing and fractional shares) that can be addressed, in part, through the issuance of blockchain-based tokens. For companies dealing in the

Now, let’s get to the second question: aren’t bitcoin and other cryptocurrencies just hotbeds for crime? We’ve all read about sites on the dark web selling everything imaginable. Powerful investigative tools have been developed and are being used by law enforcement and cryptocurrency exchanges. Although Bitcoin’s blockchain can be seen by anyone, names and other personal information are not generally attached to transactions. It is possible to see that the transaction happened, but it takes a bit of work to figure out who the transaction belongs to. Another important note is that transactions on Bitcoin’s blockchain are immutable. This means that they cannot be altered or erased. Taken together,

Clear guidance is needed

cryptocurrency space and those that serve them, clear guidance from regulators is key to maintaining the thriving and innovative industry that is emerging in Canada. In some cases, this may include the adaptation of existing regulations, as with AML, or the creation of new regulations (securities regulations requiring many layers of custody doesn’t make sense for fully traceable digitallynative asset classes). It may also entail the enforcement of existing legislation. In any event, it will be important to bring all stakeholders to the table to engage in meaningful dialogue. Amber D. Scott is founder, CEO and Chief AML Ninja, Outlier Solutions Inc. (www.outliercanada.com). 1 Financial Action Task Force, “Guidance for a RiskBased Approach to Virtual Assets and Virtual Asset Service Providers”, report, June 21, 2019. 2 “Regulations Amending Certain Regulations Made Under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2019: SOR/2019-240”, Canada Gazette, Part II, Volume 153, Number 14, June 25, 2019.





Risk. Reinsurance. Human Resources.




Regulatory news Payments

Tackling the Regulations Challenges By Roy Farah


sk any financial services professional, like those in a major bank or in a small credit union, and they will universally name their biggest challenge in one word: regulations. Canada has some of the strictest rules in the world, and while newer initiatives like open banking are still in the discussion phase here, they’ve already been in place in the U.K. for over a year. It should come as no surprise then that compliance with them is a hot topic amongst financial leaders in a recent piece of research Western Union (WU) commissioned with Bobsguide, titled “A New Payments Paradigm”. Industry experts identified several key concerns relating to the headache of implementations. The top challenges are technical complexity, sourcing talent, impact on the client experience, cost and timelines. Together these factors are the major contributors to the success of regulation adherence. As new rules come into play, the ability for a financial institution (FI) to efficiently implement and communicate the change can vary greatly as a result.

Technical expertise deficiency Each of these factors are



interrelated. And of these, technical complexity is of chief concern. Many FIs run off legacy systems and joint programmes. Making significant changes is often an overwhelming task. Anyone overseeing this part of the business is under great pressure to ensure it does not negatively interfere with client activities, such as causing service interruptions or requiring numerous new steps for transactions. The core of these issues lies with the talent problem. There is a major deficiency in technical expertise in the financial services industry. Those with a keen understanding of technology and how to best serve the customer are in high demand. The ability to attract —and retain—these individuals will be a strong focus in the next few years, especially as FinTechs continue to grab enterprising young brains from more established organizations.

Preparedness for new rules Canadians can be excused for experiencing regulation fatigue, as recent years have brought an onslaught of new rules. In fact, more than half of professionals are less-thanconfident in their institution’s level of preparedness for new directives. But it’s not that the regulatory landscape is suddenly impossible or unworkable. It’s a huge

undertaking due to the infrastructure and processes that are deeply embedded in the industry. Simply put, banking infrastructure isn’t easily adjustable. A straightforward requirement like an activity timeout on an online platform can end up taking a substantial amount of staffing and money. The underlying platform—coupled with countless updates and fixes— likely never planned for such a need. Consequently, challenges such as these allow FinTechs, that can design from scratch with these shortcomings in mind, to swoop in and snatch customers with their easy interfaces.

Potential solutions Is there a possible solution in sight? After all, frustrated banking and credit union professionals have been dealing with the cycle of new regulations and implementations for decades. Recently, the industry has become more open to collaborating in order to tackle these new rules. In fact, more than one third of surveyed North Americans from the WU report think this is the optimal solution. After all, many businesses are dealing with the same technology and process frustrations. Working together could save both time and money. It’s still unclear just how cooperative institutions truly wish to be.

One year in the U.K.’s open banking initiative has brought both innovation and an avalanche of compliance, depending on who you ask. Canada started 2019 by receiving a comprehensive report on the possibility of implementing such a process. After weighing the pros and cons, there could be legislation in the near future. Financial professionals are asking for better support from regulators and increased staff training. On average, compliance departments worldwide have increased their headcounts based on the added demands placed on them by recent regulations. As banks of all sizes look to streamline and cut costs, continuously swelling this number is not a sustainable strategy. Industry experts hope that emerging technologies can help alleviate the burden, but current landscapes call for more manual efforts. Future hopes also include the prospect of treating regulations as an opportunity, rather than a burden. After all, recent legislation has aimed to facilitate innovation and competition. If financial professionals start to pursue their solutions to this ongoing problem, FIs can finally stop dreading the next big change. Roy Farah is the Canadian vice president of Western Union Business Solutions (https://business. westernunion.com/en-ca/).



The Reality of RTP


By Jason Mugford



ach year, payment processing inefficiencies cost Canadian businesses between $2.9 billion and $6.5 billion1. Business-to-business (B2B) cross-border payments is one notable example of this as they are particularly time-consuming and can be prone to error. Treasury professionals across industries are frustrated by the legacy systems of correspondent banks. B2B payments make up almost 80 per cent2 of all cross-border payment revenues. Yet financial institutions (FIs) have not focused on innovating the B2B customer experience for seamless digital banking to the same extent

that they have for business-to-consumer (B2C) payments. Global B2B payments also have the thinnest margins for service providers, and FIs have historically lacked the incentive to improve the inefficiencies associated with them. As small-midsized enterprises expand their global reach, however, the B2B cross-border payments market is poised to grow, presenting an untapped opportunity for payments disruption.

Need for speed Real-time payments (RTP), also known as instant payments, have a role to play


Payments in addressing the key pain points of inefficient payments processing, including speed, traceability and transparency. They offer a way to deliver payments in a matter of minutes or hours at any time of day, 365 days a year and with lower return rates. For banks, RTP is a necessary offering to stay competitive. Globalization has led consumers and merchants to expect a consistent and hassle-free payments experience wherever they are. In addition to speed, innovation in the RTP space centres around the transparency and traceability of payments. According to a SWIFT/EuroFinance survey, 47 per cent3 of corporate treasurers want competitive pricing, transparent charges and extended global coverage before embracing new technology. It is no surprise that RTP players are also looking at transparent pricing.

RTPs is still not a priority for many FIs. From increasing the transparent nature of associated liquidity, counterparty risks and compliance costs to eliminating them altogether, RTP offers an exciting alternative to traditional methods like cheques and wire transfers in improving the B2B cross-border payments journey. However, deciding on what that realtime offering will look like is still not a foregone conclusion by FIs. Considerable debate swirls around how RTP will impact operations, risk and compliance and the usefulness of the application in general. Customer-to-business (C2B) and peerto-peer (P2P) payments have naturally gravitated towards this technology: 75.1 million same-day automated clearing house (ACH) payments were made in 2017, totalling more than $87.1 billion. Yet, only six per cent of those same day ACH payments were B2B transactions4.

RTP limitations There are several limitations to RTP that suggest it is not the silver bullet solution to improve the payments processing experience for B2B crossborder transactions. The adoption of faster payments is by no means universal.


About 40 countries have RTP programmes in place or live5, but these networks are mostly only available in local currencies, so sending USD payments will not work. At the same time, while there is demand from customers for faster payment delivery, RTPs is still not a priority for many FIs. This is due to the method’s inherent risk and finality. Instant payments are immediate and irrevocable, and there are large unknowns surrounding the potential security and fraud risks into the instantaneous nature of payments. Given the current processes and payment networks, there will be limitations on the adoption for crossborder RTPs. Currently, payment providers need to set up relationships with the banks in each country to be able to take advantage of that country’s RTP. These same banking partners have minimum requirements and costs to consider before opening accounts. In addition, the due diligence process is very expensive and time consuming. The current antimoney laundering (AML) and regulatory environments, combined with the costs due to these controls, will continue to keep the rate of adoption moving at glacial pace for the immediate future.

One piece of the puzzle The reality is that while faster payments are a necessary and crucial piece of the B2B cross-border payments journey, they are still only one piece of the puzzle. Another is moving away from cheques and wire transfers. But many companies still use wire transfers and cheques still make up half of all B2B payments in the U.S.6 despite the arrival of ACH on the payments scene. Still another piece is reducing friction. Similarly, RTP has a vital role to play in the frictionless future of payments. However, it is still just one solution to reduce some of the pain points of the B2B cross-border payments experience. The potential for RTP to make fast payment settlements a reality teases relief for a major pain point currently felt by many FIs and their business clientele. While customers expect hassle-free payments, sending a payment in the blink of an eye does not directly address

the visibility or flexibility that is needed to transform the traditional payments processing experience. Reconciliation errors are a common inefficiency in B2B cross-border settlements, and the ability to plan ahead is not a capability universally enjoyed by organizations that manage and operate accounts held in different banks across the world.

Success will come down to delivering a customercentric payments experience. The shift to faster corporate payments will have profound implications for FIs and FinTech companies. Correspondent banking is already experiencing a slight decline with a 4.1 per cent decrease in the number of these relationships in 2017 compared to the previous year7. FIs are changing how they operate in order to be agile, striking strategic collaborations with FinTechs and third-party service providers to improve the efficiency and visibility of corporate payments. RTP presents FIs with the opportunity to better serve their customers. However, there are also drawbacks in the shortterm. In considering the right offering that provides faster corporate payments, success will come down to banks and FinTech companies delivering a customercentric payments experience. Jason Mugford is president and CEO at AscendantFX, a technology-based payments solutions provider. To learn more about AscendantFX, visit www. ascendantfx.com. 1 Payments Canada, “Payments modernization could save businesses billions”, press release, February 6, 2018. 2 Olivier Denecker, Florent Istace, Pavan K. Masanam and Marc Niederkorn, “Rethinking correspondent banking”, McKinsey & Company, June 2016. 3 SWIFT, EuroFinance, “64% of corporate treasurers ask for real-time payments tracking”, press release, October 4, 2017. 4 “How B2B Payments Could Find Its Footing In A World Moving To Real-Time“, PYMNTS, December 28, 2017. 5 “From Cash To Real-Time Payments”, PYMNTS, December 6, 2018. 6 Eran Feinstein, “How Is FinTech Impacting B2B Payments?”, Medici, blog, July 4, 2017. 7 “Financial Authorities Press Collaboration To Improve Global Corporate Payments”, PYMNTS, November 21, 2018.




Rejuvenating Payments T

By Roger Sholanki

he wellness industry is increasingly turning to new technologies to automate daily operations, increase customer satisfaction and drive business growth. One of the operational areas getting a technology makeover at spas, salons, gyms and other wellness businesses is payment processing. Flexible payment options, integration capabilities, mobile functionality and e-commerce solutions are some of the trending technology features wellness companies are adopting in initiatives to upgrade their payment systems.

More payment options Payment processing solutions that provide clients with convenient payment options are a must for wellness industry businesses. Clients want to interact with businesses on their own terms, and that includes paying for products and services. For limiting customer payment choices increases the likelihood that these clients will go elsewhere to a business that accepts their preferred payment methods and makes transactions easy for them. Therefore, the more payment types offered the greater competitive advantage.

The more payment types offered the greater competitive advantage.

The ability to accept a variety of payment types like Visa, Mastercard, American Express, Discover, debit, automated clearing house (ACH), gift cards and near-field communication, (e.g. Apple Pay) offers clients the flexibility they want and can pay dividends by engendering loyalty and repeat business. Offering a variety of payment options allows wellness businesses to take their business online and boost their bottom lines through gift card sales and acceptance of online booking deposits that reduce appointment no-shows.

Integration Payment solutions that integrate with existing cloud-based platforms can help wellness companies streamline operations and manage their business and payments all in one place. Cloud-based wellness management software that integrates merchant services to manage and complete payment processes smooths out business workflows and provides a seamless, uniform experience throughout the customer



journey. These integrated cloud-based systems can handle everything from pointof-sale purchases to credit card processing, membership billing and to loyalty points tracking and redemption. An added bonus is that these integrated platforms provide easier ways to handle data analysis, refunds and payment errors, freeing up wellness company staff to focus more attention on servicing clients. Another key consideration for integrating payment processing into existing cloud-based management platforms is the need for wellness enterprises to meet increased security protocols and requirements to protect sensitive customer information, including credit card data. Integrating payment systems into cloud-based platforms can help wellness businesses protect customer data and reduce the risk of costly and reputation-damaging data breaches.

Mobile functionality One of the leading payment processing trends for next year is the continued emergence of instore mobile payments as a preferred consumer payment method. Delivering unified mobile payments experiences to clients is rapidly becoming a key driver of revenue and sales opportunities for wellness businesses in order to meet consumer demand. Here’s why. Mobile payment functionality helps improve client relationships and streamlines the payment process by automatically adding sales tax, calculating tip amounts and sending e-mail receipts to customers. Mobile payment technology can also create and offer specials and discounts, such as introductory pricing for new clients and preferred pricing for top-drawer clients, displayed directly on their mobile devices. Additionally, it provides efficient sales reporting with technology that incorporates the latest industry security standards certifications. The wellness industry is seeing this client preference to forego cash in favour of secure, fast, mobile payments as more and more consumers across the globe opt to pay for purchases by waving or tapping their smartphones onto electronic readers.


Payments Canadians are embracing this trend as well. As Canada continues to modernize its payment system, cash is losing favour to contactless payments. According to Moneris, contactless transactions accounted for 41 per cent of all payments in Canada as of Q2 20181. Contactless payment options such as Google Pay provide the opportunity for spas, gyms and other wellness businesses to offer a complete customer experience, linking payment methods, gift cards, reward and loyalty programmes and special offers together in one place. This fully integrated system not only enhances the client experience, but ultimately benefits merchants by increasing customer engagement.

E-commerce solutions Many spas and wellness companies sell products online, hence need an online platform that provides the same seamless payments experiences, excellent security and payments accuracy that their customers find in bricks-and-mortar locations. These businesses are looking for e-commerce solutions that provide

online payment capabilities and which enable them to expand revenue by selling everything from products to gift cards and to memberships.

Customer demand for better and more secure payment options is driving a technological shift. Convenience and 24/7 accessibility as well as a range of available products and services attract consumers to e-commerce sites, driving exponential growth of these selling channels and increasing profits for spa and wellness businesses. To put the growth of e-commerce in perspective, as of 2018, e-commerce retail trade sales in Canada amounted to almost $1.6 billion2. Meanwhile revenue generated within the retail e-commerce market is expected to surpass USD $55 billion by 2023, up from $40 billion in 20183. Clients’ experience with these products, and recommendations from the staff to them

lead to both on-site and e-commerce sales, including client advocacy of them and referrals on social media. Rising customer demand for better and more secure payment options is driving a technological shift in payments solutions in the wellness industry. This shift is seeing the industry turn to payments technology that provides more payment options, integration capabilities, mobile functionality and e-commerce solutions. Investment in payments solutions that include these components can help wellness enterprises drive business growth and increase customer satisfaction by delivering flexible and secure payments experiences to customers through the channels they demand. Roger Sholanki is the founder and CEO of Book4Time, (https://book4time.com/) a cloud-based business management platform used by spa and wellness businesses in more than 70 countries. 1 Moneris, “Payment card spending in Canada up 3.3 per cent in the second quarter of 2018”, release, July 19, 2018. 2 “E-commerce in Canada - Statistics & Facts”, Statista. 3 “Retail e-commerce revenue in Canada from 2017 to 2023 (in million U.S. dollars)”, Statista, 2019.


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Regulatory news Payments

EMV Snapshot



(SRC) Specification v1.0, which is available for free public download from the EMVCo web site. The specification provides a foundation that will enable the processing of e-commerce transactions in a consistent, streamlined fashion across a variety of digital channels and devices, including smartphones, tablets, PCs and other connected devices. EMV SRC is compatible with other

technologies, such as EMV Payment Tokenisation and EMV 3-D Secure. The publication of EMV SRC v1.0 follows a public consultation period on the draft specification in Q4 2018, which allowed as many payment industry participants as possible, including merchants, card issuers and payment networks, the opportunity to review and contribute.

“The continued growth of global e-commerce requires reinforcing consumer convenience and confidence in payments,” said Karteek Patel, chair of EMVCo’s Executive Committee. “EMV SRC can deliver this while supporting the evolving habits of consumers as they migrate their shopping to PCs/ laptops, mobile devices and other connected devices of the present and future.”

Courtesy EVMCo


ccording to the latest data from EMVCo (www.emvco.com), which manages and evolves the EMV® specifications and related testing processes, 58.7 per cent of cards issued are ‘EMV’ as of Q4 2018 and that 73.6 per cent of all card-present transactions conducted globally used EMV chip technology. There are 8.23 billion EMV chip payment cards in global circulation. Africa and the Middle East lead the world on EMV card adoption, while Europe holds top spot on EMV card-present transactions. Canada, together with Latin America and the Caribbean lead the U.S. with an 86.9 per cent chip adoption rate and with 93.75 per cent of card-present transactions compared with 60.7 per cent and 53.52 per cent respectively. But expect the U.S. percentage to climb as more American financial institutions and card issuers send EMV chip cards to their customers. Meanwhile, the U.S. leads Asia Pacific on card adoption but lags behind it on transactions. This infographic shows how EMV technologies are used. The EMV specifications are continually being developed and enhanced through EMVCo’s Associates Programme, whereby merchants, processors, vendors and other industry stakeholders participate as EMVCo Business and Technical Associates. There are presently 90 Associates worldwide, including four in Canada. For example, EMVCo recently released the EMV® Secure Remote Commerce


Asset-Based Regulatory news Finance

U.S. Market on Expectations Roller-Coaster By Brendan Read

Courtesy Equipment Leasing & Finance Foundation


he U.S. equipment finance and leasing market continues to be strong, driven by a booming economy. This also bodes well for the Canadian equipment market, what with Canada’s economy dependent on exports to the U.S.. The agreement to remove punitive steel and aluminum tariffs and a hoped-for ratification of the new North American free trade agreement will help improve the markets. But the road ahead in the U.S. appears more like that of a roller-coaster, with a dizzying ride of global economic and trade uncertainties, such as the trade dispute with China and the threat to impose tariffs on Mexican exports as a tactic to force the country to limit migrants to the U.S.. And there appears to be a reported growing sense of foreboding on Wall Street that the U.S. economy is peaking and that a downturn is in the not-too-distant future. These twists and turns of expectations in the U.S. is reflected in recent reports published by the Equipment Leasing & Finance Foundation (The Foundation) (https://www.leasefoundation.org).

Source: 2019 Equipment Leasing & Finance U.S. Economic Outlook

The Q2 update to the 2019 Equipment Leasing & Finance U.S. Economic Outlook, released April 10, reported that business and consumer confidence have fallen from the highs experienced in 2018 in the wake of tax reform. However, it said they remain elevated; a strong labour market and rising wages should lead to solid consumer spending growth.



Courtesy Equipment Leasing & Finance Foundation

Business, consumer confidence not as high, but still strong

Source: 2019 Equipment Leasing & Finance U.S. Economic Outlook


Asset-based Finance

Courtesy Equipment Leasing & Finance Foundation

moderate rate; ◉◉ Ships and boats investment is likely to remain weak; ◉◉ Railroad equipment investment growth is likely to remain negative; ◉◉ Trucks investment is expected to expand at a moderate rate; ◉◉ Computers investment growth will likely growth modestly; and ◉◉ Software investment growth should slow.

Source: 2019 Equipment Leasing & Finance U.S. Economic Outlook

Highlights include:

◉◉ Capital spending exceeded expectations at the close of 2018, despite some weakening in the underlying economic fundamentals. However, business investment faces downside risk in the first half of 2019 given the recent slowdown in the industrial sector and weaker global growth. Credit market conditions remain mostly healthy, though banks continue to tighten lending standards for some loans and demand for credit has weakened among both businesses and consumers. Financial stress remains in check, however, as delinquencies and charge-offs are still well below historical norms; ◉◉ After achieving 2.9 per cent growth in 2018—tied with 2015 for the strongest year of growth during the current business cycle—the U.S. economy appears to have slowed in early 2019. Consumer spending should continue to serve as the backbone for economic growth, but business investment appears likely to slow after a Q4 rebound due to lower oil prices, easing confidence and waning global demand. Recent declines in business and consumer confidence and the ongoing negotiations with China on trade policy are two wild cards that should be closely monitored; and ◉◉ Despite the soft patch in the first quarter, the equipment finance industry should



resume its expansionary track in 2019. The industry does face headwinds moving forward, such as contracting investment in residential and non-residential construction and softening small business sentiment.

The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracked 12 equipment and software investment verticals. In addition, the Momentum Monitor Sector Matrix provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Over the next three to six months: ◉◉ Agricultural machinery investment growth is likely to slow; ◉◉ Construction machinery investment growth should remain weak and may contract; ◉◉ Materials handling equipment investment is likely to expand at a modest rate; ◉◉ All other industrial equipment investment growth will likely remain weak and may stall; ◉◉ Medical equipment investment growth is expected to slow; ◉◉ Mining and oilfield machinery investment growth may improve, but a strong rebound appears unlikely; ◉◉ Aircraft investment should expand at a

On April 16 the Foundation released the Q2 2019 Equipment Leasing & Finance Industry Snapshot. It reported: ◉◉ The U.S. economy softened to a 2.2 per cent annualized growth rate in Q4 2018 but posted a strong 2.9 per cent growth for the year; ◉◉ Consumer spending and business investment were the major drivers of growth in Q4 2018; ◉◉ Top economic headwinds include the softening Chinese economy, a slowing European economy and U.S. manufacturing weakness; and ◉◉ Robust wage growth and dovish U.S. Federal Reserve policy around interest rates are top economic tailwinds.

The industry does face headwinds moving forward. Market confidence dipped, rose and then dipped... The Foundation published two day later, on April 18, the April 2019 Monthly Confidence Index for the Equipment Finance Industry (MCI-EFI). This survey of finance and leasing industry executives reported that overall market confidence decreased after two consecutive months’ increases to 58.3, down from the March index of 60.4. Confidence bounced back, to 59.2 in May. Then it dropped again, to 52.8, reported in the June MCI-EFI, published June 20. Here are the survey results:

◉◉ When asked to assess their business conditions over the next four months 3.3 per cent of executives responding said they believe business conditions will improve over the next four months, down


Asset-Based Finance from 16.1 per cent in May. 80 per cent believe business conditions will remain the same over the next four months, an increase from 67.7 per cent the previous month. But 16.7 per cent believe business conditions will worsen, an increase from 16.1 per cent in May; ◉◉ None believe demand for leases and loans to fund capital expenditures (capex) will increase over the next four months, a decrease from 16.1 per cent in May. 83.3 per cent believe demand will “remain the same” during the same four-month time period, an increase from 77.4 per cent the previous month. But 16.7 per cent believe demand will decline, up from 6.5 per cent who believed so in May; ◉◉ 13.3 per cent expect more access to capital to fund equipment acquisitions over the next four months, up from 12.9 per cent in May. 86.7 per cent indicated they expect the “same” access to capital to fund business, a decrease from 87.1 per cent the previous month. None expect “less” access to capital, unchanged from last month;

◉◉ 30 per cent expect to hire more employees over the next four months, a decrease from 41.9 per cent in May. 63.3 per cent expect no change in headcount over the next four months, an increase from 45.2 per cent last month. Meanwhile 6.7 per cent expect to hire fewer employees, down from 12.9 per cent last month; ◉◉ 40 per cent evaluated the current U.S. economy as “excellent,” down from 51.6 per cent in May. 56.7 per cent rated it as “fair,” an increase from 48.4 per cent the previous month. But 3.3 per cent saw the economy as “poor,” up from none in May; ◉◉ 3.3 per cent believe that U.S. economic conditions will get “better” over the next six months, down from 9.7 per cent in May. 70 per cent indicated they believe the U.S. economy will “stay the same” over the next six months, a decrease from 77.4 per cent the previous month. 26.7 per cent believe economic conditions in the U.S. will worsen over the next six months, an increase from 12.9 per cent in May; and ◉◉ 26.7 per cent of respondents indicated

they believe their company will increase spending on business development activities during the next six months, a decrease from 35.5 per cent last month. 73.3 per cent believe there will be “no change” in business development spending, an increase from 64.5 per cent in May. None believe there will be a decrease in spending, unchanged from last month.

“As unemployment is at record lows and employees are hard to come by, companies will rely more on capital equipment to support business growth and productivity growth from the employees they have,” said MCI-EFI survey respondent Quentin Cote, CLFP, who is president, Mintaka Financial, LLC, when asked about the future outlook. “My concern is primarily the trade wars, and their impact on the prices of goods. This will eventually weaken the purchasing power of consumers and small businesses.”


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Asset-based Finance

Canada’s Business Aviation Spreads its Wings T By Isabelle Lafond

aking an aerial view perspective at the business aviation sector, a subset of general aviation, it appears that the Canadian sector is a force for good, supporting hundreds of companies and vastly improving connectivity. There are 1,900 business aviation aircraft across Canada, with the majority based in Québec, Alberta, British Columbia and Ontario. From being an economic lifeline for a large number of communities, to helping businesses be efficient and productive, business aviation has earned a pristine status of contributing directly to employment and the general economy in Canada.

Beyond market access and strength While companies that depend on business aviation serve many different industries and locations, they all share a common ground. That is, in a competitive environment, companies must maximize the use of their two most important assets: people and time. Canadian companies are choosing to have their workforces fly privately to avoid long gate lines, transiting through congested delay-prone commercial airport hubs and flying in cramped airline cabins. They gain by reduced travel time and greater productivity by enabling their staff to truly spend their time working1. Thus, the benefits of business aviation to Canada are quite clear, as it: ◉◉ Contributes over $5.1 billion in total gross domestic product (GDP); ◉◉ Produces 43,200 in jobs: 66 per cent of which is higher than the average annual wage; and ◉◉ Generates over three-quarters of a billion dollars in taxes2.

Business air traffic drivers Rising GDP, and consequently, disposable income and living standards, result in an increased demand. This is also closely linked to the globalization of trade, where the average distance travelled tends to increase as people do business in countries which now have more favourable political and social environments.



The advantages of business aviation achieved domestically grows multifold on international journeys. These trends, combined with continued wealth creation in fast-growing markets, and coupled with aviation infrastructure development will accelerate the demand for business aircraft. Put differently, long-term indicators are pointing towards a robust outlook for the sector3.

Perks of financing According to the latest survey compiled by JETNET iQ, almost 45 per cent of respondents believed they would finance their next new or pre-owned aircraft purchase4. Aviation financing is often seen as complicated, expensive and restrictive. However, the main benefit that makes financing worth considering is that your capital is not tied up in a depreciating asset. Having such a large capital investment in an asset that depreciates in value over time makes financing an attractive option. Whether it entails the financing of a new aircraft or the refinancing of a pre-owned one, the lender is to provide the best financing structure on par with what the client wants. While developing financing solutions, a lender must be accessible, knowledgeable and wellresourced in order to act as a true financing partner, understanding the assets at stake and demonstrating the ability to recommend the most valid plan. With great expertise comes great flexibility in understanding what to consider when financing business aircraft, whether for corporate, individual or operating use, such as: ◉◉ Guarantees provided will impact the financing terms; ◉◉ Monthly payments including operation expenses; ◉◉ Annual usage that will impact frequency of inspections; ◉◉ Maintenance programmes needed to maximize residual value; and ◉◉ Decision to charter the aircraft may sway the risk ratio.


Asset-Based Regulatory Finance news In addition to providing advice and expertise, the finance partner should be able to bring some peace of mind. By financing business aircraft with an expert, aircraft buyers will truly be able to soar.

turbojets, turboprops and helicopters. It serves corporations, high net worth individuals and aircraft charter operators within the general aviation market across North America. Learn more at www.lbccapital.ca/aviation or reach out at Isabelle.Lafond@lbccapital.ca for additional details.

Isabelle Lafond is an account director, aviation finance at LBC Capital. LBC Capital’s Aviation Finance Group provides capital for the acquisition and refinance of corporate aircrafts including

Unless otherwise indicated, the content of this article is provided for information purposes only and does not constitute an offer to purchase or sell the products or services of LBC Capital. This information is of a general nature and is not intended as specific investment,

financial, accounting, legal or tax advice and should not be relied on as such. Information provided is believed to be accurate when released. Despite its best efforts, however, LBC Capital cannot guarantee that it is accurate or complete or that it will be current at all times. 1 InterVISTAS Consulting, “Economic Impact of Business Aviation Operations and Business Aircraft Manufacturing in Canada”, September 27, 2017. 2 “Economic Impact”, Ibid. 3 Bombardier Business Aircraft, “Market Forecast 2016-2025”, 2016. 4 JETNET iQ “Q3 2018-Q1 2019 Survey”, 2019.

Chorus Aviation Continues Upward Chorus Aviation’s flight path continues its ascent. The Halifax, Nova Scotia-based company owns Jazz Aviation LP, Voyageur Aviation Corp. and Chorus Aviation Capital (CAC) and has a vision to deliver regional aviation to the world. Chorus reported that its first quarter 2019 operating revenue grew 6.2 per cent over the same period in 2018, to $344 million from $324 million. Propelling the company forward in 2019 are developments including: ◉◉ Amended and extended the capacity purchase agreement (CPA) with Air Canada to 2035, securing Jazz’s position in Air Canada’s regional network for the next 17 years; ◉◉ Completed a $97.26 million equity investment by Air Canada to fund new, largergauge aircraft at Jazz and further growth in regional aircraft leasing; ◉◉ Entered into a firm purchase agreement with Bombardier for nine CRJ900s as part of Jazz’s fleet modernization plan; ◉◉ Achieved an unprecedented 17-year collective agreement with Jazz pilots and enhanced the pilot


mobility programme to access pilot careers at Air Canada; ◉◉ Secured a USD $300 million credit facility to support growth of regional aircraft leasing business; and ◉◉ Reached an agreement to acquire a portfolio of six aircraft with leases attached: two ATR72600s on lease to Azul of Brazil and four Q400s on lease with two other existing customers.

the CPA with Air Canada, Chorus’ fleet of leased aircraft comprises 103 aircraft valued at approximately US $1.7 billion. CAC has relationships with 14 regional airlines based in 13 countries. “I’m very pleased with the execution of our growth

and diversification strategy, which continues to build on the momentum achieved in 2018,” stated Joe Randell, Chorus president and CEO when commenting on the company’s first quarter 2019 financial results. “We are well positioned for the future.”

These results build on a strong performance. Chorus reported that its operating revenues reached $1.45 billion in 2018 from $1.35 billion in 2017. More recently, CAC reached an agreement to acquire five Q400s on lease with Flybe, and also entered into an agreement to deliver six ATR72-600s to IndiGo of India under a sale-leaseback transaction. Upon completion of these recent transactions, including other pending transactions, CAC’s announced portfolio commitments include 44 turboprops and 12 regional jets. When combined with the 47 aircraft leased under



Asset-based Finance

Leveraging Technology to Go Green By Travis Melchior


oing green is becoming a directive more than a movement, especially here in Canada. The Canada’s Changing Climate Report (CCCR), released April 2, 2019 by Environment and Climate Change Canada, states that we are experiencing overall warming at twice the global average. Average precipitation is projected to increase across most of Canada, and extreme high temperatures will increase in frequency and intensity.

Changing how businesses operate The importance of making changes to the way companies do business cannot be overstated. Improving fuel efficiency and finding alternative power sources are imperative for helping minimize the ecological impact of transportation. But there are simpler ways that businesses can make a large impact on green initiatives, while also improving profit margins and operating more efficiently. New technology plays a big role in changing the way businesses operate. Advancements in end-to-end financing software automate many of the manual tasks that used to burn valuable time and cost lessors a lot of money. Two of the most impactful developments in software technology, which also affect the environment, are the introduction of electronic document management systems (EDMS) and the growing use of e-signatures.



In the U.S. it has long been estimated that the average office worker uses 10,000 sheets of standard printer paper each year1. In our industry, that number goes up dramatically as many of us rely on large document packages to sign leases and loans and keep track of physical assets. Think about how many pages your company uses in order to sign a new customer or renew equipment finance agreements. Multiply that by how many applications you receive, document packages you present and the customers you serve that stack of paper grows fast. The 2016 census report from Statistics Canada indicated that the number of people who reported full-time employment in business, finance and administrative occupations in 2015 was just over 1.6 million. If we assume even one million of those people were using 10,000 standard printer pages a year, as in the U.S. that is 10 billion sheets of paper used in one year or about 100,000 tons of paper. When one ton of paper takes 12-24 trees to produce2, that results in 1.2-2.4 million trees harvested each year for standard office paper alone. Imagine the impact if half of those people leverage new technology by moving to EDMS and e-signatures in order to process all their paperwork instead of printing it all out? One global e-signature software provider stated on a blog that its network saved over 436 acres’ worth of forest in 2016 alone3. At 100-200 trees per acre, that amounts to over 43,000 trees were saved in one year.

Many equipment financing companies utilize multiple systems to manually keep track of proposals, origination agreements, insurance and credit reports and other customer documentation. Crossing multiple systems opens up the risk of data entry errors, while redundant data entry processes cause businesses to lose valuable time. Employing EDMS that are part of an end-to-end solution allow lessors to enter customer information one time. That information populates across multiple documents in a package without having to key it in for each instance. The solutions save time and money and helps protect the environment all at once.

Transportation equipment leasing benefits Using EDMS and e-signatures have strong particular benefits in the commercial transportation sector. These lessees often operate on the road. That makes it challenging to send, sign and receive paper documents. Lessors will wait days, even weeks, to get back those wetink copies. Being able to generate document packages at the click of a button, sign agreements remotely and turn contracts around within hours makes it easier for these customers to do business with you. You are sure to stay in your customer’s mind for future purchases. The environment is not the only one that profits with more efficient technology.

One final way EDMS can improve business operations is by being able to track garaging locations on an individual asset basis. Assets move all the time; for example, equipment that is purchased in the U.S. and then follows a customer into Canada. Assets for a single customer could be garaged in multiple provinces at once. For every example of garaging location changes new tax and insurance rates need to be applied. By utilizing an end-to-end asset-based system to manage customer information you can track and update those changes more efficiently without risking manual errors. Time saved is money made. Our climate is changing. The effects of these changes are not going to go away by reducing emissions alone. But technology’s impact on our changing environment is inspiring. By leveraging new technology, equipment finance companies, especially within the transportation sector, can help spread optimism through more efficient operations and environmentally friendly processes. Following the “green directive” is easier than you think. The smallest changes create the biggest impacts. Travis Melchior is sales executive, Canada for LTi Technology Solutions (www.LTiSolutions.com). 1 K.J. McCorry, “The Cost of Managing Paper: A Great Incentive to Go Paperless!”, InformIT, September 16, 2009. 2 Conservatree http://conservatree.org/ learn/EnviroIssues/TreeStats.shtml 3 Robin Joy, “Celebrate Earth Day & Switch From Paper to Pixels”, DocuSign, blog, April 22, 2014.


© 2016 Citigroup Inc. Citi, Citi and Arc Design and other marks used herein are service marks of Citigroup Inc. or its affiliates, used and registered throughout the world.


Every day, in cities around the world, people are doing amazing things. They’re creating, innovating, adapting, building, imagining. What about a bank? Shouldn’t we be equally ingenious? Strive to match our clients’ vision, passion, innovation? At Citi, we believe that banking must solve problems, grow companies, build communities, change lives. With a network spanning the world and a comprehensive suite of treasury and trade solutions, Citi brings Canada to the world and the world to Canada. To learn more, visit: Citigroup.com/Canada



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