Presentation on the future of the Canadian payments industry to Financial Executives International conference in Ottawa- June, 2011.

1. The Ch
h Changing Payments Market
i k
Kristy Duncan
FEI Conference
Ottawa
June 10, 2011
J 10

2. Current Payments Market Influencers
1. Technology is driving new solutions at an increasing rate.
1. 2. Regulatory regimes are becoming more onerous.
3.
3 Cheque volumes are declining
declining.
4. N
4 New players are coming to the payments market.
l i t th t k t
Cheque volume graph from the Payments Council in the UK at:
http://www.paymentscouncil.org.uk/files/payments_council/new_website/cheque_volume_trends_-_smaller.gif
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3. Technology as a Key Driver
•Consumers enjoy expanding payment
options, but still may have concerns about
p y
payment security and liability.
Contactless,
Online Mobile, &
payments Beyond
EFT debits
& credits
Credit &
debit •Businesses are challenged to migrate away
cards from cheques, as there is no ideal payment
Cheques alternative that is secure, cost effective, widely
& Wires
Wi es accepted,
accepted and carries finality of payment
payment.
•The good news is that many ERP systems now
have payments modules, and banks and other
providers offer payment management services
for both receivables and payables.
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4. Regulatory Regimes become Onerous
• Regulatory requirements are becoming more onerous, especially for
companies accepting credit cards or issuing international payments.
• PCI (Payment Card Industry) requirements for companies managing
customer credit card data are stringent, and will become more so.
• FINTRAC* requirements for AML (anti-money laundering) require banks
to report for all transactions over certain thresholds, especially for
p , p y
international payments.
• KYC- Banks’ ‘Know Your Customer’ requirements are tightening, as
regulators clamp down on money laundering and anti-terrorism financing.
• Proceeds of Crime (Money Laundering) and Terrorist Financing Act
requires banks to exercise stringent due diligence on new client
accounts.
• Privacy-
Privacy PIPEDA** and provincial counterparts require informed consent
to collect customer data, even to facilitate payments.
• Compliance for these and other regulatory regimes is becoming more
costly and resource-intensive.
y
* FINTRAC- Financial Transactions and Reports Analysis Centre of Canada
** PIPEDA- Personal Information Protection and Electronic Documents Act
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5. Cheques Continue to Decline
• Cheque volumes have declined in Canada at an average rate of 4%
1,600 each year for the past ten years; a total of 33% since 2000.
• Our
O analysis indicates that up to 80% of B2B payments are by cheque.
l i i di t th t t f t b h
1,400
• Banks and other providers offer payment management solutions for
1,200 payables and receivables, to facilitate outsourcing of these functions.
• Where are cheque volumes going?
1,000
• EFT (electronic funds transfer) credits and debits; for example:
800 • direct deposit for payroll
• pre-authorized debits for recurring payments
600
• Online bill payments
400
• Debit card at point of sale
• Cheque fraud is not insignificant, and must be managed proactively.
200
• The only way to eliminate cheque fraud is to eliminate cheques!
h l l h f d l h
0 • UK has announced it will phase out cheques by 2018.
2000 2002 2004 2006 2008 2010
Canadian cheque volumes in millions; data from Canadian Payments Association at
http://www.cdnpay.ca/imis15/eng/Publications/Statistics/eng/res/Statistics.aspx?hkey=93926287-f5c1-4b60-b7c6-63fd5bdb31b2
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6. New Players to the Market
• Consumer payments are being facilitated by
an iincreasing number of non-bank players.
i b f b k l
• New players may threaten traditional
incumbents, such as banks and credit
cards,
cards or offer new technologies to facilitate
payments.
• Initial focus is often on small and micro
p y
payments, then move up the value chain.
p
• Ultimately they may become mainstream,
such as PayPal. Fido
• Security, settlement, and other issues Dollars
should be well-understood by users.
Farmville
Dollars
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7. Where to from Here?
• PCI requirements will continue to increase as online credit card fraud
proliferates.
• Mobile payments are coming!
• New players will play a bigger role.
• Card Industry Code of Conduct introduced in 2010:
• Mobile wallets are IN
• Combo credit/debit cards are OUT
• Task Force for Payment Systems Review will issue its draft report imminently.
It may offer recommendations around:
y
• B2B payments with e-invoicing
• Digital ID & authentication
• Other issues around payment systems infrastructure
p y y
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8. Further questions…..
This has been a very brief snapshot of the payments system!
For further info, feel free to contact:
Kristy Duncan
kristy@duncanconsulting.com
416-487-5691 (business)
416-995-5691 (mobile)
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© Copyright Duncan Consulting 2011 FEI Conference- June, 2011