Total Finance Magazine Winter 2020

TotalFinance WINTER 2020

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

Consider Global Market Prospects As the world moves towards economic recovery, now is the time for Canadian financial services to consider their global market prospects

ALSO IN THIS ISSUE:

❱ The Advantages of Blockchain ❱ Are We Ready for Digital IDs? ❱ In Conversation: Cyrielle Chiron, Payments Canada

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On the cover 32 Consider Global Market

Prospects As the world moves towards economic recovery, now is the time for Canadian financial services to consider their global market prospects

32 Table of Contents Industry News 4 Tackling Debt Remains Canadians’

Number One Financial Priority for the 11th Year in a Row

5 2021 Predictions

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8

COVID-19 6 Changing SMB Finance 8 How COVID-19 Accelerated Global Payments

Finance & Lending 10 Are North American Banks Ready for the Digital Identity Challenge?

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12 Turning Risks into Opportunities 15 Equipment Financing? Click Here

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Winter 2020 Volume 1 Number 2 Publisher / Corporate Sales Steve Lloyd steve@totalfinance.ca Managing Editor Brendan Read brendan@totalfinance.ca

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Contributors Andrew Bateman, EVP, group president, capital market solutions – Buy-Side, FIS

Amanda Holden, technology, fraud & operations executive, SAS Canada

Dina Beaucage, content marketing manager, marketing, CWB National Leasing

Liz Lasher, vice president, portfolio marketing for fraud, FICO

Daniela DeTommaso, vice president of residential lending solutions, digital transformation and data, FCT

Justin Newell, chief operating officer, INFORM Software

Ian Duffy, CEO & founder, Accelerated Payments

Christian Spaltenstein, managing director, AFEX Americas

Diana M. Ermini, director, financial services vertical, Sage

Payments

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17 What’s Next in Payments?

Interview with Cyrielle Chiron, Payments Canada

19 Optimizing Travel Payment Practices

Bob Stark, CMO, Versapay Rich Stuppy, chief customer experience officer, Kount

Roy Farah, head of North America, Western Union Business Solutions Victor Hinojosa, vice president of digital solutions & partnerships, AscendantFX Capital

20 Why Digital Payments for B2B SMBs

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

22 4 ways to Prevent Chargebacks

Photographer Gary Tannyan

24 Bridging the EFT-ACH Chasm

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Kellogg Fairbank, executive sales leader, Nash

Colin Smyth, senior director of travel, Flywire

President Steve Lloyd steve@totalfinance.ca

Fraud & Prevention

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30 Lessons from 2020: Corporate Payments and Treasury See a Digital Future on the Horizon

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32 Consider Global Market Prospects 34 The Advantages of Blockchain

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INDUSTRY NEWS

Tackling Debt Remains Canadians’ Number One Financial Priority for 11th Year in a Row TORONTO, ON—Despite a global pandemic and financial uncertainties, a new CIBC study finds that for the 11th straight year, paying down debt remains the number one financial priority for Canadians heading into the new year (20 percent), followed closely by keeping up with bills/getting by at 18 percent. Optimism for the year ahead has declined, as fewer Canadians believe their financial situation will improve in 2021, significantly lower than a year ago (24 percent versus 32 percent in 2019).

Pessimism about the year ahead is driven by concerns about a possible economic downturn (78 percent, up from 55 percent in 2019). Top concerns for many over the next twelve months include inflation and the rising costs of goods (60 percent) and slow

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overall economic growth (34 percent). The uncertainty of the current environment is also making it difficult to plan ahead, say most survey respondents (71 percent).

“Canadians have faced so many challenges this year, it’s understandable they are concerned about the economy in 2021. If this year has taught us anything, it’s that we don’t always know what’s coming next and the best buffer for the unexpected is to be prepared with a plan and be open to adjusting it when circumstances change,” said Carissa Lucreziano, VicePresident, CIBC Financial and Investment Advice.

Close to half (43 percent) say their personal finances have been negatively impacted by the pandemic. Of those impacted, half (52 percent) say they don’t have the advice and information they need to

get their finances on track, and almost half (46 percent) believe it will take more than 12 months to get back on track. Almost three-quarters (74 percent) of respondents say they held back from borrowing more in 2020.

“With the uncertainties we’ve experienced this year more than half of Canadians say they need to get a better handle on their finances next year and many say they could use expert planning advice. An advisor can act as a guide to help with priorities such as balancing debt with savings, creating a solid plan to weather difficult times and keeping you on track to meet your financial ambitions,” added Lucreziano.

Lucreziano suggests the following three key tips for Canadians during uncertain times, which may affect the way corporate finance

teams adjust their forecasts, strategies and customer interaction planning.

Cash-flow planning: keep track of all income, whether through paycheques, government benefits, rental properties, investments or others. Then, track spending, including any automatic payments out of credit cards or debit accounts, to get a realistic picture of where money is going, where to cut back, and how best to redistribute funds.

Consider consolidation and credit-planning: there are several ways to improve credit. An advisor can help with looking at overall debt loads, interest rates and costs associated with each. Next, the best steps to repayment can be considered, including combining multiple debts into one loan, which can make it

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INDUSTRY NEWS easier to manage payments and may lower overall interest costs.

Stay focused and flexible: no matter what challenges the external environment may pose, to the best of individual ability, keep focused on financial goals and remain open to revising plans to meet ambitions.

Key poll findings: 1. Top reasons for taking on more debt this year was day-to-day expenses beyond their monthly income (39

percent) and loss of income (27 percent) 2. Top dream bucket list items include: travelling (43 percent, down 22 percent from 2019) and reaching a personal fitness goal or starting a creative hobby (17 percent) 3. Fewer Canadians believe that their financial situation will improve, significantly lower vs. a year ago (24 percent vs.

32 percent in 2019)

To help clients stay on

track with their ambitions for the long-term, CIBC recently launched the CIBC GoalPlanner, an innovative new platform that takes the complexity out of goal setting. Available now to CIBC Imperial Service clients, the CIBC GoalPlanner modernizes and simplifies the goal setting experience, enabling clients to digitally kick start their planning through CIBC Online Banking. Clients then work with their advisor to get the

expert advice and insights needed to build their longterm plans, and can use the CIBC GoalPlanner to track their progress anytime.

CIBC GoalPlanner also gives clients a full view of their finances and highlights opportunities, shortfalls and surpluses in areas such as cash flow, so that they have a clear understanding of opportunities to further their progress and know what it takes to achieve their goals.

2021 Predictions

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The digital customer experience becomes a priority for financial services as consumer demographics and behaviors evolve.

Millennials, the largest segment of the workforce, and Gen Z, the largest population today, are driving more techsavvy activities than ever before. These generations tend to be more challenging to satisfy and want more personalized services such as digital touchpoints to easily access data anywhere/ anytime. They also want an omni-channel experience that enables them to access info whether it’s from their phone, laptop, or face-to-face. Being able to offer more holistic services with technology, is enabling wealth advisors to provide more than just financial advice. Advisors can better support a client’s personal goals and lifestyles, as well as connect clients with experts for specific financial and non-financial needs. This

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holistic suite of services for the advisor will continue to grow in importance, and in 2021, an enhanced digital customer experience will be a strategic priority for financial services.

2

Family offices and wealth management firms will turn to automation and the cloud in the midst of a pandemic.

Prior to the pandemic, family offices didn’t have the impetus to make technology purchases. However, now that many firms need to work remotely, it is critical that wealth advisors are still able to deliver value.

With COVID-19 accelerating technology adoption, moving to the cloud enables a secure and easy way to access data to monitor financial performance and share information with key stakeholders in real time. Up to 40percent of work in the family office/ wealth management firm is comprised of aggregating

and collecting historical data and then reporting back, but the reality is that 95percent of that can be automated.

In 2021, it will be about minimizing the manual effort so firms have more time to be strategic and deliver higher value via better insights, better client knowledge, and, in turn, proactively provide more strategic advice/ services.

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Future of wealth management will be fueled by a shared marketplace.

With banks focusing on investing in technology, more pressure will be put on other areas of financial services like wealth management to keep pace. In 2021, we will see these 4 pillars of change:

◉◉ Moving from a product focused industry to experience. ◉◉ Moving from assets focus to data being more critical. ◉◉ Moving from building/ buying capabilities to more

of a partnership model. ◉◉ Moving from ownership of everything to more of a shared marketplace model.

For example, Amazon, a technology company, is now offering a range of financial services – AmazonPay, AmazonCash, AmazonLending, etc. all in the name of offering value in a seamless, central way for the end user.

Moving forward in the new year, firms should look to: ◉◉ Ensure that technology has a seat at the table ◉◉ Implement robust data ownership and cybersecurity protocols ◉◉ Embrace data – Collect and aggregate data to support data-driven/strategic decisions ◉◉ Identify where to automate processes and reporting ◉◉ Integrate a delivery of services through an ecosystem of partners Diana M. Ermini, director, financial services vertical, Sage.

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COVID-19

Changing SMB Finance

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By Ian Duffy

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he front-page headlines of news media business sections tell of big companies going under — and since the beginning of the COVID-19 pandemic the list of casualties keeps getting longer — with bankruptcies up 50 percent since last year. Household names such as Le Château, Geox, Cirque du Soleil and Aldo footwear are just some of the major firms that have declared insolvency in 2020: and there will be more in the new year.

This roll call of insolvency should give pause for concern. Not simply because larger public companies are having trouble and are integral to our economic growth, but because they remain the largest credit provider to the small and mid-sized businesses (SMBs).

SMBs bear impact brunt As the global pandemic continues to affect SMBs across Canada and the globe, it is become increasingly important to find funding solutions that keep these engines of our country’s economy running.

SMBs have been caught in a credit crunch as a result of the pandemic that is exacerbated by two factors namely reduced capacity from banks

“There are opportunities for the challenger funders in the SMB sector.”

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COVID-19

Debtor payments have slowed by an average of nine days across the board, showing the effects COVID-19 has had. as they seek to shore up existing exposure to the SMB sector as well as a tightening of credit both from challenger banks and the FinTech community. According to Biz2Credit, big banks only granted 13.6 percent of SMB business loan applications in August 2020, compared to over 28.2 percent in December 2019. Small bank lending has dropped even more dramatically, from over 50.6 per in December 2019 to 18.5 percent in August 2020.

In a recent report, Statistics Canada shows that small businesses have been impacted the most by the pandemic because many are unable to take on more debt and are more likely to experience a decrease in revenue.

Nearly one-quarter of businesses with 19 or fewer employees reported revenues being down by 40 percent in August 2020 compared to the previous year. And roughly 6 percent of businesses with one to four employees said they were actively considering bankruptcy or were closing because of COVID-19.

Government responses It would have been much worse except for government intervention. Almost 9 million people have accessed the Canadian Economic Recovery Benefit (CERB) package, paying out CAD81billion in relief so far and supporting both the unemployed as well as those that are struggling as selfemployed and gig workers.

While Canadian businesses continue to rely on the federal wage subsidy, rent relief and government funding programs, it can preclude a true indication of the state of the economy. That is because the support does not come close to addressing the liquidity challenges that SMBs have to overcome to trade through this crisis and return to long-term growth. And there is little appetite by policymakers anymore

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for spending large sums in COVID-19 relief. Most governments across the globe have indicated that they will no longer be the “lender of last resort” from Q1 2021 onwards.

A new need for invoice finance As the world shifts towards funders deploying debt using technology-driven platforms there are opportunities for the challenger funders in the SMB sector to further their competitive advantage.

By automating much of the onboarding and credit decision-making process, the cost of writing business will continue to be reduced, offsetting potential higher funding costs and higher bad debts expectations.

This means that FinTech lenders can adjust underwriting criteria resulting from the pandemic dynamically and therefore provide an ability to grow its market share in the SMB funding sector.

In particular the invoice finance market, with the support of the credit insurance market, though tightened, is one that has remained largely open throughout 2020.

Invoice discounting (or receivables discounting) makes sense for a lot of companies particularly in a postpandemic world. It allows suppliers to draw advances (typically 80 percent) against unpaid invoices ahead of its due date, with the balance of the invoice less an agreed fee (or discount) when the buyer pays in full. These days the funding process is substantially techenabled that is transparent, reliable, and straightforward.

Often relying on the strength of the buyer rather than that of the SMB supplier, invoice finance lends itself to a market where cash flow management is critical and where banking credit pools are reduced.

Hopeful signs We have seen a few trends emerge during the pandemic, which makes me hopeful and proves that — with the right support — a lot of businesses can still manage to grow and scale even during a pandemic.

The bad debt costs during the pandemic has not been a disaster for everyone, and many businesses have adjusted their models to effectively weather the economic storm and to see profits again: just on a smaller scale on a lower cost base. This has enabled the lending levels to start to rise again: getting capital back out to the marketplace.

In the past few weeks there has been a marked uptick in enquiries, particularly export finance to the U.S. market.

Some that have been in touch are in the exploratory and educational phase of enquiry, looking at options that are available for Canadian SMBs: hinting an increasing openness to alternative forms of finance outside of their banks.

Debtor payments have slowed by an average of nine days across the board, showing the effects COVID-19 has had on supply chains. This slowing of the invoice cycle has also been highlighted in the consistency of facility sizes but slightly reduced frequency.

COVID-19 was undoubtedly a difficult time for most businesses, with many setbacks and closures, but I believe 2021 will be a year of opportunity. The rebound that will come, coupled with the innovative FinTech funders that are willing and able to support SMBs and offering new avenues to fund growth particularly for SMBs with strong buyers.

Ian Duffy is CEO and founder of Accelerated Payments, ex-managing partner at RSM Farrell Grant Spark and chairman of several high growth companies. Ian has expertise in the venture capital and private equity markets in Ireland, the U.K. and the U.S. He is a member of the Institute of Directors in Ireland and has a special interest in technology, FinTech and alternative energy sectors.

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COVID-19

How COVID-19 Acceler

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By Christian Spaltenstein

“Making an informed decision to choose the right payments partner is critical.”

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he impact of COVID-19 has been significant and widespread across all business sectors globally. From displaced workforces to new regulatory barriers, businesses have been faced with unexpected challenges affecting their profitability and in many cases survival. While the struggle to pivot from the existing model is still a looming challenge for many, the Canadian payments sector has responded rather positively to it.

The most recent economic disaster prior to COVID-19 is the 2008 financial crisis, which is credited to have birthed today’s FinTechs.

In the aftermath of one of the world’s biggest economic crisis, skilled professionals became motivated to take an entrepreneurial route and began to innovate and reimagine the financial industry.

The importance of digitalization As with the ongoing pandemic, the importance of digitalization can’t be ignored as more and more businesses shift towards building a cashless economy. Many companies are also realizing the strategic weaknesses in their existing global supply chains, given trade frictions and potentially recurring public health disruptions, leading to the exploration of

nearshoring and other rebalancing.

According to a recent report from the Bank for International Settlements (BIS), the G20 has also made enhancing cross-border payments a priority this year, noting that these payments are “vital for economic growth, international trade, global development and financial inclusion,” but are generally “slower, more expensive, less transparent and less accessible” than domestic payments.

According to a recent report by Bank for International Settlements, the pandemic has accelerated payment activity amidst an ongoing decline in the number of correspondent banks.

Policy measures to encourage the use of digital finance have been undertaken all over the world.

Therefore, the opportunity that COVID-19 presents to improve access to digital channels is a small silver lining for economies that seek to broaden financial inclusion. Technology adoption and the increasing engagement of nonbank providers have enabled businesses to make payments on a real-time basis, across multiple currencies, geographic regions and markets.

The new data released by Interac Corp. suggests that since mid-March, first-time Interac e-Transfer users (including both

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COVID-19

rated Global Payments

consumers and businesses in Canada), increased by 43 percent and the average number of transactions increased by 9 percent compared to the same period last year. It was observed that more than 50 percent of younger Canadians are comfortable with digital tools to manage their payments during the pandemic.

Having the right partner While new payment technologies have increased competition in the market, diverging technical and regulatory standards have made it difficult for businesses to make connections with different payment systems and markets.

Therefore, the need for flexible global payments technologies and an efficient integrated payments solution to run and support businesses globally has increased.

However, making an informed decision when it comes to choosing the right payments partner is critical. This includes: ◉◉ Analyze global payments providers’ competence. Businesses seeking a global payments provider must consider the partner’s licensing framework and regulatory experience, along with the

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reach of their payments platform, the flexibility of the technology and the ability to scale as their business grows. This can help a new FinTech entrant get to “proof of concept” more quickly, giving them an edge over the competitive market; ◉◉ Tailored strategies for International expansion. It is important to recognize that global payments solutions can help companies identify and minimize their exposure to fluctuations in the foreign exchange (FX) market. Not every business has the resources or expertise in the global currency markets to develop and implement a dynamic hedging strategy.

Working with a specialist can bring that expertise to the business, with approaches designed to mitigate risk and protect the margins; and ◉◉ Reduce FX risk and exposure.

Businesses need an informed approach to manage global payments and foreign currency risk. API and open banking solutions can help them save time, protect their bottom lines and empower them to take advantage of new opportunities.

A trusted partner with international markets expertise can increase a

business owner’s confidence in exploring new markets and business-building opportunities in unfamiliar territories.

In my opinion, transformational trends will be seen across the payments landscape in 2021. This would involve information rich real-time delivery, enhanced visibility across global accounts, increased alignment between capabilities and expectations of businesses by effectively leveraging open source technology and big data. The existing transactional friction which may seem unattractive to some businesses will present opportunities to others for truly disruptive solutions to supplement or even supplant the banks as payment solution providers.

As the managing director at AFEX Americas, Christian is responsible for managing strategic direction across Americas region. With an experience of over 28 years in the FX industry, he holds an MBA from Zurich Institute of Business (CEIBS) and an AMP from the Wharton School at the University of Pennsylvania. Prior to this, he worked as the General Manager with Travelex Switzerland.

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FINANCE & LENDING

Are North American Banks Ready for the Digital Identity Challenge?

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By Liz Lasher

“By focusing on the customer banks can avoid abandoned applications.”

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ith COVID-19 restricting people’s ability or willingness to engage in face to face interactions banks are looking to their digital channels for continued growth.

Key to delivering great customer experiences (CX) is the way in which banks verify that applicants are who they say they are. This necessary step, required to prevent fraud and meet eKYC (electronic Know Your Customer) regulatory requirements, can also be the one step that introduces friction and causes customers to abandon applications.

To find out how banks are responding and what their future strategies are, FICO commissioned extensive research, which included an in-depth survey with those tasked with making the decisions about identity verification at 57 Canadian and U.S. banks. The study provides valuable insight on how the early days of COVID-19 are impacting banks’ digital transformation and priorities.

Preventing abandoned applications When it comes to building their identity verification strategies, 53 percent of respondents say the biggest consideration is meeting their compliance requirements. Furthermore, 51 percent say ensuring customer identities are genuine is the biggest driver for their identify verification strategies.

This is followed by a need to prevent application abandonment due to the identity verification process (50 percent). But this is at odds with the low number — just 29 percent — who say the CX of the identity process is a priority.

For me, this approach is flawed, as delivering a great CX should be top of mind. As the graph shows North American banks are at odds here with banks in the other nations surveyed, where customer experience is much more of a priority.

A balanced strategy where banks focus both on CX and gaining the necessary surety about customers’ identities can deliver regulatory compliance and reduce abandoned applications.

Banks in Canada and the U.S. should focus on how they can meet their compliance obligations, while facilitating new business. By focusing on the customer, using available data, and asking the right questions at the right time, banks can avoid abandoned applications.

ID verification painful for banks too!

We’re used to talking about unnecessary friction for customers when we consider the challenges of identity verification. But it’s also difficult for banks. When we asked about the operational challenges faced in validating identities, 53 percent said that manual processes are a challenge and 51 percent said the time taken to validate identities was an issue.

Both of these challenges relate to operational efficiency and suggest that the processes and technologies to deliver faster and more automated identity proofing are not in place.

U.S. and Canadian banks have been early adopters of identity solutions, but in this rapidly developing market they may now need to take a more strategic approach.

Consolidation of the multiple legacy point solutions alongside deployment of a platform or orchestration layer will deliver faster, more automated identity decisions. Canadian and

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FINANCE & LENDING

U.S. banks could benefit from moving to a single identity infrastructure across all channels and product lines.

This reduces unnecessary friction and confusion for customers, avoids multiple copies of documents being held across the institution and facilitates faster onboarding for cross-sell opportunities.

It would be strategic for banks to choose integrated capture and validation systems for identity documents to avoid out of channel requirements and reduce customer abandonment. Banks can also ensure that digital capture and verification is available as widely as possible.

Too many sent to in-person channels For most of retail banking’s history, inperson checking of identity documents by trained bank employees has been the gold standard. This worked well in a world where people were expected to open accounts in branches, interacting with bank employees.

But as the account opening process moved online identity verification hasn’t necessarily followed. While banks are more than prepared to manage applications in apps or online, the process falls down when they revert to identity verification that requires checks by bank staff.

Whether this is carried out in-person or through the mailing of documents it brings the on-boarding of new applicants to a sudden and unwelcome halt. This is particularly an issue when customers

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open personal (direct deposit or chequing) accounts with over half of applicants pushed to mail their identity documents or take them in to branches. There may be a belief that as these accounts are frequently the first account a customer opens with a bank, that this gateway needs protecting with an in-person check.

Today’s automated identity verification solutions are consistent and reliable. It’s arguable that manual checking adds much to safeguarding the bank while significantly increasing application abandonment rates. This is illustrated when we look at another FICO study: this time a survey of consumers. We found that 21 percent of Canadians and 23 percent of U.S. citizens would abandon an application if forced out of channel to prove their identity, with the majority of them taking their business to a competitor.

CX is THE Deciding Factor COVID-19 still has a significant impact and consumers who were once wary of digital channels are rapidly becoming comfortable managing their finances with apps and websites. Digital converts are unlikely to change allegiance once the virus is dealt with, so the spotlight is firmly on customer experience in digital channels.

The identity checking process cannot become the single point of failure. The new reality and next generation strategy and approach are clear, enhance your digital identity verification process or stand still as your competitors accelerate their growth.

Liz Lasher is vice president, portfolio marketing for fraud at FICO.

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FINANCE & LENDING

Turning Risks into Opportunities

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FINANCE & LENDING

By Daniela DeTommaso

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eal estate is one of the most unpredictable and ever-changing industries, dictated by the pushand-pull of housing supply and demand.

Yet, if there is one constant, it is that the industry is able to withstand significant economic uncertainty and volatility in the market. This remains true in today’s environment. While the global pandemic has resulted in many industries taking a financial hit, the Canadian real estate market has remained strong.

Yet, while strong, the industry has faced challenges throughout the COVID-19 pandemic. Canadians’ day-to-day routines have changed, prompting many to reassess their living situations, and in turn, redefining the dynamic of residential real estate. Housing segments that were once hot are now beginning to see declining sales, while suburban and rural areas are experiencing an influx of interest as Canadians take advantage of more flexible remote working arrangements.

“Canadians are taking advantage of more flexible remote working opportunities.”

The move to suburbs, rural With a daily commute no longer a requirement for many, those living in metropolitan cities to be close to their workplace now have other options.

Suburban, rural properties and cottages have become more attractive to prospective buyers looking for more space, and more outdoors space especially, at a similar price tag. They also see this option as a way to avoid the potentially higher risk of exposure to the virus in “hot spots.” The suburbanization movement is well underway and presents significant opportunities for those making that choice.

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At the same time, those moving to more rural communities also need to be aware of potential risks. The luxuries that major metropolitan areas offer, such as stable and unlimited Internet connections, access to public transportation and high-quality amenities, will likely not be available in smaller communities.

As well, buyers need to consider what comes next. What happens when employers begin to request that their employees commute to the office again? Many of those who chose to move could be facing a long commute if — or when — they are expected back at their place of work.

Risks amidst the turmoil At the outset of the pandemic, emergency measures were introduced by the Canada Mortgage and Housing Corporation (CMHC) to protect home buyers, reduce government and taxpayer risk and support the stability of the Canadian housing market. These included limiting the Total Debt Servicing ratios, establishing a minimum credit score of 680 for at least one borrower and suspending refinancing for multi-unit mortgage insurance, except when the funds are used for repairs or reinvestment in housing.

Lenders followed suit, quickly adapting their processes and increasing flexibility around payments and deferrals to provide additional support to borrowers financially impacted by the pandemic.

And while the mortgage deferral program was backed by CMHC from the beginning, lenders were faced with many short- and long-term risks, as borrowers grappled with the uncertainty of job or income loss.

At the same time, the current activity in the real estate market has also presented lenders with a unique opportunity for increased business. While the pandemic has led to job uncertainty and significant financial instability for many Canadians, it has also presented others with the opportunity to save and enter the housing

market. This, coupled with the uptick in refinancing as individuals invest more in their current homes, is increasing demand for lenders across the country.

As we look forward, it’s important to understand that even when the COVID-19 pandemic is behind us, it will have a significant long-term impact. To continue to maximize profit and reduce losses during these uncertain times, lenders have a responsibility to conduct the proper risk assessments and provide borrowers with the education needed to make informed decisions. This begins with data; at FCT, we’re invested in delivering a more informed journey for all of our stakeholders, and recently partnered with Opta to provide lenders with access to the data they need to assess risk and properly guide their clients.

The current activity in the real estate market has also presented lenders with unique opportunity.

Looking towards a successful future The pandemic has driven significant change in the residential real estate market and presented both challenges and opportunities for all stakeholders, whether it be businesses, consumers, real estate professionals or lenders. And while we can’t be sure what the future holds, being adaptable and taking an extra step to weigh the benefits and risks of any decision is the right step forward for a successful future.

As vice president of residential lending solutions, digital transformation and data, Daniela leads FCT’s residential real estate practice and the company’s data strategy, where she manages the transformation of the lender process and technology.

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t’s no secret that the year 2020 has had a major impact on businesses of every shape and size. Businesses in some industries are thriving as a result of the COVID-19 pandemic and others, that have been forced to close their doors — even temporarily — might be completely rethinking their go-to-market strategies.

Regardless of which industry you operate in, and what the impacts are, there’s one trend that’s accelerating quickly and which is most likely here to stay: the shift to digital commerce.

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In a business-to-consumer (B2C) market, online shopping has been around for a while.

But while some business-to-business (B2B) sellers have jumped on the digital bandwagon, not all have adapted quickly to the spike in demand.

Looking specifically at the Canadian asset financing market, equipment sellers and financing companies alike are balancing the shift toward providing a customer experience that meets the expectations of today’s B2B buyers and adapting their traditional business

By Dina Beaucage

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FINANCE & LENDING

model: and rightly so.

According to McKinsey & Company, approximately 70 percent - 80 percent of B2B decision makers prefer remote human interactions or digital self-service.

That is a shocking statistic, and yet, the effects of the past year have only accelerated a trend that has been building over time. Joel Druwe, vice president of equipment, digital and client solutions with CWB National Leasing saw the signs early and got the digital customer experience ball rolling early to ensure customers could get their financing when and how they wanted to.

“We’ve had our finger on the pulse of what customers need for years,” said Druwe. “Solutions like a Financing Portal for customers, Quoting Portal and custom-made online applications for our equipment dealer partners have been years in the making, and are changing the face of the way we do business.”

The time to act is now There’s more urgency than ever before to have online options for equipment financing, and that extends to equipment dealers needing to showcase and sell equipment online. With limited access to viewing equipment on-site, dealers will be relying on their websites and partnering platforms to facilitate their sales.

Online equipment listing sites like Marketbook.ca and AgDealer.com are adding features like online shipping and financing solutions to help their equipment buyers and sellers do business direct from the site.

“We believe this new functionality will help farmers and equipment buyers get the information they need, faster and easier, to help guide important used equipment purchasing decisions,” said Nathan Mitchell, AgDealer.com’s vice president of listings, Glacier FarmMedia.

Growing digital ticket sizes This trend toward online buying and selling extends to bigger ticket items too.

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Customer experience is king

Every industry is reacting to the changing market in different ways and at different paces.

According to McKinsey, the comfort level of B2B buyers has risen significantly with 70percent of B2B decision makers being open to making self-serve purchases in excess of $50,000.00.

With purchases in the thousands or even tens of thousands, that’s where financing solutions come in: whether they’re on- or offline.

“Even if business owners have that much cash on-hand to buy new equipment, most recognize that the potential tax benefits of financing equipment, flexible payment plans and freeing up your cash flow make financing a solid business decision,” said Druwe.“Whether our customers connect with us online, on the phone or in-person, we want to make sure our customers are getting the experience they want.”

If a customer who prefers online shopping is on your website looking for equipment, and you’re making them go offline to get their financing, then are you really providing them the full-service solution they’re looking for? Customers like options, so providing a variety of ways they can connect with you is of the utmost importance.

Sure, there are plenty of people who prefer the offline approach, but in some cases, that’s not an option anymore, so those who would rather sell or shop offline, will still need to adapt their styles, and these changes are happening quickly.

The effects of the digital shift were immediately noticeable when the pandemic hit, with Shopify reporting a 62 percent increase in new stores created from March 13, 2020 to April 24, 2020, compared with the previous six weeks.

According to Statistics Canada, in May of 2020, retail sector year over year eCommerce sales more than doubled compared with May 2019.

These changes were immediate, and they appear to have long-lasting impacts, with millions of people getting accustomed to shopping online, and more and more retailers adapting their processes.

Every industry is reacting to the changing market in different ways and at different paces. “For those dealers who are not yet selling online, there may be a variety of things holding them back, but the reality is that we’re so ready to support our partners” said Druwe. “With one simple link, our equipment dealer partners can be up and running with online financing on their websites. It’s really the future of financing: and the future is now.”

Dina Beaucage is content marketing manager, marketing, CWB National Leasing.

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What’s Next in Payments?

Interview with Cyrielle Chiron, Payments Canada A Changing Landscape The end-of-year survey by Payments Canada demonstrates how much the COVID-19 pandemic continues to impact Canadians’ spending and purchasing habits. The survey results show the pandemic continues to accelerate several trends we’ve seen over the last few years — including the adoption of digital and contactless payments in Canada.

The study provides a moment-in-time perspective on Canadian spending behaviour compared to pre-COVID-19, and acts as a follow-up to the May 2020 study conducted during week five of the pandemic.

Key findings from the survey include: ◉◉ 44 percent of Canadians say COVID-19 has changed their payments preferences to digital and contactless long-term ◉◉ 61 percent of Canadians are spending less overall ◉◉ 47 percent report tapping their debit and credit cards more often than pre-COVID, compared to 53 percent at week five of the pandemic ◉◉ 42 percent are uncomfortable handling cash in general ◉◉ 29 percent are using food delivery services such as Uber Eats and Instacart more often than pre-COVID-19 (up 3 percent) and 41 percent reported tipping more (up 12 percent)

To gain more insight, we talked to the association’s Cyrielle Chiron, Head, Research and Strategic Foresight.

Q:

What are the key changes in the trends between the Canadian Payments: Methods and Trends 2020 and 2019 reports? And what are the drivers?

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A:

The Canadian payments ecosystem continues to be influenced by domestic and international innovation, payment system modernization and regulators’ efforts to define the payments industry of the future. Canadian consumers and businesses have made it apparent that when it comes to payments, efficiency and convenience are vital.

The Payments Canada ‘Canadian Payments: Methods and Trends 2020’ (CMPT) report analysed the 22 billion payment transactions made in 2019, totalling CA$9.9 trillion in value. It found that Canadians continue to adopt new and evolving digital payments methods and channels. There was a large surge in electronic payments and a continued shift away from paper-based payment methods in 2019, which we expect to continue. We also saw credit card use exceed debit for the first time ever, growing 16 percent in volume and 11 percent in value in 2019. Contactless payments also grew dramatically in 2019, by 15 percent in volume and 20 percent in value.

The annual CPMT report is focused exclusively on 2019 payment methods and trends and does not reflect any impacts of COVID-19 on payments behaviour. However, Payments Canada released separate research on the impact of COVID-19 on payment trends in Canada earlier this year. The study found that the COVID-19 pandemic deeply impacted the global payments industry, as millions of businesses and consumers shifted their payment behaviour.

Q:

With COVID-19 vaccinations on the horizon which of the trends that you have seen in 2020 resulting from the pandemic, do you expect will be temporary? And which ones will be permanent?

Cyrielle Chiron, Head, Research and Strategic Foresight at Payments Canada

A:

Payments Canada collected data from April 17-19, 2020 and September 8-16, 2020 to evaluate COVID19’s impact on Canadian payment preferences. The latest data indicates that a number of payment trends observed in April 2020 have prevailed including: less spending overall, increased use of electronic payments and e-commerce; a preference for contactless and online/ mobile banking; and a decline in the use of cash and cheques. While these trends have been observed in our CPMT report for several years, COVID-19 has further accelerated them.

In terms of digital payment preferences continuing after the pandemic, 44 percent of Canadians say that COVID-19 has changed their payment preferences to digital and contactless for the long-term.

Beyond the continued shift toward digital and contactless payments, Payments Canada is building the foundation for the next generation of payments to ensure Canadian consumer and business needs for more control, speed, convenience and affordable payments methods are met, including with the launch of Canada’s realtime rail in 2022.

Q:

You reported that cash, cheques, and prepaid are in decline. Do you see this continuing or bottoming out and why? What roles do you see for these payment methods?

While cash continues to decline, it will remain a payment option for the foreseeable future due to its store

A:

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PAYMENTS of value, anonymity and lower cost. Interestingly, Canadians reported mixed sentiment around the extent to which Canadians expect to use cash payments once the pandemic recedes. We found that 34 percent of Canadians don’t expect to return to using cash payments to the same extent they did pre-pandemic, while 31 percent expect to return to using cash payments more often as the economy recovers, even though they have favoured using either digital or contactless payments since the onset of the pandemic.

Prepaid cards remain a less popular payment but continue to have a high year-over-year POS growth rate. As noted in the CPMT, young (those aged 18-34) and unbanked Canadians are the most common users of prepaid payments products. This is driven by a lack of access to traditional banking products, such as debit and credit cards. However, prepaid cards are starting to be used by a wider base, as those who seek security and anonymity for purchases have turned to prepaid cards as an alternative to cash.

Business payments will continue to be a large driver of commercial cheque use. Of note, in 2019, 82 percent of all the cheque and paper items exchanged between Canadian financial institutions were images, and more consumers and businesses took advantage of digital deposit technology — a further testament to the rise of electronic preferences.

With the launch of Canada’s Real-Time Rail (RTR), our new real-time payments system, in 2022, we anticipate that commercial cheque use will be impacted. Underpinned by the ISO 20022 data standard, the RTR will support payments information travelling with every payment and act as a platform for innovation, enabling the introduction of new and enhanced payment products and experiences. Access to data-

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rich digital payments will support businesses being able to drop the cheque. The system will be operated by Payments Canada and regulated by the Bank of Canada.

Q:

The COVID-19 pandemic has led to less Canadians shopping — and transacting — in other countries, notably the US. Have you seen any data on that point and if there has been a decline do you expect it to be temporary or permanent?

While we can’t comment on Canadian shopping trends in other countries, we do know that Canadians are spending less overall.

In our most recent survey on the impact of COVID-19, 61 percent of Canadians reported that they are spending less than they were prepandemic. Payments Canada will continue to monitor this trend.

A:

Q:

What impact, if any, will the COVID-19 pandemic have on your Payments Modernization program, and in meeting your goals in 2022? Will there be any changes in your strategy and if so what are they?

We remain confident in meeting our goal to launch a real-time payments system in 2022. While COVID-19 has accelerated the digitization of payments, an always available system that delivers funds in seconds—providing a real-time capability—is required for Canada to keep pace with international counterparts, and to meet the needs of Canadians. Operated by Payments Canada and regulated by the Bank of Canada, the real-time rail (RTR) will allow Canadians to initiate payments and receive irrevocable funds in seconds, 24/7/365.

A:

You can learn more about the modernization of payments in Canada, or about our research on Canadian payment

Survey Commentary Payments Canada has released new data on Canadian payment trends since the onset of COVID-19, showing that Canadians continue to spend less overall, and are maintaining a digital-first mindset with continued preference for contactless payment methods. The study provides a moment-in-time perspective on Canadian spending behaviours compared to preCOVID-19, and acts as a follow-up to the May 2020 study conducted during week five of the pandemic.

The new data indicates that a number of payment trends observed in May 2020 resulting from the pandemic continue, including: the increased use of electronic payments and e-commerce; a preference for contactless and online/mobile banking; and a decline in the use of cash and cheques. Canadians report mixed sentiment around the permanency of these payment preferences.

Although approximately 34 percent of Canadians report they do not expect to return to using cash payments to the same extent as pre-COVID once the pandemic recedes, 31 percent of Canadians expect to use cash payments more often as the economy recovers, even though they have favoured using either digital or contactless payments since the onset of the pandemic. While cash may be reintroduced into Canadian wallets, 44 percent of those surveyed report that COVID-19 has changed their payments preferences to digital and contactless for the long-term.

“In this most recent research, about 60 percent of Canadians report that they continue to spend less than before the pandemic,” said Tracey Black, President and CEO, Payments Canada. “Businesses across Canada are focused on how to best meet consumer needs as the pandemic continues. For many retailers, this includes building and leveraging an online presence and offering convenient and secure payment options for customers at point-of-sale.”

“There’s no doubt that the COVID-19 pandemic continues to accelerate the adoption of digital and contactless payments with a widespread shift away from paper-based payments,” said Cyrielle Chiron, Head of Research and Strategic Foresight, Payments Canada. “This is a trend we have seen over a number of years, including through Payments Canada’s recently released Canadian Payments: Methods and Trends 2020 report that showed a surge in electronic payments, which represented around 77 percent of all transactions in 2019. The reality is that Canadian consumers and businesses want more efficient, faster and more secure payment options, so we can expect this trend to continue long-term with a focus on payments innovation.”

trends, at www.payments.ca.

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Optimizing Travel Payment Practices

By Colin Smyth

2

020 was one of the most difficult years the travel industry has ever seen.

Due to the restrictions in place for much of the year, international travel has taken a significant hit, with airline passenger revenue estimated to decline by as much USD314 billion: approximately 55 percent less than 2019, according to the International Air Transport Association. And Canada is no exception.

Fortunately, despite the gloomy outlook, the travel industry has a long track record of recovering from global crises and challenges. And many believe that it will bounce back again despite the many obstacles posed by COVID-19.

Already, we’re seeing agents, operators and providers capitalize on pent-up demand for their services and experiences as travellers plan to get back to what they love in 2021.

But not without some adjustments.

Many travel operators have made great efforts to reduce operating costs and streamline operations in an effort to conserve cash and maintain financial health. This will make them stronger and more resilient as travel bounces back in 2021 and beyond.

One area where operators would be well-advised to focus is payment processing costs. While credit cards have historically been the most accepted payment method for travel companies, merchant and bank fees that accompany them have become increasingly complex and can quickly eat away at a company’s revenue.

Additionally, there is an increasing number of disruptive FinTech companies and payment processors whose goal is

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to simplify the payment process while reducing associated costs. No industry is better suited to take advantage of these opportunities than travel, with its inherently complex and costly international payments.

Three steps to start saving Here are three steps you can take right away to reduce your international payment processing costs.

1. Understand your fees. Card fees are determined by a number of contributing factors, including the card network, the issuing bank, the type of card being charged and the location of both the merchant and the cardholder. These fees can often range from 2 percent to 5 percent of the total payment. Other methods, such as wire transfers and PayPal, have similar fee structures as well.

Look closely at your acquirer and bank statements to ensure their accuracy and that you fully understand the various fees you may be getting charged, such as scheme fees, interchange fees, payment gateway fees, transfer fees and margins. Make note of any changes month-over-month and be sure to raise any concerns about fees with your bank.

For more help, check out our blog: “Best practices for card payments in the travel industry”.

2. Compare payment processors.

Once you better understand the fees that you may be charged, it is time to compare payment processors. Survey your industry peers to find out what processors are being used by others in the travel space. When you approach a new processor to get pricing, emphasizing things such as your past positive credit history, large potential

payment volume and pricing you’ve received from other processors can help provide you leverage in negotiating lower costs. Remember, however, to consider and ask about factors beyond just the processing costs, including availability of merchant/payer support, security features, the payment experience and ease of integration/ implementation into your existing processes.

3. Offer multiple payment methods.

While credit cards are the most commonly used and widely accepted payment method in the travel industry, now is a good time to consider alternative payment methods as they are often less expensive for you and your guest. These methods may include debit, digital wallets, online currency exchange networks, peer to peer payment apps and local bank transfers (i.e. ACH, SEPA, EFT).

In addition to many of these methods being less expensive, by offering a variety of payment options that are familiar to your guests, acceptance rates will increase, and abandonment will decrease, which can also potentially reduce your costs. Rather than initiating relationships with a variety of payment processors to increase client payment options, seek out a payment processor that provides multiple methods within their platform.

By arming yourself with knowledge about fee structures across methods and platforms, you’ll be better positioned to reduce your costs and improve the payment experience for your valued customers. Even smaller travel companies can save tens of thousands of dollars and euros a year this way.

Colin Smyth is senior director of travel, Flywire.

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Why Digital Payments for B2B SMBs

By Bob Stark

W

ith business buyers increasingly adopting the convenient payment methods they’ve come to know as consumers, it’s no surprise that cheque usage has been steadily declining for years.

According to the Association for Financial Professionals, 36 percent of all business-tobusiness (B2B) payments received by businesses in 2019 were made via cheque. This is down more than half from the 75 percent reported in 2004.

In Canada, however, it seems that cheque usage remains reasonably high compared to other G7 countries. This is often attributed to small and mid-sized businesses (SMBs) — although cheque usage is still prevalent among larger businesses, with 43 percent of commercial enterprises using cheque and paper payments according to Payments Canada — that are more averse to adopting new payment processes.

Payments Canada’s 2020 report on Canadian payment methods and trends points to

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continued cheque usage being a result of some suppliers’ preference to be paid with them, rather than a reflection of buyer behaviour. Many businesses cite that they do not prefer cheques as a payment method, even if they continue using them.

With the disruption of in-person and on-premises processes caused by COVID-19, suppliers that were previously hesitant to stray from their manual cheque and paper-based accounts receivable (AR) processes now have little choice but to meet customers’ demand for digital payments.

The COVID-19 impact Research from McKinsey & Company shows that COVID-19 has increased B2B buyers’ comfort in making large purchases in online environments. 70 percent of B2B decision-makers surveyed said they are open to making new, fully self-serve or remote purchases valued above $50,000, with 27 percent saying they would spend more than $500,000.

AR teams should ready themselves to embrace the shift towards digital payments, as there’s no indication buyers’ moving online is temporary.

According to McKinsey, the majority of B2B decision makers anticipate preferences towards digital channels brought on by the pandemic will carry on through 2021 and beyond. This is further validated by recent research from Mastercard, where 73 percent of businesses confirmed digital payments will remain the norm for their business post-COVID.

come with remittance forms attached, which make cash application straightforward, although highly manual. This is not the case with traditional electronic funds transfer (EFT) bank transfers or even Interact e-Transfers, forcing customers to separately transmit remittance data, typically via a separate email.

Digital payments, on the other hand, are designed for automation. They are smart payments that capture all the dollars and data together, meaning the instructions are captured and transmitted automatically to suppliers’ accounting systems.

This faster application of cash — and receipt of payments in real time as opposed to days or weeks as is typical with cheques — gives businesses complete transparency into the health of their customers’ accounts and enables predictable cash forecasting and working capital management.

embracing digital payments has become the clear course of action.

A Mastercard survey of SMBs — traditionally most reticent to change — across North America found that 82 percent of businesses have already altered the way they send and receive payments, with 57 percent having increased their use of digital services for B2B payments within the past 8 months.

The value of CX Bringing digital billing and payment processes to online channels also significantly benefits the customer experience (CX). Mastercard’s survey found that after the pandemic prompted organizations to upgrade their digital payments solutions, 81 percent of businesses said this led to improved customer satisfaction levels.

Providing customers with flexible and convenient payment options leads to faster payment times: a benefit that can’t be overlooked in this period of economic uncertainty.

If previous crises can offer any direction, it’s that businesses that prioritize CX in times of economic instability are better poised to recover and emerge as winners. During the 20072009 recession, businesses that led in CX had returns that were three times higher than those of businesses that fell short in this area, according to McKinsey.

As experts predict the digitization in buyer behaviour induced by the pandemic will carry on long-term as part of the “next normal,” adoption of digital payments will only continue to increase.

“When digital payments are captured online, they streamline operations for finance teams.”

Why digital payments In addition to supporting the transition to remote work, digital payments offer opportunities for cost-savings, improved cashflow and operational efficiency.

One of the main hesitations preventing suppliers from offering options for more digital payment methods are reported troubles around capturing remittance data for electronic payments. In B2B, cheques

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When digital payments are captured online, they streamline internal operations for finance teams. The multitude of phone calls and emails it typically takes to answer customer inquiries and solve disputes are replaced with a customer self-service environment.

In addition to giving customers a way to pay online, providing complete transparency into their account (including credits, deductions and notifications), and offering better collaboration with suppliers, digital payments let buyers know what they owe. Without the friction involved with manual processes and offline payments.

As businesses are becoming more aware of the inefficiency of offline processes and the true costs of accepting cheques,

Bob Stark is CMO, Versapay. He is a 20-year veteran in the financial technology industry having previously served as the vice president of strategy at Kyriba and has held multiple strategy, marketing and sales roles at Thomson Reuters, WallStreet Systems and Selkirk Financial Technologies. Bob is a regular speaker at industry conferences including AFP, Sibos and EuroFinance and holds a BBA in finance and marketing from Simon Fraser University.

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4 ways to Prevent Chargebacks A

By Rich Stuppy

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chargeback happens when a consumer disputes a charge to their debit or credit card with their bank. In many cases, disputes are the result of fraudulent activity. As a result, banks reimburse consumers for the charged amounts: the “chargeback.�

But those disputes are bad news for merchants that are on the hook for the costs, especially as the coronavirus pandemic has accelerated the adoption of eCommerce and mobile payments. Canadians banks have reimbursed customers for more than CAD860 million in fraudrelated losses according to the Canadian Bankers Association. And businesses are paying in lost revenue, fees and penalties, operations and more.

So, what can businesses do about chargebacks? First, it helps to understand where chargebacks come from. Essentially, chargebacks

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PAYMENTS are the result of three types of transactions: criminal fraud, legitimate disputes and friendly fraud.

Criminal fraud happens when bad actors use stolen payment information to fraudulently obtain goods and services. Criminal fraud covers a lot of circumstances. Sometimes, it’s straightforward. A bad actor uses a stolen credit card to buy a big-ticket item. Sometimes, it’s more subtle. A bad actor uses stolen payment information to buy gift cards in small, easy-tooverlook denominations to conduct card testing. Either way, the cardholder sees the fraudulent charge and initiates a chargeback.

But chargebacks aren’t always the result of criminal intent or activity. A customer may have a legitimate dispute. For example, maybe an item they purchased was damaged upon arrival. Instead of going to the business, they call their bank or credit card company. Maybe the return or refund policy wasn’t immediately clear, or they couldn’t get a hold of customer service. In a legitimate dispute, the customer may not know their bank will issue a fee to the merchant. They’re just looking for the simplest solution.

Finally, chargebacks may result from friendly fraud, which can take many forms. In some cases, a consumer makes a legitimate purchase but disputes the charge for any number of illegitimate reasons. Maybe a consumer intends to claim that their product never arrived to pocket a refund. Maybe the consumer doesn’t recognize the transaction name on their bank statement. Maybe the chargeback was a result of shared card use, and one cardholder doesn’t recognize a transaction. Friendly fraud can be malicious, but more often than not, there’s been some kind of misunderstanding.

How chargebacks affect businesses Regardless of the type of transaction that led to the chargeback, businesses and merchants carry the weight of a chargeback’s direct and hidden costs.

Direct costs include the cost of the products sold as well as their shipping costs. But chargebacks can also come with fees and penalties. The bigger the order, the higher the fees. And if a business

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sees a high number of chargebacks, their payment processor may increase fees to offset risks.

Frequent chargebacks also raise a business’s chargeback rate. That rate is the percentage of all purchases that result in a chargeback. When the chargeback rate gets too high — above 0.9 percent for Visa purchases, for example — the credit card company may place the business in a fraud monitoring program. In the program, businesses face much higher fees until they bring their rate below the program threshold.

But those direct costs can trickle down to business operations and introduce costs that are harder to see and quantify.

Chargebacks waste labour resources on manual reviews. Fraud analysts have to spend more time reviewing transactions to evaluate their level of trust or risk.

And similar to higher processing fees, banks may lower their authorization rates or decline more orders. As a result, merchants can lose revenue from legitimate purchases.

At the end of the day, chargebacks make businesses spend resources on fraud management that they could devote to customers. That leads to higher opportunity and customer acquisition costs. Overall, the greater customer friction and damage to the brand are costs no business wants to manage.

Steps to take There are practical things all businesses can do to prevent fraud and the chargebacks that come with it. Follow these steps to mitigate criminal fraud, legitimate disputes and friendly fraud.

1

Implement AI and machine learning. The best way to prevent criminal fraud, reduce chargebacks and cut back on manual reviews is a fraud prevention solution. The right solution has a robust data network that uses artificial intelligence (AI), including supervised and unsupervised machine learning, to establish a level of trust or risk for each transaction. If the solution deems a transaction is of high or questionable risk, it can deploy additional measures to confirm the customer’s identity trust level and deter bad actors.

2

Intercept and deflect chargebacks. Some fraud prevention providers partner with credit card processors to help businesses deflect chargebacks. They share transaction data that can help credit card representatives to help customers understand their statements.

Plus, a chargeback prevention solution can help businesses avoid penalties, recover revenue, save the sale and retain good customers. Investing in chargeback prevention can cut the time it takes to resolve disputes significantly.

3

Make your business the first stop to resolve customer concerns.

Businesses that put time and care into their products should put that same care into the entire customer experience.

That may mean evaluating return and exchange policies and using customer communications to advertise how easy it is to return an item or contact support.

Businesses will want their customers to go to them to resolve legitimate disputes first, not their banks.

4

Update your documentation.

Perhaps one of the easiest ways to prevent friendly fraud is to make sure customers can understand what they see on their bank statements. For example, a parent may authorize a child to make an in-app purchase. But if the parent doesn’t recognize the transaction name on their bank statement, they may go to their bank to claim fraud. Similarly, businesses and merchants can update their product descriptions. If customers don’t think they received what a business advertised, they may go to their bank.

Preventing misunderstandings can boost a customers’ overall experience with a business and reduce the business’s chargeback rate.

Rich L. Stuppy is the chief customer experience officer at Kount. For more than a decade, Rich has developed fraud mitigation, compliance and big data strategies. Rich regularly works with executives from all areas of the commerce, payments and fraud prevention ecosystems to discover trends and develop strategies that create value.

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Bridging the EFT-ACH Chasm A

By Victor Hinojosa

s with most things in the modern world, digital has become the preferred format for most payments, whether it be personal or business, domestic or international.

A Payments Canada survey showed that electronic payments accounted for CAD2.9 billion in payments made in 2018, and it is quickly becoming the preferred method of payment for the majority of Canadian businesses, growing exponentially year-over-year.

The problem…

While technological innovations have made payments faster and more secure, there is a major gap that still exists between two closely linked banking systems: that of Canada and the U.S. In Canada, digital or electronic payments are referred to as Electronic Funds Transfers (EFT).

In the U.S., this system is called the Automated Clearing House (ACH). While these two networks are essentially used for the same thing — to transfer funds quickly between bank accounts — they are still incapable of “speaking” to each other.

The result is that Canadian or U.S. businesses making payments cross-border do not have the ability to send or receive electronic payments that are cleared locally without using a thirdparty provider. For businesses not holding an account in each country where they operate, wires, cheques and credit cards are the only

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payment options available.

Unfortunately, the currency of the account is not the primary issue; you can open USD accounts around the world. The primary issue is where the account is located. There is no such thing as an “international ACH or EFT”.

When a business is based in the U.S., there are tremendous challenges to opening an account with a Canadian bank without a local area presence. The same Catch-22 applies in reverse.

While cheques can still accomplish the task, they are less efficient, less secure and more expensive. Cheques are one of the most common sources of financial fraud to date and can take weeks or even months to finally be cleared through the recipient’s bank depending on which country the cheque is drawn on. The time it takes to process these cheques and the cost to mail or courier them are also undesirable.

Even so, many businesses still prefer cheques.

That is because they don’t like to and/or they lack the capacity to store their payees’ banking instructions and worry about the security of housing this data.

Wire transfers are a common solution for businesses sending money cross-border, but these also present their own set of issues. Wires are more expensive to send and while thirdparty payment providers have found ways to lessen the cost of these wire payments, they

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still recommend sending local payments whenever possible.

The challenge is also understanding how much in fees the incoming bank may take off the payment to credit it to the payee’s account. Any conversions or intermediary banks that handle the payment in transit may also deduct fees.

Credit cards and PayPal are also viable options if a more instantaneous payment is required, but the conversion rates charged are astronomical in comparison to a traditional EFT/ACH payment and can quickly add up to a major budgetary shortfall if payments are made frequently.

So, what can be done for the plethora of businesses operating cross-border between Canada and the U.S.?

The solution The way to bridge this chasm is to work around the Canada-U.S. banking structures which create the problem in the first place. Since lacking a local bank account is the source of this issue, then finding a way to open a Canadian bank account from the U.S. or vice versa is the easiest path to solving the problem.

But solutions are offered through many FinTechs and third-party payments

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providers. These are usually in partnership with larger banks and are often called “Virtual Accounts”. Virtual Accounts belong to the institutions that own them, but are accounts held in your name in the local country. To someone paying you, they look like a local account that you have opened.

Virtual Accounts allow businesses to set up bank accounts, complete with unique account numbers listed in their names, in countries where they do not have physical presences. Because these accounts are held in the U.S. and in the businesses’ named, they can receive ACH payments from the U.S. even if the business is not based in the U.S., and funds can then be transferred or converted into other currencies or held for future payments.

This solution is simple but effective in connecting cross-border businesses more efficiently and reducing costs associated with sending those payments. At my own company, Ascendant, we use Virtual Accounts to help businesses send and receive cross-border payments quickly and move away from costly cheques or wire transfers. This gives them control on exchanges rates as well. While some set up is required at the outset, long-term these

solutions drastically reduce the time, effort and expense required to send and receive digital payments cross-border.

Many companies, my own included, have also implemented technology to make the capturing of payee banking data digital. These tools allow payees to enter their data into a portal where it is securely stored. This takes the onus of capturing and storing this information away from the client while reducing risk of fraud and speeding up the process of going digital.

Hopefully, a day will soon come when global banking networks find a way to bridge this gap more seamlessly, but that doesn’t mean you need to sit on your hands.

Research third-party payments providers or FinTechs to find a solution that works best for your environment. No business is identical, so the key to success is finding agile and customizable solutions which are secure, efficient, and cost-effective.

With over 20 years of experience in foreign exchange (FX) markets, Victor Hinojosa’s previous employers include Thomas Cook, Western Union Business Solutions and JPMorgan. Currently, he lends his expertise to clients across North America at AscendantFX Capital as vice president of digital solutions and partnerships.

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FRAUD & PREVENTION

Combating Money Laundering, Counter Terrorist Financing with Advanced Optimization Software M By Justin Newell

Financial institutions are leveraging supervised and unsupervised machine learning.

oney laundering and counter terrorist financing are pervasive crimes in Canada and worldwide. For its part, the Canadian parliament and regulatory agencies are continually looking for new ways to strengthen their financial crimes regulations.

Reflecting this ongoing effort were the July 2019 amendments to the “Proceeds of Crime (Money Laundering) and Terrorist Financing Act” (PCMLTFA) and its related regulations.

Among the amended requirements were those placed on reporting entities including financial institutions and service providers. While some of the new regulations went into effect immediately, most of them will be effective as of June 2021. These heightened regulations could not have come at a better time given that the COVID-19 pandemic has further emboldened criminals acting in these areas.

This and the new regulations have prompted many regulated entities to assess their existing anti-money laundering (AML) and counter terrorist financing (CTF) processes and seek out new solutions for improving their monitoring.

Specifically, they are turning to advanced technologies like hybrid artificial intelligence (AI), machine learning and fuzzy logic found in AML and CTF monitoring optimization software.

The response from government & industry With the overall stewardship role for the Canadian economy, the Department of Finance

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Canada was the proponent for revamping the nation’s AML/CTF regulations. This came as a direct response to findings by the international standard-setting body, the Financial Action Task Force (FATF). It found that Canada’s AML/CTF regulatory regime had many vulnerabilities, particularly relating to transparency and law enforcement actions that were not commensurate with AML/CTF risks. The FATF further found that Canada’s primary anti-laundering agency, the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), provided authorities with financial intelligence that simply reflected disclosures responding to law enforcement personnel’s requests and nothing more.

Another significant problem was the length of time — generally several weeks — that it took for large Canadian banks to provide basic beneficial ownership information to law enforcement agencies. For example, records of transaction of potential proceeds from a crime often did not reach law enforcement for between 45 to 90 days, which sometimes contributed to this information becoming old and less useful for tracking down the proceeds of the crime and ultimately, prosecuting the crime. These findings contributed to the overhaul of the PCMLTFA. For its part, Canada’s banking industry has been proactive in combatting money laundering and counter terrorist financing crimes. The industry was the first to voluntarily report suspicious financial transactions to the

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FRAUD PREVENTION Royal Canadian Mounted Police and has been vocal in its support of the federal government’s AML/CTF measures. In addition, Canadian banks continue to allocate the necessary resources for reporting incidences/suspected incidences of financial fraud and working in collaboration with government and law enforcement to help detect, prevent, and prosecute related crimes. Still, banks and other financial service providers recognize that they must start deploying new tools and technologies that optimize their processes and better position them in their fight against financial crimes.

Hybrid AI, machine learning & fuzzy logic To combat AML and CTF crimes, banks, insurance companies and payment processors are turning to holistic, enterprise-wide approaches essential for their compliance. Driven by advanced technologies such as hybrid Artificial Intelligence (AI), machine learning and fuzzy logic, these integrated solutions provide a holistic compliance process to optimally manage risk across all business lines and customer accounts. They arm businesses with an enterprise-wide view of customers and their portfolios, providing enhanced controls to fight financial crime in areas ranging from payment transactions, online and mobile banking, to credit card processing, ATM transactions, and mortgage processing, etc.

Integral to these advanced financial crime fighting platforms is their automated customer risk classification feature through which customers can be efficiently screened in real-time based on key indicators for estimating a specific customer’s potential risk to a financial organization. This onboarding risk assessment is conducted in real-time against various watch lists compiled by regulatory bodies, as well as datasets prepared by commercial providers and internal lists. With this information, a customer can be assigned a risk level of high, medium, or low. To reduce the risk of money laundering and counter terrorist financing, the risk protection platform automatically reviews a customer’s behavior and will update his/her risk classification accordingly. Because watch lists continually change, it is essential that

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organizations remain vigilant and abreast of these list updates so that prohibited transactions can be quickly identified.

A prevailing problem for many financial institutions is the high levels of false positives. To combat this, advanced risk monitoring platforms automatically conduct customer screening against the various watch lists in real-time for new customers and periodically for existing customers and transaction counterparties. Built-in smart AI algorithms and false positive reduction mechanisms help keep the level of false positives low, while reducing related time and costs associated with investigations.

When a positive match is identified, the platform creates an investigation alert which is assigned a score attesting to the strength of the match. The alerts are automatically displayed in real-time for analysis by another tool within the platform, the case management tool, which quickly generates required reports.

“Money mules & suspicious activity” Today, a broad network of “money mules” are used to bring illicit funds into the system. Often recruited through social media, these individuals transfer money through various forms of money laundering crimes. Applying advanced AML/CTF solutions, their transactions can be evaluated in real-time. Through post-transactional monitoring, these transactions can be identified as suspicious based on the customer’s risk profile, and a profile of the customer’s relationships with other parties outside of the financial institution. The solutions also offer another layer of protection by providing out-of-box scenarios based on best practices designed to fight money laundering, terrorist financing and tax evasion crimes.

To further mitigate risks and improve their false positive rates, financial institutions are leveraging supervised and unsupervised machine learning.

Supervised machine learning uses historical data to make predictions about a risk level associated with various red flag alerts and prioritize alerts for the next screening cycle. Unsupervised machine learning applies algorithms in AML Compliance to provide best practice

classification model combinations that enhance an institution’s “Know Your Customer” and customer due diligence processes. This facilitates the detection of suspicious transactions that otherwise may have gone undetected.

Closing remarks The United Nations Office on Drugs and Crime estimates that 2-5percent of the global GDP or $800 billion to $2 trillion in current U.S. dollars is money laundered each year. Clearly, it is the best interests of consumers, businesses, and the financial institutions and related companies Continued on page 29

Sidebar

As financial networks move toward instant payments, so too must all ecosystem stakeholders and their transaction risk analysis platforms.

Prior to choosing INFORM’s RiskShield, a risk assessment, fraud prevention and AML compliance monitoring solution, EVO Payments, Inc. (“EVO”), a leading global provider of payment technology integrations and acquiring solutions, administered a thorough search for a PSD2 ( a European regulation for electronic payment services) compliant, realtime transaction risk analysis (TRA) and monitoring platform.

“We conducted an extensive market analysis and concluded that RiskShield represented the best solution for EVO,” stated Darren Wilson, EVO’s President, International. “INFORM was responsive to our needs regarding PSD2 TRA exemptions, risk-based authentication, and instant payments. We are confident that INFORM’s ability to provide an agile solution will keep us prepared for any compliance or market changes that come within the rapidly evolving payments ecosystem. RiskShield’s intuitive front-end solution coupled with INFORM’s ability to rapidly deploy it also contributed to our final decision.”

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REGULATORY FRAUD PREVENTION NEWS

Protecting Real-Time Payments

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By Amanda Holden

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anada is already one of the most cashless societies on the globe, but that hasn’t stopped our financial industry from finding more ways to modernize the way consumers and businesses pay for the goods and services they acquire.

Enter the Real-Time Rail (RTR), expected to launch in 2022 and designed to make payments instantaneous. RTR promises to support realtime/instant payments for all Canadians while acting as a platform for innovation. Accountto-account payments will be delivered and received 24 hours a day, seven days a week, 365 days a year.

With RTR, payments will not just be instantaneous, but also irrevocable: a measure that, in theory, makes those payments more efficient and secure.

But the real-time nature of RTR payments raises concerns for anyone familiar with payments fraud. Recent trends that have emerged during the COVID-19 pandemic make it easy to see why.

With physical distancing permeating all aspects of our lives, in-person transactions

have declined dramatically. Interac e-Transfers and other forms of digital payments have now become a part of many Canadians’ day-to-day spending. There were more than 61 million Interac e-Transfers in April 2020 alone, with first-time users growing more than 43 percent over the previous year.

Industry observers and payments providers aren’t the only ones observing this trend.

Fraudsters have taken notice, too.

A recent study we conducted with Javelin Strategy confirmed what many of us in the fraud and security space already knew: COVID-19 hasn’t changed how fraud is being committed, but it has presented more opportunity for fraud to be successful.

Today’s methods of choice — like phishing, business email compromise and social engineering — have long been go-to tools for fraudsters trying to directly access payment accounts or to trick unsuspecting consumers and businesses into sharing payment data.

However, the sheer volume and diversity of attempts — including everything from email scams to social media and elder scams — has

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FRAUD PREVENTION combined with consumers fearful about COVID-19 to make it easier to fall victim to these fraudulent attempts.

The “Fraud Triangle” Fraud industry participants often talk about the “Fraud Triangle”, which are the three key elements needed for a scammer to successfully defraud a consumer or business. These are: 1. Opportunity 2. Rationalization 3. Pressure

While COVID-19 hasn’t itself changed how fraudsters target potential victims, it has caused targets to make poor decisions, increased the opportunity for bad actors to find vulnerable targets and, in many cases, made it easier for victims to rationalize sharing highly sensitive payment information.

The issue with irrevocability Most types of digital payments today — even those that show up in an account mere minutes after sending — are still subject to settlement processes in the back end that can take many days to clear. These checks and balances provide a safety net to consumers, businesses and banks alike to ensure that all payments make it to their intended destination, and that fraud can be identified and managed soon after it happens.

But in a modernized, real-time payments world — like the one we’ll enter into with RTR — not only will those payments be instantaneous, but will also be irrevocable and non-repudiated.

What does that mean? It means you can’t go back and rectify an error!

Say a vendor charged you $100 for an item you purchased that was priced at $10.

If that purchase was made with a VISA card today, the consumer could work with VISA to issue a chargeback, returning the funds to the payer. Dispute resolved.

Irrevocable payments won’t allow for that. The onus will be on the consumer to work with the recipient to rectify. And if the recipient’s a fraudster, the consumer will have no recourse to get their money back.

The consumer will be required to be 1,000 percent sure of all elements of a transaction — from the payment amount

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to the details of the recipient — before hitting send. That’s a lot of work for the average consumer, and plays into the hands of increasingly savvy fraudsters.

While it’s expected that some form of operating regulations and policy will be implemented, those details are scarce at the moment. As it stands today, not only do consumers have to protect themselves, but one would argue there is a responsibility on the financial services to proactively protect risky transaction.

What each organization has in common is the need for as much real-time data as possible to make inline transaction decisions. As organizations mature and can readily access data, the key becomes leveraging a breadth of data, in real-time with deep and agile analytics to create risk scores that proactively protect the organization and their customers.

How can banks fight back?

For banks, the only way to adequately fight fraud in a system designed to be immediate and irrevocable is to make fraud decisions as fast as the payment decision being made.

Banks need to understand every transaction in real time, and to identify fraud triggers just as quickly.

Today’s payment processes that leverage days-long settlement processes and delay windows, will be transacted to milliseconds, meaning the banks have less than a second to spare to keep their customers safe.

In the RTR world, data and analytics will be central to helping banks fight fraud. Analytical tools can bring millions of pieces of data together quickly, using machine learning and artificial intelligence to immediately and thoroughly analyze that data, and create an instantaneous risk score that can flag potential fraud as it happens. These tools will be paramount in protecting both consumers and banks from losses.

RTR presents myriad opportunity for payments in Canada, but not without new risks. When those risks happen in real time, it’s absolutely essential that fraud prevention to happens just as quickly (or even faster).

Canadian banks must protect themselves and their customers in a world where payments are instantaneous and

irrevocable. They’ll need an approach that is data rich and analytical.

Amanda Holden is a technology, fraud and operations executive with SAS Canada, with over 15 years experience in payments and 25+ years experience in financial services. She is responsible for driving business development and go to market strategies for SAS Fraud and AML (anti-moneylaundering) products and services.

Combating Money Laundering, Counter Terrorist Financing with Advanced Optimization Software Continued from page 27

serving them that money laundering and counter terrorist financing be fought with the most powerful arsenal available.

There has been incredible progress in AML/CTF monitoring owing largely to the broader application of the most advanced technologies. By capitalizing on AI, Machine Learning, Fuzzy Logic, and proprietary algorithms incorporated into today’s most sophisticated software solutions, greater progress can be made in combatting financial crime.

Roy Prayikulam, Senior Vice President, Risk and Fraud at INFORM added, “The days for batch transaction analysis systems are numbered. Instant payments and PSD2 regulations require real-time decision engines in order to minimize friction. We are extremely pleased to work closely with EVO to help protect the organization and its merchants and to facilitate safer, faster payments using our real-time analysis technology.”

INFORM will begin the phased rollout of the RiskShield platform across EVO’s European operations later this year.

Prayikulam concluded, “We are very enthusiastic about our recent selection

by EVO Payments and look forward to building a strong partnership in which we can each learn from the other’s experiences on the international market.”

Justin Newell is Chief Operating Officer, INFORM Software, a leading global provider of optimization software for diverse industries

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FEATURES

Lessons from 2020: Corporate Payments and Treasury See a Digital Future on the Horizon

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By Andrew Bateman

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arlier this year, as the coronavirus spread rapidly around the world, corporations were faced with difficult decisions about the crisis. First and foremost, out of an abundance of caution and in order to ensure the safety of their workforce, organizations enforced work-from-home policies. This was a seemingly simple decision, but many businesses lacked the critical infrastructure, training, and preparedness to handle this total digital shift while thwarting the myriad cybersecurity and fraud vulnerabilities cropping up in the wake.

Even the many organizations that had an infrastructure in place for this wide-scale migration to remote and virtual work had to scale up their technology in order serve their workforces. This shift has been a primary catalyst for digital infrastructure investment

and transformation across corporations globally.

In fact, 66 percent of respondents to FIS’ 2020 Corporate Liquidity Market Report said they are planning to increase investments in digital technology and infrastructure to meet the demand. The survey of 336 corporate treasurers, payments and receivables professionals across a variety of industries in every corner of the globe also found that COVID-19, economic uncertainty, and cybersecurity were the top three challenges corporations face in the near term. Two-thirds of those surveyed also indicated that the increase in fraud was also a challenge.

These three concerns are driving the rush of investment in corporate payments and treasury infrastructure; these findings also shape the lessons from 2020 that will carry us into a digital future.

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FEATURES Cybersecurity and Fraud Mitigation Requires a Streamlined Approach Many corporations have met the moment by enabling wide-scale remote work for their workforce, but this has had some ramifications that could not be avoided.

Namely, opening the networks to this level of virtual access has broadened the scope of cyberattack, with phishing events and other exploitation tactics on the rise globally. Additionally, fraud risk has risen with the lack of technology to manage remote, disparate and manual payments processes.

One way for organizations to beat back the tide of fraud and cyberthreats is to streamline systems that can centralize and standardize processes. For example, by digitalizing payments with a centralized hub, a treasury or shared services function can put controls and workflow around processes that protect against payments fraud while also reduce costs. Nearly three-quarters of respondents to FIS’ survey said they’ll be investing in payments infrastructure to revamp and digitalize their systems.

The added benefit of moving to digital technologies that help fight fraud and tighten security is that many organizations will likely see operational efficiencies and cost savings. Further, as vendors create solutions to address the technological challenges of tomorrow, they create a network effect with their managed services offerings.

COVID-19 and the certainty of uncertainty The ongoing pandemic has created a new framework for a virtual workforce. While it was a necessary move to help slow the spread of COVID-19, the titanic shift has exposed key vulnerabilities in legacy corporate infrastructure and digital technology.

Seventy percent of respondents to FIS’ survey say that COVID-19 is having a significant impact on their adoption of digital technology. From advanced phishing attacks to the security liabilities of maintaining virtual access to sensitive information for employees working remotely, it’s hard to overstate how substantial the impact of working from home has been for organizations.

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The future of a mostly remote workforce is a going to be a hot topic for debate in the years to come. The principle uncertainty that COVID-19 has brought must now be a factor in corporate planning, with organizations being more proactive in future-proofing their legacy processes. Investing in cloud computing and database management, as well as digitalizing payments systems not only will help mitigate for the unknown, these investments also represent the reevaluation of cost-basis. By reducing operational inefficiency and mitigating fraud, corporations are looking for cost savings across the board.

Leveraging the power of cloud computing to help implement access solutions remotely and securely is paramount.

An Economic Gale Wind is Coming Investing in new technology today will help keep the ship sailing in rough seas, however, the economic headwinds are also of prime concern. Executive leaders across the landscape appreciate this, and should be taking action to strengthen their treasury, payments and receivables technology to carry them to calmer waters.

Leveraging the power of cloud computing to help implement and access solutions remotely—and securely—is paramount for corporations to manage their finances through the chop. For example, treasury departments need highly secure and remote capabilities to manage cash flow, debts and investments, payments, risk assessment, and overall health monitoring. The respondents to FIS’ 2020 Corporate Liquidity Market Report found that security followed a close second to fraud as the most important reasons for adopting new tech.

Cloud migration isn’t just about secure access remotely, but it also provides more opportunities for corporations to integrate advanced managed services from

partners, adding layers of value for clients and vendors. It’s through these services that corporations can find operational efficiency, especially in managing things like datasets.

Applying the Lessons The core digital transformation taking shape out of a year full of uncertainty is centered around a few key themes. Firstly, migration to cloud-based solutions will continue to accelerate. While significant numbers of the workforce may eventually return to an in-office setting as the pandemic subsides, it’s clear that remote work will not drop back to pre-pandemic levels again.

Second, as corporations are focusing on consolidating technology to drive standardization across operations, the pandemic has proven an opportune moment to replace outdated systems.

Investing now to reduce costs and streamlining processes at the same time is crucial in planning for the next unplannable event like the COVID-19 pandemic.

For example, if you’re an airline, you have an opportunity to refurbish your organization—while there are immediate challenges to face, planning for how you operate in the new world is vital to future success. Similarly, treasury departments and corporate payments often function are like a 40-year old plane. It still flies, but it takes longer and costs more to operate.

A centralized, digital payments hub is the state-of-the-art jet plane with reduced fuel costs and increased speed.

As part of these upgrade investments, corporations are going to be looking to vendors and partners who have consolidated offerings that reach across functions and are backed by secure infrastructures. Standardization and operational efficiency will be business critical. Living through these uncertain times has been challenging emotionally, economically, and for leadership, but there is some comfort in the clear lessons emerging that will make us all better equipped for the unforeseen future.

Andrew Bateman is EVP, Group President, Capital Market Solutions – Buy-Side at FIS.

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Consider Global Market Prospects As the world moves towards economic recovery, now is the time for Canadian financial services to consider their global market prospects

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By Roy Farah

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anada is now grappling with a second wave of the COVID-19 pandemic.

Stability will come, as it did after numerous major global economic downturns in years past. However, the question that the Canadian business community should be asking itself is the following: “How can we move from survival mode to growth mode once the pandemic is behind us?�

The answer may lie in switching from our historical reliance on trading raw materials to trading in digitally delivered services.

According to our recent report in partnership with Oxford Economics, The Global Services Trade Revolution, global trade in services has now surpassed the global trade in goods, with

services contributing to over half (55percent) of all global trade flows, amounting to $13.7 trillion (US) of cross-border transactions in 2019 alone.

Canadian financial services, such as those offered by financial institutions and our emerging FinTech ecosystem, appear well positioned to gain further appeal abroad given increasing support for cross-border flows of financial services among corporations. These services are also gaining more popularity within the retail space, as customers continue to embrace the convenience offered by these online tools.

While cross-border flows of financial services are likely to endure some damage from the economic downturn, increased adoption of

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FEATURES digital financial services and products should bolster longer-term growth, making this economic recovery period the opportune time for Canadian financial services to explore new markets for their products.

Canadian financial service institutions can see an increased appetite for their offerings coming from emerging and developed economies alike. As countries in parts of the world such as Latin America and Asia advance and grow

Tapping into the global market for Canadian financial services The ongoing digitalization of work practices will likely reshape nearly every industry in the post-pandemic era, while increasing investment in enhanced fibre broadband coverage and the rollout of 5G networks promises to supercharge the tradability of a broad range of professional services. As a result of these trends, digitally deliverable financial, B2B and ICT services are expected to contribute nearly two-thirds (62percent) of the expected $1.9 trillion increase in the value of overall services trade between 2019 and 2025.

Moreover, digital services are proving to be more resilient during the global COVID-19 crisis than trade in goods. It’s estimated that the value of cross-border flows of financial, B2B and ICT services will decline by only around 6percent in 2020, compared to a slump of 18percent for total services trade and an estimated 13percent decline in the value of goods trade. Longer-term, the crisis has introduced new cohorts of SMEs and consumers to online financial services, setting the foundations for more rapid growth.

Domestically, a Conference Board of Canada report from 2016 found that Canada’s total exports of financial services more than doubled between 2005 and 2015, reaching $11.7 billion in 2015.

This growth is expected to continue, with our global trade services report indicating that Canadian financial services exports are expected represent around 10percent of our growth in services exports between now and 2025.

Looking abroad, it’s possible that

As the global pandemic radically and rapidly alters business models, firms that lacked digital...are now retooling.

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array of service activities.

Looking at our own infrastructure, Canada and its businesses are primed for mass digital transformation. Major telecommunications providers in Canada like Rogers recently expanded its 5G networks to additional cities and towns across the country, and a recent IDC/SAP survey showed that during the pandemic, more Canadian companies invested in digital than not – of the 371 organizations that were surveyed, 64 percent indicated that they either maintained or increased their spend on digital.

As mentioned above, with the proliferation of digital transformation, geographic location has become less and less relevant, allowing businesses to have a larger international footprint. This is a huge benefit for Canadian businesses, as it allows them to diversify well past the 49th parallel.

Act now, reap later: how Canadian financial services can be set up for global success

their industrial base and become more integrated into global supply chains, the demand will increase for financial services to help to facilitate business development, transportation, logistics, marketing and other services required to grow international trade in goods.

Unlocking global growth through digital transformation Only a few decades ago, much of the service sector was considered to be “non-tradeable” because it was assumed that most services required face-to-face interaction. This is still true for certain service activities, such as childcare, taxi driving or hairdressing. But digital technologies, especially the development of broadband networks and video conferencing, have significantly reduced the need for physical proximity for a wide

As the global pandemic radically — and rapidly — alters business models, firms that lacked digital agility are now rapidly retooling, and this will continue to be the benefit of financial services given the need to achieve growth in commerce. This new mindset will further stretch and redefine applications of digital technology, opening more doors for Canadian financial services to make gains both domestically and aboard.

With customers increasingly willing to conduct transactions with foreign providers of financial services, Canadian policymakers and regulators will need to recognize the economic and trade potential in expanding the market for these services outside our borders, and ensure there are more pathways available to set financial service firms up for global success.

Roy Farah is Head of North America, Western Union Business Solutions

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The Advantages of Blockchain

By Kellogg Fairbank

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Commerce is expected to surpass USD4.6 trillion globally by 2022, according to The Payment Methods Report 2019, with the seamless experience of e-wallets boosting its popularity. The simplicity of services like PayPal and Stripe has helped to improve customer experience while giving merchants easy access to new markets.

Blockchain-based solutions represent the next logical evolution of this trend.

By eliminating middlemen, cross-border blockchain payments can result in even faster transfers while significantly reducing costs for both merchants and customers.

The cost in trust In a traditional payment flow, three to five parties facilitate a single transaction.

Together, they make up what is called the payments stack.

These different parties work together to create trust. They check that transactions can be carried out and manage the transfer of funds. At the same time, this trust has a cost, which is ultimately borne by merchants. Each party within the payments stack takes a small cut of a transaction.

A typical transaction involves a payment processor checking with the issuing bank if a customer’s card can be charged. Once a transaction is validated, which occurs within a few milliseconds, a merchant has a guarantee that they will be paid at a later date. Over subsequent days, funds are transferred from the issuing bank to the acquiring bank.

The traditional stack involves numerous charges. Card networks and other parties can also raise their fees. As recently as September 2019, Visa added a fixed charge of EUR0.02 for merchants using 3D-Secure, which is increasingly required under new PSD2 legislation.

Cash flow, holdbacks and fraud Cost isn’t the only issue merchants face with the traditional stack. The speed of

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transactions can also be a problem. While validation takes place in milliseconds, it can be days before money finally arrives in a merchant’s bank. This is not ideal for small-to-medium-sized businesses that depend heavily on cash flow to pay suppliers and employers.

When we look beyond card payments, the picture is even worse for merchants. In the U.S., the average business-to- business (B2B) payment cycle takes 34 days to complete, according to the “Bringing Corporate Payments Out of the Dark Ages” PYMNTS webinar with, reports Deloitte, an astounding 47 percent of invoices being paid late!

So-called “holdbacks” are another issue that has come to prominence recently.

Here, acquirers keep a percentage of a merchant’s revenue as collateral in case a service is not provided, and refunds must be issued.

Holdbacks have particularly affected the travel industry as a result of the COVID-19 pandemic. Most travel is booked long in advance, and given the uncertainty introduced by COVID-19, holdbacks have increased significantly.

This has led to reduced cash flow for merchants: and ultimately to the insolvency of Thomas Cook and Flybe.

While traditional payments are geared towards creating trust, according to the Payments Fraud and Control Survey, 82 percent of businesses experienced attempted or actual B2B payments fraud during 2018, with international fraud rising 136 percent from 2017-2019, according to the FBI. Although nearly half of payment fraud is related to penand-paper processes, digital methods and credit cards are not immune.

Faced with this situation, it is not surprising that more and more companies are turning to FinTech to reduce payment costs. Particularly when it comes to B2B payments, where 1.8 percent interchange fees for cards introduce excessive overhead.

means of generating trust, the promise of blockchain becomes clear: eliminating the stack entirely. Customers send funds directly to merchants, with transactions being verified by a decentralized network.

Blockchain promises great improvements for merchants in terms of speed and cost.

No middlemen are required to check whether funds can or cannot be sent; the network will reject a transaction if a wallet has an insufficient balance. Once a transaction is confirmed, funds arrive within minutes. The only cost is a network fee, paid by the customer themselves.

What’s more, blockchain is ideal for protecting against fraud and encouraging transparency. The fundamental problem blockchain solves — the “double spending” problem — is directly related to preventing fraudulent transactions. Blockchain is designed to make it impossible to spend coins you do not have. Moreover, since blockchains are public ledgers, regulators can easily perform automated audits.

Blockchain is also a universal solution.

While the U.S. has ACH for bank transfers, the EU has SEPA and Canada has LVTS, Bitcoin works the same everywhere. No bureaucracy is required to send funds overseas.

Not only does this make designing integration protocols relatively simple, but it gives merchants easy access to new overseas markets. To illustrate, a 2019 report from the European Payments Council indicated an increase of cryptocurrency use alongside the growth of eCommerce.

Blockchain has too many advantages over traditional payment solutions for merchants to ignore. By accepting cryptocurrency, merchants can tap into a growing multibillion-dollar market and get a taste of a cashless, borderless future.

Kellogg Fairbank is executive sales leader for Nash, a non-custodial exchange and management platform for cryptocurrencies and other digital assets. Nash has recently announced Nash Link, a solution for

The promise of blockchain

merchants designed to make it as easy as possible

When we view the payments stack as a

to accept cryptocurrency from customers.

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