Jul /Aug 2018
The Merchant’s Guide to Transactions, Cards & e-Commerce
Managing pot payments Legalization challenges and opportunities
❱ Digital changing online shopping expectations
❱ Canada’s new $10 note ❱ The $4B secret PM 4 0 0 5 0 8 0 3
TableKey of Contents theme
July/August 2018 Volume 9 Number 4 Editor-in-Chief Steve Lloyd steve@paymentsbusiness.ca
Cover story 6
Editor Brendan Read brendan@paymentsbusiness.ca Publisher Mark Henry mark@paymentsbusiness.ca Contributors Diane Bégin; Rob Cataldo; Sukhmani Dev; Tom Donlea; Peter Kalen; Daniel Kornitzer; Elina Mattila; Ryan Stewart; Jennifer Tramontana; Duane Williams Creative Direction Jennifer O’Neill jennifer@paymentsbusiness.ca Photographer Gary Tannyan President Steve Lloyd steve@paymentsbusiness.ca For subscription, circulation and change of address information, contact subscriptions@paymentsbusiness.ca Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to: Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 f: 905.201.6601 info@paymentsbusiness.ca www.paymentsbusiness.ca Subscriptions available for $40.00 year or $60.00 two years. ©2018 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Payments Business should be directed to the publisher.
Made possible with the support of the Ontario Media Development Corporation
Managing pot payments
CIO/CMO Partnership 4 Building the CIO/CMO payments partnership Security, Fraud & Privacy 8 Avoiding paying the ultimate cybersecurity price
What data breaches within retailers remind us about protecting POS terminals
10 Preventing fraud with holistic ID verification Online Retail 12 Digital is changing online shopping expectations 14 Why retailers should offer private label credit cards 16 Winning consumer trust for frictionless payments Industry updates 18 Canada’s new vertical $10 note 19 The $4 billion Canadian financial services secret 20 How banks can stay relevant in a changing world 21 2018 Industry Events Pay Channel Report: Wire & EFT 22 Modernizing the business payments landscape Next issue…
Sept/Oct Mobile Wallet • Loyalty/Points • FinTech • Cash/Cheque Equipment • Alternative Currency July/August 2018
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CIO/CMO Partnership
Building the CIO/CMO payments partnership By Diane Bégin
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hether in-person or through technology the following principle holds true: in places where large groups of people spend a significant amount of time, commerce tends to follow. Recent data tells us that about 3/4 of Canadians spend at least three-four hours online a day, with smartphones as the dominant platform for total time spent. And that some 40 per cent of Canadians made purchases through their mobile phones in 2018: up from just 12 per cent four years prior1. This intersection of payments with digital media has meant a growing intersection between the roles of the CIO (chief information officer) and CMO (chief marketing officer). Recent research by APEX Public Relations and ruckus Digital conducted through Maru Blue, as part of our national CMO Lab, sheds some light on three core principles that Canadian CMOs should value that are also relevant to CIOs in the payments space.
1. Make disruption a mindset. Disruption has long been a given in the payments industry. This gave way to the idea of being comfortable with the idea of constantly being uncomfortable, and even intentionally making yourself so. CMOs from brands such as McDonald’s Canada and Interac Corp. recently shared stories at the annual American Marketing Association (AMA) Toronto chapter CMO panel about how they’ve proactively initiated disruption by inviting external partner companies into their organizations. Comparatively, our CMO Lab research of Canadian CMOs shows that half (49 per cent) find that innovation comes from within 4
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their organizations, while under a third (27 per cent) says it comes from partnering with external companies. The AMA Toronto panel went on further to say customer-facing employees are often overlooked in carrying organizations’ innovation messages forward. While Canadian CMOs in our research listed employee engagement as “most responsible” for the success of initiative, similarly more than half the time (57 per cent) staff were not included in new initiatives.
2. Make everything about the customer. The recent AMA Toronto chapter CMO panel also agreed that exceptional customer experiences help differentiate brands from their competitors. Similarly, our CMO Lab research found that the top measure of effective content reflected the customers’ needs and values. Almost 2/3rds of Canadian CMOs (64 per cent) always include customers in their programming. In a Forbes interview earlier this year, the “architect of the most digitally savvy country on earth,” former President of Estonia Toomas Hendrik Ilves, offered “one of the key tenets in my push is that digitization must offer things that people like. For example, filling out taxes in threeto-five minutes is something people love because the entire process is digitized2.” This makes it key for the CIO and CMO to concurrently put themselves in the customer’s mind to deliver on something “likeable”.
3. Always communicate the “why”. While your disruptive technology might be the greatest thing for your customers, it means little if they don’t understand why they should use it. In the example of
digitized taxes in Estonia, the “why” was communicating the fact that it will take only three-to-five minutes to complete something that most people find painful i.e. tax returns. The “why”, however, is absent for some Canadians when it comes to new payment options. In a recent Payments Canada The PayPod podcast, panelists from the Millennial (born mid 1980s-2000s), Generation X (born 1960s-mid-1980s) and Baby Boomer (born mid-1940s-1960) generations were not keen on e-wallets or cryptocurrency simply because they did not understand their value. Would your customers understand why they should use bitcoin or care about token IDs? But equally important does your communications approach for the release of your new product or service account for audience feedback on why adoption is lacking? Our CMO Lab research showed that over 60 per cent of CMOs do not have pivot plans should such audience feedback be a reality. The success of payments innovation in Canada will depend on the effort to educate consumers and businesses on its benefits. In an age when talk around privacy and security are at an all-time high, the key to building trust in both CIO and CMO roles will begin by explaining the “why”. Diane Bégin is vice president, social marketing and brand communications at APEX Public Relations and ruckus Digital. CMO Lab is a partnered signature research series launched in 2018, focused on insights and trends as outlined by Canadian CMOs. 1 CIRA, “Canada’s Internet Factbook 2018”, web site, https://cira.ca/factbook/canada%E2%80%99s-internetfactbook-2018 2 Peter High, “An Interview With The Architect Of The Most Digitally Savvy Country On Earth”, Forbes, April 23, 2018.
July/August 2018
Want to know more about your card programs? Do you issue fleet cards? Manage transactions? Is it vital to keep on top of technology which affects your mobile solutions?
Sign up NOW for a free subscription to Payments Business magazine. Visit our website at www.paymentsbusiness.ca and learn more about the magazine Payments Business is a Lloydmedia, Inc publication. Lloydmedia also publishes Financial Operations magazine, Canadian Treasurer magazine, Canadian Equipment Finance magazine, Direct Marketing magazine and Contact Management magazine.
Managing pot payments By Ryan Stewart
C
anada is set to become the first major industrialized nation to legalize cannabis with the passing of Bill C-45 that comes into effect on October 17, 2018. The new law is opening up a whole new legal market. Canadian adult cannabis sales are expected to exceed $6 billion in 2020; to put that into context this is more than the amount of spirits sold1. Both the federal and provincial levels of government are overseeing different parts of the value chain. The federal government is set to regulate production and licensing while the provinces will be regulating sales and distribution. The financial industry will need to find its place in this new market. It will take cooperation from the governments to solve cash flow problems, collaborate with new partners and be ready to support this surge in demand.
Regulatory challenges and opportunities There is a tremendous opportunity for FinTechs to help cannabis companies. The need is for 6
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July/August 2018
Cover story
both parties to work together to develop secure supply chain management. Payment regulations tend to be regional, so any multinational processor or acquirer in Canada will have to abide by the location regulations in which their merchants are domiciled. Any U.S.-based acquirer or processor that are not also Canadian acquirers will be unable to support this business, as cannabis is still illegal under United States federal law2. Consequently, some of the bigger global processors that are located where cannabis is a prohibited substance will be ruled out, providing more opportunity for Canadian processors and acquirers. The provincial governments need to abide by the overarching federal government regulations when it comes to due diligence for know your client or customer (KYC), age and location. Provinces can’t create this structure alone, though and will require help and support from the cannabis and financial industries to meet the necessary guidelines.
carts, as well as back-end acquirers to be successful across provinces and use cases. The value of flexible and secure application programming interfaces (APIs) will allow processors to be nimbler when it comes to offering solutions for players in the cannabis industry.
Flexibility amidst consolidation
producers 4. That number will likely change quickly as Health Canada is reviewing applications for licenses and are speeding up the review process. The need for the financial industry is to find solutions to meet this surge in demand as it applies to the high amount of transaction load. FinTech players can enter this market as a blue ocean strategy. They typically know their markets very well. If FinTechs are willing to partner with cannabis companies in new ways, like with automated, lightweight KYC programmes that provinces can plug into they can make their mark by creating a legal cannabis value chain that can scale with demand. By some estimates the demand for both recreational and medical cannabis markets could reach 575 metric tons by 20215, a massive opportunity for retailers and the financial industry. It is no doubt that there is an immense opportunity for growth in the Canadian financial system stemming from the legalization of recreational cannabis, but we are still in the very early stages. Rules and regulations for each province are yet to be decided and until after the legalization date it will be difficult for the financial industry to determine the exact role they will play in this new market. Payment processors will need to be flexible and adaptive to the different use cases of cannabis. It will take collaboration from all players to enable the cannabis industry to scale successfully without getting burned out from unprecedented demand.
A large group of cannabis providers already have the lion's share of the market, which could act as a barrier for smaller cannabis companies trying to enter the market post legalization. There will likely be consolidation in the cannabis industry. Regulation by both the federal government and the provinces is another barrier. The opportunity here is for new types of partnerships to evolve between payment processors with both with large and small cannabis producers. The ability to scale is paramount for the success of this budding industry and that cannot be done without mutual trust and understanding of the complex issues surrounding legalized cannabis.
However, it is ultimately the voice of the consumer that will play the most significant role in how the cannabis industry evolves. Early movers from all sides, from payment processors to retailers will gain the market share and expertise to shape the path that the industry will take. However, it is ultimately the voice of the consumer that will play the most significant role in how the cannabis industry evolves. Consumers are most likely to purchase products through physical locations; only one-third of them will buy products through approved retailer websites3. That means that retailers not only need to run points of sale (POS) systems but also develop secure and compliant web stores that can accept a wide variety of payment types. Payment processors must work with all front-end tools like shopping July/August 2018
The law of supply and demand Currently, the amount of granted production licenses is drastically low to meet expected demand over the next 18 months. According to Statistics Canada, there are at presstime only 102 licensed cannabis
Payment processors will need to be flexible and adaptive to the different use cases of cannabis.
Ryan Stewart is chief commercial officer for Bambora North America, an Ingenico company, where he leads the sales, marketing and product teams. He is passionate about the dynamic payments space and focuses on delivering a simple, elegant payments experience to merchants and software providers globally. Ryan has launched numerous disruptive payments products in Canada, the U.S. and Europe, from online, to in-app, mPOS and merchant online onboarding automation. 1 CIBC, “Cannabis: Almost Showtime”, report, May 7,2018. 2 Miranda Russell, Helcim, “Cannabis Retailers - A Challenge For Payment Processors”, blog, June 1, 2018. 3 Deloitte, “Deloitte expects total Canadian cannabis sales to exceed $7 billion in 2019 after legalization”, press release, June 5, 2018. 4 Statistics Canada, “A snapshot of licensed cannabis producers”, report, April 26, 2018. 5 Joe Castaldo, “How big is Canada’s marijuana market, really?”, Maclean’s, June 30, 2017. PAYMENTSBUSINESS
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Security, Fraud & Privacy
Avoiding paying the ultimate cybersecurity price What data breaches within retailers remind us about protecting POS terminals By Rob Cataldo
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ews headlines about point of sale (POS) system data breaches are becoming all too normal. From leading luxury retailers to major restaurant chains, some of the biggest organizations in business are being outsmarted by cybercriminals and the data of millions of customer credit cards are being leaked through cash register systems. According to the Identity Theft Resource Center’s 2017 Annual Data Breach Year-End Review, the amount of credit card numbers exposed last year totalled 14.2 million, which is up 88 per cent over 20161. Regularly detected malicious activities in retailers’ systems suggest that POS terminals continue to make this type of cybercrime an attainable goal for hackers. So, are businesses concerned about becoming the next victim?
Cyberattacks top Canadian business risk In Canada, businesses see cyberattacks as a major burden. Ernst & Young recently revealed the findings of its 15th Global Fraud Survey2 8
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which found that 66 per cent of Canadian organizations believe a cyberattack is the biggest risk to their business. This is a significant increase from the global average of 37 per cent and surpassing concerns over the changing regulatory environment (48 per cent).
Although Canada is making strides to improve and modernize its payment systems, faster payments don’t necessarily mean stronger security. Although Canada is making strides to improve and modernize its payment systems, faster payments don’t necessarily mean stronger security. Whether they are using old or new technologies July/August 2018
Security, Fraud & Privacy for payments, all businesses still have an individual responsibility to properly manage security and protect the financial and personal information customers share. When taking a closer look at the impact of a cyberattack, the cost of recovering is a significant factor that businesses need to be aware of. According to the latest Kaspersky Lab study, the average global cost of a data breach for an enterprise business has reached $1.6 million. Compared to six other major global regions, North America is the most expensive location for a small medium-sized business (SMB) to suffer a data breach, with an average recovery cost of $149,000. Clearly, the impact of a data breach is worthy of attention. Retailers need to plan ahead and secure their payment systems or dig deep into their pockets to foot the bill if an incident occurs.
Steps businesses can take What can businesses do to proactively monitor and protect against a potentially devastating attack? To start, they need to come to the realization that specialized embedded systems, such as POS terminals, require specialized protection. For retailers, specialized protection needs to be a part of the organization’s overall security strategy. In order to properly protect against cyber threats that have the ability to compromise business operations and expose customer data, standard antivirus software alone is not enough. When taking a deeper look at the systems that need proper security, these two factors are most important: 1. Operating systems. Security of POS terminals is usually overlooked and one of the most critical aspects is the operating system (OS). More than half of businesses still run on the now unsupported Microsoft Windows® XP family OS3. Considering antivirus vendors along with Microsoft ended support for Windows XP four years ago, traditional endpoint protection alone won’t properly secure these POS devices. 2. System requirements. Besides the obsolete OS, there is also an issue with system requirements. The hardware of POS systems is typically lower-spec as they are intended to support the maximum amount of computing workload required to perform their singular function. Any anti-malware software deployed on these systems must be aware of the hardware limitations to avoid overloading them. This is critical when considering resource-consuming malware scans run on a regular basis by traditional security products. It’s important to implement a robust security solution that is tailored to protect POS terminals so that it has the ability to address the limitations of system requirements and operating systems. For retailers who want to protect their POS devices, and not become the next data breach in the headlines, here are a few recommendations for setting up a specialized embedded systems security solution: • Change the default login. Always change the default password that is supplied with the POS system and make it complex. If July/August 2018
not, cybercriminals could easily gain access by using well known default credentials; • Regularly install updates. Even for outdated operating systems, special patches might be released to eliminate the most critical vulnerabilities. An example of this is when Microsoft released a security patch for Windows XP after the WannaCry outburst last year; • Control running applications. Make sure that the security solution supports a “default deny” mode, which, when in place and enabled, an administrator can selectively allow only the applications and process those they deem appropriate to run. This means that no executable files, drivers and libraries, other than software protection, can run on the system. For connected devices, like POS terminals that are not supposed to run multiple applications or processes besides their core functionality, this type of feature is key to strong protection; • File monitoring. Track actions performed by specified files and folders within the monitoring scope. This highlights file changes that may indicate a security breach on the protected server and allows file configuration changes to be tracked during periods when monitoring is interrupted; • Control access to the POS system. Create a “device control” mode that allows the IT team to block unauthorized access from devices (e.g. USB storage) trying to connect physically to system hardware. This is one of the key entry points for cybercriminals looking to exploit unprotected POS terminals; and • Do not neglect anti-malware functionality. Even with the previously mentioned functions enabled there are still ways that a perpetrator can infect the system, therefore this extra layer of protection is a must. Specialized protection for POS terminals allows organizations to conduct malware scanning when required, while reducing the impact on system performance. These factors and recommendations should be taken into account when setting up a proper protection framework around POS terminals. To mitigate the costly security risks that embedded systems present retailers today, this specialized security approach should be one piece of a multi-layered security strategy. In addition, security practices—such as conducting a complete security assessment, penetration testing and training for employees—will continue to remain critical for an all-encompassing security approach that can protect against the constantly evolving cyber threat landscape. Rob Cataldo is vice president, enterprise sales, Kaspersky Lab North America. Rob is responsible for leading the enterprise sales teams across the region and overseeing all B2B sales activities for organizations with 1,000 or more employees. Kaspersky Lab is a global cybersecurity company, which has been operating in the market for over 20 years. The company offers deep threat intelligence, security expertise and a comprehensive portfolio of specialized security solutions to fight sophisticated threats and protect businesses. Learn more at https://usa.kaspersky.com/. 1 Identity Theft Resource Center, “2017 Annual Data Breach Year-End Review,” report, January 25, 2018. 2 Ernst & Young, “66% of Canadian executives cite cyber attacks as their top business risk”, press release, May 31, 2018. 3 Darren Allan, “More than half of businesses still rely on Windows XP”, TechRadar Pro, April 4, 2017. PAYMENTSBUSINESS
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Security, Fraud & Privacy
Preventing fraud with holistic ID verification By Tom Donlea
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he rising number of mass data breaches and the increasing sophistication of fraudster networks keep even the savviest fraud managers awake at night. To illustrate, Juniper Research expects an estimated $71 billion in global card-not-present fraud expected between 2017-20221. Consequently, payments businesses face mounting pressure to thwart criminal activity without rejecting good customers. Failure to strike this delicate balance will result in lost revenue and wasted staff resources through hypervigilant security. Sophisticated payments businesses are responding to these threats by putting more advanced fraud prevention measures in place. They are refining their identity verification strategies with more mature solutions that utilize big data, machine learning and global data insights. These evolved practices help them more readily differentiate between good customers (and speed their transactions) and potentially fraudulent actors. Now this might seem like the sort of approach reserved for businesses above the $10 million revenue threshold. But every online business can, and in fact must combat fraud, such as by utilizing advanced approaches to identity verification, such as networks, data linkages and scores.
Using a four-stage scale When talking about identity verification maturity with customers, I find that it is helpful to discuss it as a progressive four-stage scale. The higher you go up, the greater the ability to reduce fraud, manual review and false positives. Each case typically builds on the previous one, allowing organizations to ensure higher accuracy as they move forward. Let’s take a closer look: • Stage 1: Not identity proofing yet. Believe it or not there are still online businesses that don’t take any extra steps to verify customers’ authenticity before approving their orders. They typically operate under the false assumption that an address verification system (AVS) is a “fail safe”; • Stage 2: Verifying a single identity attribute. This group of businesses protects themselves rather minimally by focusing on a single factor before confirming orders. These individual data points might be age of email (to verify it has been in use for a long period of time), addresses or phone numbers; • Stage 3: Multiple identity attribute verification. Some 10
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Security, Fraud & Privacy businesses go the extra step to verify multiple attributes when authenticating their customers. As the number of factors that are verified goes up, so does the likelihood that customers are who they say they are. This sort of multi-factor authentication speeds up transaction for good customers and; • Stage 4: Holistic identity verification. At this stage, businesses are verifying that multiple identity attributes are accurate and they all link back to the customers making the purchases. In a single search it’s possible to verify names matches home addresses, phone numbers and email addresses. But when searching for linkages between the individuals and their contact information and related people it is a significant signal of risk if these cannot be established.
The linkages + holistic approach There are broad use cases for identity linkages. Take, for example, account takeover identity theft. In this scenario, a criminal uses personal information to gain access to a person's existing accounts. The fraudster will change the mailing address or phone number associated with an account and then run up large bills before the identity theft victim realizes there is a problem. Examining linkages can expose cracks in an identity that are strong signals of fraud. Identity linkages, with holistic identity verification (Stage 4), unlocks a powerful new set of opportunities to leverage machine learning, sophisticated data analysis and data science that would not be possible with simpler methods of identity verification (Stages 1-3). When a whole identity is considered, a world of networks, history and patterns can be tapped for increased speed and accuracy. Identity networks are extremely valuable to businesses because they can see signals across millions of transactions and multiple customers for a real-time understanding of identity element velocities, transactional frequencies and linkage histories. Machine
learning and sophisticated data science can be applied to analyze these transactions to learn and adapt to patterns across different industries. For faster decision-making, some identity data services are distilling the results of their sophisticated verification processes into single numbers or “scores” for easy real-time rule building or integration into risk models. While scores are useful for businesses of all sizes, they are particularly helpful to smaller businesses that might not want to dive as deeply into the data or have the resources to create their own models, when making transaction decisions.
Holistic identity verification for the win In an age where data breaches are far too common, the confidence of an online business to approve or reject transactions hinges on its ability to verify identity. One of the simplest and fastest ways to do so is holistic identity verification which is especially effective at determining a customer’s legitimacy. An estimated 10 per cent of rejected transactions are believed to be false positives, according to the VISA CyberSource 2017 Annual Online Fraud Benchmark Report. Since rejected customers are unlikely to return it’s worth taking a step back to make sure your fraud management approach isn’t driving away business. Having a mature and holistic identity verification practice will deliver faster approvals for legitimate customers, reduce fraud and lower false positives so you can concentrate on your bottom line. Tom Donlea is vice president of business development and partnerships at Whitepages Pro, https://pro.whitepages.com, a leading identity verification data provider for risk management in banking and online lending worldwide. With over 10 years of online payments and risk experience, Tom previously was the founding executive director of the Merchant Risk Council. 1 Juniper Research, “Retailers to lose $71 billion on card-not-present fraud over the next 5 years”, press release, June 20,2017.
Whitepages Pro unveils Pro Insight Whitepages Pro now offers Whitepages Pro Insight, a new and improved manual review solution designed to help businesses assess the identity risk of their customers, approve good transactions and investigate fraud on a global scale. The product enables users to balance accuracy and efficiency through direct workflow integrations, machine learninginformed insight and robust analytics. Within Pro Insight, users are first presented with Identity Review, a comprehensive interface that verifies and cross-checks five digital and traditional identity attributes (name, email, phone, primary and secondary addresses and IP) to verify the identities behind transactions. The solution analyzes and presents the relationships between them in several intuitive ways: July/August 2018
• Confidence Score: an overall measure of the risk associated with a transaction that cross-references the five core identity attributes. The Confidence Score is powered by machine learning insights from billions of transactional patterns across the Whitepages Pro Identity Network and the 70-plus data signals of the Identity Check API (application programming interface); • Positive and negative signals: a concise list of primary factors that influence a given Confidence Score; • Results columns: a detailed list of matches, mismatches and invalid inputs based on the links between a transaction’s identity elements. Users can click on specific attributes to further investigate associated people and historical data; and
• Distance Map: a visual representation of geographical distances between phone, primary and secondary addresses and IP addresses. “Online businesses need sophisticated solutions like Whitepages Pro Insight to combat the increasingly sophisticated tactics of fraudsters,” said Whitepages Pro director of product management, Ajay Andrews. “Pro Insight gives our customers powerful fraud fighting tools informed by sophisticated machine learning and surfaces trends observed by our network of hundreds of customers processing millions of transactions. Our customers see up to a 40 per cent decrease in chargeback rates and a 50 per cent decrease in time spent per review with our solution.” PAYMENTSBUSINESS
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ONLINE RETAIL
Digital is changing online shopping expectations By Sukhmani Dev
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rom work to play Canadians are leading lives that blend the physical and digital worlds more than ever before. They can now seamlessly transition from video conference calls to lunch meeting with clients or from scrolling through social media to conversation with friends at a cafĂŠ. This shift means that Canadians expect technology to give them the freedom to communicate, connect and shop in the most seamless and secure way possible.
E-commerce challenges Despite these advances, there is still a gap in the online shopping experience. Consumers are increasingly browsing on virtual channels without a simple way to check out. Think about consumers’ expectations when they walk into stores. They see payment terminals and they know how their cards or devices will interact with them. Consumers have consistent and secure ways to pay in the physical world based on the mag stripe, EMV and contactless standards. The online commerce experience should be as simple, familiar and trusted as it is in stores. After all, e-commerce accounted for nearly $1.9 billion in retail sales in December 2017 according to Statistics Canada. But while Canadians are increasingly turning to online shopping, the experience still has its pain points including remembering passwords, re-entering payment credentials on merchant’s sites and risking online fraud. To add an extra layer of complexities online shopping is quickly migrating from desktops and laptops to the much smaller screens on mobile devices. Think about the last time you were in a rush trying to buy something on your mobile phone. You had to type in your card number, CVV and expiration date, as well as your shipping and billing addresses. The process is not efficient. Many companies have rolled out solutions to put their own spin on solving the problem, including merchant apps and technologies that store your payment and shipping information. But the experience is not uniform. Consumers have potentially become confused by having too many options to choose from. The reality is commerce is enabled through phones, Web sites, fitness bands, smart mirrors, cars, shoppable windows: just about any other environment you can think of. Commerce does not only happen when you are at a point of sale (POS). Commerce happens anywhere and everywhere. We need to better meet consumer needs in this new digital world. 12
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How do we ensure that the secure, frictionless and ubiquitous experience we have enabled in the physical world translates to the experience we have in the digital world?
Migrating to a digital-first world begins now It is time that we give consumers the same trusted checkout experience for online as they receive in stores. We are calling upon merchants, acquirers, issuers and technology players to join together in giving consumers the same simple, secure and convenient payment experience across every browser and device. At Mastercard, we have announced our support for the new EMVCo Secure Remote Commerce (SRC) framework to develop one streamlined checkout button.
It is time that we give consumers the same trusted checkout experience for online as they receive in stores. A single button has the power to give customers a trusted and simple user experience, merchants a single technology integration and issuers a way to strengthen their relationship with customers. This effort will also build the foundation for new shopping experiences including apps, digital voice assistants, augmented reality and other connected experiences. For Mastercard cardholders, this seamless single button checkout experience will use the latest authentication standards of EMV 3-D Secure, while adding an extra layer of security through tokenization. EMV 3-D Secure removes the reliance on passwords to authenticate transactions; tokens render credentials useless to fraudsters and reduces risk for merchants. Our Mastercard vision is a fully tokenized digital world. This goal is within reach, as nearly 75 per cent of all cards globally today are ready to be tokenized, according to our research and that number is even higher in Canada. The industry must deliver peace of mind to consumers however they choose to pay, whether it be in the digital or the physical world. Standardization for checkout online will provide the best user experience to consumers and easy implementation for merchants, just like in the physical world. As an industry, this is a step we should and can take together. Sukhmani Dev is vice president of product management, digital solutions at Mastercard in Canada
July/August 2018
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ONLINE RETAIL
Why retailers should offer private label credit cards By Peter Kalen
T
he fees charged by credit card companies have long been a thorn in the side of retailers, particularly in Canada where they are among the highest in the world. For large merchants, launching their own private label credit cards have been one sure fire way to mitigate fees. However, the complex process of setting them up and acquiring cardholders make many businesses reluctant to bother. Now, there’s hope on the horizon. New tech-focused solutions have made it both simple and cost-effective for Canadian retailers to launch their own private label credit cards. As a result, more and more businesses are making use of this powerful tool, lowering fees and driving sales by offering their customers access to open credit and flexible payment options.
Cutting fees benefits Every time a customer pays with a general-purpose credit card, interchange fees shrink already narrow margins. The costs associated with credit card processing are a particular challenge for Canadian retailers. At 1.5 per cent, Canada’s interchange rate dwarfs those of many other regions, including the European Union where fees are capped at 0.3 per cent and Australia, where fees are limited to an average of 0.5 per cent1. Canadian retailers cumulatively pay an estimated $5 billion a year in interchange fees2. Cutting these types of fees offers enormous saving potential, which can then be reinvested into the business.
How financing impacts the bottom line In addition to significant cost savings, advances in technology have made it simpler for retailers to offer private label credit cards and sales financing, which Canadian customers still want and need. For 14
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example, American Express Canada estimates that 42 per cent of consumers are unable to save for large purchases or bills and prefer to pay over time3. Financing options can be an important sales tool. Not only do promotional financing plans drive customer traffic they also help sales teams close sales or seize opportunities to up-sell by converting large purchases into affordable monthly payments or offering deferred payment plans.
Every time a customer pays with a general-purpose credit card,interchange fees shrink already narrow margins. The costs associated with credit card processing are a particular challenge for Canadian retailers. At Flexiti, our merchant partners have seen as much as a 48 per cent increase in average ticket size for financed purchases versus general purpose credit card purchases. With a private label credit card, customers do not need to reapply for financing with each purchase. This is a key advantage over traditional financing through installment loans. By eliminating the re-application process, you remove a hurdle for customers to make future purchases, which helps build brand loyalty.
July/August 2018
ONLINE RETAIL A single solution for multiple channels Today’s technology allows retailers to also offer payment by private label credit card both in-store and online. By doing so, they can increase revenue, eliminate costly credit card fees and build loyalty through repeat purchases, wherever their customers are shopping. While Canada’s e-commerce market has trailed that of other advanced countries, Canadians are beginning to fully embrace online shopping. In the coming decade, Boston Consulting Group expects that more than 35 per cent of Canadian retail sales growth will be delivered online, up from 7 per cent today4. This context creates opportunities: and new challenges to stay relevant. To keep customers coming back, Canadian e-retailers need to offer a seamless check-out experience including a choice of online payment options. Offering payment options at checkout also helps them contend with a real challenge: shopping cart abandonment. According to a study conducted by PayPal in partnership with comScore Research, 53 per cent of PayPal credit users would not have made all of their purchases without PayPal Credit5. Offering financing at the point-of-sale (POS) can also help to increase average order size. For example, PayPal Credit users have transaction sizes up to 68 per cent larger, according to Nielsen’s PayPal Credit Average Order Value Study6.
financial services industry. Prior to founding Flexiti Financial, he served as EVP at Sears Financial and Home Services, SVP at President’s Choice Financial and SVP Citi Cards Canada. Peter received his MBA from the Richard Ivey School of Business in 2001. 1 Retail Council of Canada “Fast Facts and Q&As”, online, https://www.retailcouncil.org/fastfacts-and-qas-0 2 Gary Sands, “Canadian shoppers pay when Visa and MasterCard squeeze small business”, Financial Post, opinion, May 8, 2017. 3 AMEX Canada, “Introducing American Express Installments: A New Way to Pay for Purchases Over Time”, press release, November 1, 2016. 4 Dan Bodley, Peter Dawe, Sam Ridesic and Matthew Mackenzie, Boston Consulting Group, “Will Canadian Retailers Meet Demand as E-Commerce Takes Off?”, report, June 12, 2017. 5 PayPal, www.paypal.com/us/webapps/mpp/promotional-financing 6 PayPal, www.paypal.com/us/webapps/mpp/promotional-financing, ibid.
Technology innovations New innovations in technology have significantly streamlined the process of launching a private label credit card, with clear benefits for both retailers and their customers. At Flexiti, we have created the only POS lending platform that allows merchants to issue customers private label credit cards in-store and online. Our platform offers low rates for retailers who want to offer their customers flexible payment options, such as zero per cent interest financing. Crucially, the platform requires minimal POS integration and is easy to integrate into existing e-commerce engines. Within days, merchants have a powerful new payment option to drive sales and cut down on fees. Meanwhile, customers seeking flexibility get to choose a payment schedule that fits their needs. The checkout process is simple and requires neither an existing credit card nor a lengthy paper application. They can simply select “Pay with Flexiti” at checkout, apply and receive approval for Flexiti’s virtual private label credit card within minutes.
Cards’ untapped potential Launching a private label credit card is now no longer an unwieldy process, thereby allowing more retailers to reap the benefits of offering open credit to their customers. They can provide financing to drive sales, increase average purchase value and encourage repeat purchases. They also can build customer loyalty in the new omnichannel retail landscape. And, finally these merchants can drastically cut fees on regular credit purchases, thus creating instant savings to reinvest into their businesses or put towards the bottom line. Peter Kalen is founder and CEO of Flexiti Financial, Canada’s leading POS financing platform for retailers and a leading issuer of private label credit cards. Peter is a seasoned credit card and retail executive with over 25 years of experience in the July/August 2018
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ONLINE RETAIL
Winning consumer trust for frictionless payments By Daniel Kornitzer
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hat happens when your Uber ride reaches your destination? You get out of the car. No fumbling around for your wallet. No need to worry about tips. In fact, you don’t even need to worry about having any cash on you at all. That is because you previously stored and validated your payment card details through the app. Advances like these in frictionless payments, which are invisible transactions that take place behind the scenes in apps, are coming thick and fast. On the face of it, they seem to offer unequivocal convenience, time-saving and peace of mind benefits to consumers. These innovations are hitting the market because of a generally accepted belief in one simple premise: that consumers don’t like friction. 16
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ONLINE RETAIL
Brands such as Uber have demonstrated the frictionless experience and exactly how powerful transparent payments can be as part of the process of attracting new customers and building their trust. Once customers are onboarded they don’t have to think about payments ever again. The process stays in the background, invisible to the naked eye.
Consumer resistance But are consumers really as sold on frictionless payments like in Uber, but also in online retail and now in the new automated in-person stores as this narrative suggests? Are consumers ready for a world in which they abandon visibility of their financial affairs? Or are they too attached to their established payment methods to make the leap and adopt new services? Our latest report, Lost in Transaction: Payment Trends 2018, based on research among consumers in Canada, as well in the U.S., the U.K., Germany and Austria report suggests otherwise. We are seeing Canadians actually resisting the move to frictionless payments primarily due to concerns over security and data privacy fears: • 53 per cent cite fraud as the biggest barrier to using them; • 49 per cent express concerns around the use of their data in invisible payment settings; • 65 per cent think voice-activated systems are not secure; • 68 per cent worry about being overcharged; and • 56 per cent report that checkout-free stores, where smart technologies record the shopping basket and automate payments sound too risky or they’d need to know more before using them.
We are seeing Canadians actually resisting the move to frictionless payments primarily due to concerns over security and data privacy fears. Cash continues to thrive Not only does our research report look at consumer willingness to adopt new frictionless models, it also examines the attachment to existing ones: cash and online cash replacement systems, credit, contactless cards, digital and mobile wallets and payment by invoice. It draws comparisons with our inaugural Lost in Transaction report in 2017. Although cash may be cumbersome for online merchants, our study reported that for many consumers it remains a preferred form of payment. Our study shows that 83 per cent of Canadians used cash in the past month to make purchases. ATM visits were up with 77 per cent of consumers visiting one in the last month, compared to 74 per cent in 2017. Yet 56 per cent of Canadians say they carry less cash than a year ago, though the difference is small with the average July/August 2018
being just $2 less at $43 in 2018, down from $45 in 2017. However, even if people are still carrying less physical cash in their wallets, purses or pockets, they are still actively finding other ways to keep cash at the forefront in the overall mix. For example, prepaid cards are the most popular cash alternative in Canada. They are commonly used by 18 per cent of the population. In Canada, more so than other countries, cash usage has remained overall static year-on-year. Despite the apparent benefits of low-friction payment technologies, these findings suggest many consumers aren’t ready to lose visibility of the payment process.
The responsibility to change this perception falls fairly and squarely on payment services providers (PSPs). This underlines the challenge for merchants: to balance providing both new and traditional payment options for consumers using a range of options in their everyday lives. It’s clear that the benefits are not unilaterally agreed upon, with cultural and infrastructure trends at play and it may be some time before adoption is widespread.
Addressing the struggle The payments landscape is changing rapidly. Clearly, frictionless payments are facing their own struggle. As our research shows, consumers will avoid payment methods they perceive to be risky, no matter how convenient they are. The responsibility to change this perception falls fairly and squarely on payment services providers (PSPs). It will be important for merchants and PSPs to stay relevant and accessible to as wide a customer base as possible, whilst also keeping the customer’s needs in mind. Alongside servicing the cash customer, payments companies and retailers must work towards making underlying frictionless processes feel secure, while continuing to innovate with mobile payments. There is a need for PSPs like us to provide solutions geared and designed with the consumer in mind, all while offering convenience, frictionless and secure capabilities allowing them to be in control of their payment needs. If we can address consumers’ concerns, whether real or perceived and win over their trust, mainstream adoption of frictionless payments is bound to follow. Daniel is chief business development officer for Paysafe Group (www.paysafe.com), where he is responsible for developing strategic partnerships for Paysafe designed to meet customer needs and grow new revenues. He is also a decisionmaker in Paysafe’s merger and acquisition (M&A) activities. Before starting his current role in April 2018, Daniel served as Paysafe’s EVP and chief product officer. The Lost in Transaction: Payment Trends 2018 report can be downloaded at www.paysafe.com/lostintransaction2018.
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This article and the images provided are courtesy of the Bank of Canada
INDUSTRY UPDATES
Canada’s new vertical $10 note “I’ll never forget this day—I can’t, it’s written in history!” Wanda Robson—the sister of social justice defender Viola Desmond, who appears on Canada’s new $10 bank note—was visibly emotional as the note’s design was revealed on March 8, 2018—International Women’s Day. Finance Minister Bill Morneau, Bank of Canada Governor Stephen S. Poloz, Ms Robson and Dr. John Young, president and CEO of the Canadian Museum for Human Rights, took part in the unveiling of the note in a ceremony at the Halifax, Nova Scotia Public Library. This new $10 bank note will be rolled out gradually, starting late this year and will circulate alongside the other $10 notes already in circulation. As the new regular $10 note it will be produced by the Bank of Canada for years to come. Once the note enters circulation it will mark the first time that an iconic Canadian woman is portrayed on a regularly circulating Bank of Canada note. The new $10 note is also the first vertically oriented note issued by the Bank of Canada, which allows for a more prominent image of Viola Desmond and differentiates it from the current polymer notes.
Equipment manufacturers The Bank of Canada has been working with financial institutions and bank note equipment manufacturers to minimize the impact of this note on the cash-handling industry. The new $10 note maintains the same suite of machine-readable features as the current polymer notes. The note is printed on the same substrate, the large transparent window is in the same position and the same size, and the opaque border of the window is maintained. To learn more about how the Bank of Canada works with the cash-handling machine industry, visit: www.bankofcanada. ca/cash-handling-machine-industry.
Security The Bank of Canada issues new bank notes 18
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to stay ahead of counterfeiting threats and to keep pace with advances in technology. This new note includes some enhanced security features to help keep it safe from counterfeiting yet easy to use, ensuring that Canadians maintain trust and confidence in their money. “It is the Bank of Canada’s job to design, produce and distribute bank notes that Canadians can use with confidence and pride,” said Governor Poloz at the unveil event in Halifax. “Bank notes are designed to be not only secure and durable, but also works of art that tell the stories of Canada. I am confident that you will agree that this new $10 note fits the bill.”
The design Here’s a primer to get familiar with the new $10 note’s design ahead of its release: A successful Black Nova Scotia businesswoman, Viola Desmond defiantly refused to leave a whitesonly area of a movie theatre in 1946 and was subsequently jailed, convicted and fined. Her court case is one of the first known legal challenges against racial segregation brought forth by a Black woman in Canada. Viola Desmond was selected as the portrait subject for this new note by Minister Morneau following an open call to Canadians to nominate iconic Canadian women who could appear on the redesigned $10 bank note. An artistic rendering shows a map of Halifax as it appeared in 1951 when Viola Desmond lived and worked in the North End of the city. Members of this North End community were a great support to Viola Desmond as she challenged her criminal conviction. Canadian national symbols are presented
as metallic elements in and around the large transparent window on the note. The main element in the large window is based on the vaulted dome ceiling of the Library of Parliament. The Library of Parliament has been pictured on the $10 note since 1989. The back of the note carries Viola Desmond’s story into the present, with images and symbols that represent Canada’s ongoing pursuit of rights and freedoms. The Canadian Museum for Human Rights, which opened in Winnipeg, Man. in 2014, is the first museum in the world solely dedicated to the evolution, celebration and future of human rights. For many First Nations peoples in Canada, the eagle is believed to fly higher and see further than any other bird, and an eagle feather symbolizes ideals such as truth, power and freedom. On the $10 bank note, it is intended to represent the ongoing journey towards recognizing rights and freedoms for Indigenous peoples in Canada. Watch for the $10 note featuring Viola Desmond when it begins to circulate at the end of the year and visit www.bankofcanada.ca/vertical10 to see and learn more about the design and security features of this note. July/August 2018
INDUSTRY UPDATES
The $4 billion Canadian financial services secret The open-loop prepaid market in Canada reached another milestone in 2017 when loads hit nearly $4 billion according to the latest Mercator Advisory Group study titled, The Canadian Open Loop Prepaid Market: 2017. This is despite the fact that broad awareness of prepaid as a financial tool is still lacking in Canada. The milestone shows that prepaid products continue to have a strong and
July/August 2018
steady growth in the Canadian market. They achieved 27 per cent growth over the past three years according to the study commissioned by the Canadian Prepaid Providers Organization (CPPO), a not-forprofit industry group made up of networks, banks, program managers and technology providers. New prepaid use cases are proliferating in Canada, including the cards being used for
payments to gig workers, online gaming and bank account supplements for digitalfirst Millennials. Additionally, the average load per card increased dramatically over the past 12 months, revealing that Canadians are loading funds onto prepaid cards more frequently versus using the cards one time. The Canadian Open-Loop Prepaid Market: 2017 study was revealed at the 2nd Annual CPPO Prepaid Symposium in early May 2018. This content-driven event attracted more than 100 attendees and speakers who discussed how the prepaid market is evolving and the best opportunities for growth. At the event, Mastercard outlined the significant opportunity for prepaid providers to offer businesses prepaid programmes allowing them to pay gig workers and provide small- and medium-sized enterprises (SMEs) methods to get paid, make payments and manage expenses. The SME market is large in Canada, where 98 per cent of all registered businesses fall into that category1. Yet despite its rapid growth, prepaid is still relatively unfamiliar to most Canadian businesses. According to recent research presented by Deloitte to the CPPO, about 70 per cent of surveyed Canadian businesses have little or no awareness of prepaid. However, when respondents learned about the benefits of control, flexibility and cost savings versus other payments tools, 90 per cent of respondents reported being interested in prepaid products to help them manage their business. At the CPPO Prepaid Symposium a panel made up of Canadian consumers across three generations expressed high satisfaction with prepaid cards due to the safety, security and budgeting benefits, but they weren’t aware of uses outside of gifting and company incentives. This is a common sentiment with other Canadian consumers. As the industry surpasses the $4 billion-mark awareness of prepaid in Canada is likely on the threshold of PAYMENTSBUSINESS
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INDUSTRY UPDATES exploding, which will likely lead to new innovation and product development from Canadian banks and FinTechs. It’s an exciting and pivotal time for prepaid products in Canada as it continues to affect change and new efficiencies for businesses and consumers throughout the country. Jennifer Tramontana is executive director, Canadian Prepaid Providers Organization (CPPO) 1 Government of Canada, “Key Small Business Statistics June 2016”, study, November 17, 2017.
How banks can stay relevant in a changing world Futurists and innovators from across the financial services industry gathered at Mobey Day Toronto May 23-24, 2018 to explore the social, economic and technological forces shaping a new generation of banking consumers. Here is a recap the key themes running through Mobey Day’s discussions:
Tomorrow may not be better than today? Much of the financial services industry is built on the premise that tomorrow will be better than today. Share prices will rise. The value of my house will increase. Savings will grow. The last (lost?) decade has shown that this isn’t always true. For perhaps the first time, the idea that the future will be better is under serious and sustained threat. How the industry should adjust? As Johannes Suikkanen, co-founder of growth strategy agency Gemic noted, the abandoned homes, unpaid bills and lost savings of the financial crisis have left an indelible mark on a generation of consumers. Home ownership has decreased globally, credit card use is declining and money is more commonly spent now rather than saved for later. Broader factors are also at play. Research suggests that Millennials will be the first generation in history to earn less than their parents1. The rise of the gig economy is disrupting traditional job prospects, work 20
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patterns and career paths (Jan Lukas Wolf from Sensibill highlighted that most workers in the U.S. will be self-employed in less than 10 years). Despite an aversion to credit younger consumers hold up to five times more debt, with school fees accounting for the majority2.
Banks. Why should I care? Suikkanen argued that this means banks must truly evaluate the value they deliver in this changing world. Even the most fundamental assumptions need to be challenged: do consumers even care about their finances anymore? Mario Brkic from BeeOne thinks not. In Europe and North America, for example the majority of banks’ customers have enough money to meet their basic needs and enjoy a few treats along the way. They only ever truly engage with their banks in exceptional circumstances. The idea that we don’t care about our finances is counterintuitive. Hot new FinTech start-ups and challenger banks are racing to develop apps providing evermore detailed analytics. But to make an impact and deliver real value Brkic argues that banks need to take a step back and get better at delivering simple services that make a big difference. Take overdraft charges. A service that alerts the consumer when they are about to go overdrawn and comes up with a solution (such as transferring money from a savings account or temporarily extending a planned
overdraft) is useful because it instantly solves a problem before it arises. For those living paycheque to paycheque, an avoided overdraft charge is more immediately beneficial than knowing that 10 per cent of my income is spent on dining out. Ranjit Sarai, from Canadian challenger bank Stack, agreed. Financial services need to change with the times. Consumers are apathetic because many financial products, such as mortgages and savings accounts, are becoming irrelevant to their circumstances or requirements. Indeed, 59 per cent of Millennials do not feel that financial products are aimed at them3. To re-engage this generation banks need to get creative. Streaming sites such as Netflix and Spotify promote access over ownership and ride-sharing and roomrenting apps have popularized the idea of a sharing economy. If banks are smart, these trends can be easily translated to financial services. For example, younger consumers are wary of anything that is labelled as an investment. Yet they are the same consumers who are most comfortable with crowd-funding and peer-to-peer lending, precisely because they closely resemble the shared social model prevalent across other sectors 4.
Meet the new bank. Same as the old bank. Banks don’t need to reinvent the wheel, just realign it. Of course, the only problem July/August 2018
2018 Industry events is that designing and developing simple and relevant services is difficult. Otherwise, everybody would be doing it. Consider the overdraft service. As Brkic explained, the artificial intelligence (AI) required to successfully execute this “simple” service is hugely sophisticated. The service needs to know you are approaching zero on your account. It needs to calculate how much it expects you to spend before your next pay check. It needs to know how much you can afford to transfer from your savings accounts. And so on. The good news is that the rate of technological advancement is increasing. Ben Hammersley, the renowned futurist thinks that we initially overestimate the potential of a new technology only to then underestimate its subsequent impact. According to Gartner’s hype cycle, reported in the media, we have already reached the peak for AI5. Going by Hammersley’s thinking, therefore, as AI matures, its potential application in financial services could yet outstrip even our wildest expectations. Equipped with ever more powerful tools, banks must be careful to not contract what Hammersley calls “engineers’ disease”. Most engineers are experts in one field i.e. engineering. This technical expertise does not necessarily translate to other areas such as human communication. The problem is that some engineers think it does. Advanced algorithms that promote generic and impersonal user experiences should be avoided. To immunise against engineers’ disease, Hammersley contends that inherently human interactions, such as customer service chatbots, should not be left solely in the hands of engineers. This is particularly important when connecting to younger consumers who increasingly value experience, personalization and authenticity above blind brand loyalty. Banks who can blend advanced tech with old-school customer service will hold significant advantages.
Adapting to changed consumer behaviours Another trap that banks must avoid is making simplistic generalizations about the July/August 2018
habits of different generations. Take the assertion that Millennials are impulsive and spendthrift. This is not a new complaint. Over 2,000 years ago Horace, the Roman poet, lamented that “the youth…do not foresee what is useful, squandering…money”. Subscribing to simplification at the expense of nuance is hugely counterproductive for banks and will alienate both existing and potential customers. That said banks cannot ignore the fundamental shifts in consumer behaviours and expectations and carry on as they always have. The term “Millennial” is perhaps better described as a mindset than a demographic. By collaborating to understand the complex and connected socio-economic reasons behind the push for more utilitarian, social and customercentric services, banks can adapt to deliver value that spans any generation gap.
August August 16 FinTech Canada FinTech Canada Conference 2018 Toronto, ON www.fintechcanada.com August 21-22 The Prepaid Press tppEXPO’18 Las Vegas, NV prepaidpressexpo.com
September September 12-13 Western States Acquirers Association 2018 Conference Scottsdale, AZ westernstatesacquirers.net September 25-26 InsuranceNexus 4rd Annual Insurance Analytics Canada Summit Toronto, ON events.insurancenexus.com/canada
October
Elina Mattila is executive director at Mobey Forum www.mobeyforum.org , the global industry association empowering banks and other financial institutions to lead the future of digital services. Join the debate @mobeyforum
October 9-11 BAI BAIBeacon18 Orlando, FL bai.org/baibeacon
1 Joe Myers, “Millennials will be the first generation to earn less than their parents”, World Economic Forum, article, July 19, 2016. 2 Anna Isaac, “Young people owe five times more than older consumers, as unsecured debt mounts”, The Telegraph, October 16, 2017. 3 Nathalie Doré, “How can banks reinvent themselves to attract Millennials?”, L'Atelier BNP Paribas North America, article, August 4, 2017. 4 Aime Williams, “Best of Money: Why millennials go on holiday instead of saving”, Financial Times, February 12, 2016. 5 Lynsey Barber, “Gartner Hype Cycle 2017: Artificial intelligence at peak hype, blockchain heads for disillusionment, but say hello to 5G”, City A.M., August 17, 2017.
October 14-17 CUCA National Credit Union Lending Conference 2018 Victoria, BC www.cuca.com October 21-24 Money20/20 2018 Las Vegas, NV money2020.com October 22-25 Sibos 2018 Sydney, Australia sibos.com October 23-24 Canadian Workshop: Commercial Card Program Management-Beyond the Basics Toronto, ON https://www.napcp.org/events
To send press announcements, please direct them to Brendan Read, Editor, brendan@paymentsbusiness.ca
October 26-27 CAMA - EXPO 2018 Blue Mountain, ON vending-cama.com
November November 4-7 Association for Financial Professionals 2018 AFP Annual Conference Chicago, IL afponline.org PAYMENTSBUSINESS
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Pay Channel Report: Wire & EFT
Modernizing the business payments landscape By Duane Williams
I
nnovations in payments are evolving exponentially. Through platforms such as Interac e-Transfer, Canadians can request funds and send money securely from one account to another in near real-time. In 2017 alone, Canadians used Interac e-Transfer to complete more than 241 million transactions valued at over $92 billion. Micro- and small-companies are following consumers’ leads and adopting Interac e-Transfer for payments. Approximately one in six Interac e-Transfer transactions were conducted by a business in 2017. The platform is easy to use, eliminates reliance on cheques, allows for invoices to be settled in real-time, offers easily trackable data and it ultimately reduces costs.
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Simplifying and speeding up the processes So how can we make business payments more like ordering a lift through a ridesharing app and less like hailing a horse and buggy? We’ve got five suggestions:
1. The back office: forgotten no more. The back office of large companies is just that, an office at the back of our collective minds, rarely considered and often ignored. If businesses are to make better payments they’ll need to prioritize their back offices and restructure outdated processes. This won’t be easy: untangling these monolithic and entrenched systems could take substantial time and effort. But those investments will yield a substantial dividend: the ability to pay like it’s the 21st century.
Old money-moving habits
2. Embrace real-time payments.
But medium- and large-sized corporations remain stuck in their habits, still largely moving money the old-fashioned way. Cheques and electronic fund transfers (EFTs) are in common use, even though each method holds the possibility for clearing delays and liquidity issues. Accounts payables and receivables remain crucial parts of back office operations and paper is still everywhere. In today’s market, convenient experiences are crucial. Think about the customer experience of your favourite ridesharing app. It’s as easy as requesting a car and hopping out at the end of a trip. The payment is easy and invisible. Now think of how many businesses approach payments. They typically start with vendors sending invoices which needs to be reconciled, processed and paid. The transactions then needs to be cleared, which creates further delays. Any discrepancies or errors aren’t apparent until the end of this long and involved process.
Say goodbye to legacy payments processes and greet near-instant transactions that fit the needs of a modern economy. Real-time payments are everything that cheques and EFTs aren’t: convenient, transparent, safe and ubiquitous. Traditional B2B remittances rely on account information, which needs to be verified in order to complete transactions. That’s not the case with real-time payments, which use unique identifiers such as email addresses, mobile phone numbers and paytags to give and accept money. No more waiting to corroborate information: just instant approval and availability of funds.
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3. Rich data for richer companies. If knowledge is power, then rich data makes back offices powerful. When banks receive EFTs they also get payment information to identify who the funds are from and what they’re for. Companies must then run the files through a batch process, match the amounts with the deposits in their accounts
and then credit the payers. In these cases, a little extra knowledge could save a lot of time. Richer data flows can make that happen by allowing payments and remittance information to arrive in realtime, so when companies receive money it’s clear who has sent it and why. There’s no manual intervention required, which makes straight-through processing a possibility.
4. Set the standard. The payments industry knows that the exchange of rich data is impossible without message standardizations such as ISO 20022. Overhauling the way in which we communicate remittance information won’t happen overnight, but it’s important that the industry works towards that standard. The benefits of embracing it are too rich to ignore.
5. Establish the right infrastructure There’s no innovation without infrastructure. Until companies know and understand modern payment technology they’ll have no motivation to update their offices or pursue rich data remittances. Fortunately, advanced real-time rails are on the horizon. These systems won’t just facilitate faster transactions. They’ll also enable overlay services from a variety of sources, thereby diversifying the payment landscape. In conclusion, real-time commerce will spark new technological developments, inspire fresh entrants into the Paytech industry and allow the Canadian businesses to keep pace with international competitors. With a collective push from the payments industry, real-time transactions will become a reality we can enjoy. Duane Williams is senior manager, product platforms, Interac Corp.
July/August 2018
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