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Hedging against uncertainty in e-Payments: What CFO's need to know for 2012

Presented in partnership with:

Study findings:

-Financial executives like:

-convenience of e-payments

-lower transaction costs

-improved cash flow

- The biggest barriers seem to be: -customer behaviour

-convincing suppliers

-security concerns

-organizational constraints and

priorities

-lack of integration with current

accounting systems

Presenters: • Oscar van der Meer, Chief Technology & Payments Officer, Central 1

• Doug Kreviazuk, VP Policy & Public Affairs, Canadian Payments Association

• Kirkland Morris, Vice-President, Enterprise Strategy, Interac Association/ Acxsys

Moderator: Michael Conway, CA, Chief Executive and National President, FEI Canada

Oscar van der Meer Chief Technology & Payments Officer

Payments Business

May/June 2010

Certainties - Cost

• The cost of moving traditional payments is expensive AND increasing

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Source: Canadian Payments Association

Certainties – Barriers Exist for Electronic

Polling Question

Who should take the lead to work on reducing these barriers?

A. Government

B. Financial Institutions

C. Your company

Uncertainty – Innovation & Change

• System, policy, standards – Task Force for the Payments System Review - standards

– Voluntary code of conduct for the credit and debit card industry

– PCI Compliance

• Mobile – Near Field Communication (NFC) & Person-to-Person (P2P)

– Mobile acquiring

• Cheque Images – Cheque replacement document

– Remote deposit

Uncertainty – Investment

& Risk

Consider for your payments strategy

• Part A - Manage your cost surrounding cheque processing

• Part B – Invest strategically/selectively in electronic processing

Consider for your payments strategy Part A

• Manage costs around cheques

– Audit current payment operations • Cheque returns

• Cheque archiving and retrieval

• OCR & imaging

• Fraud management

Consider for your payments strategy Part B

• Invest strategically/selectively in electronic processing

– External Barriers • Increasing uptake/consumer behaviour

– Research with your customers

– Incentives or disincentives for clients and suppliers

» Offer faster payment processing for electronic

» Offer discounts

» Charge administration fees

– Usability/account validation

– Security perceptions

Consider for your payments strategy Part B

• Invest strategically/selectively in electronic processing

– Internal Barriers • Reconciliation/internal process

– Use email in the interim to advise supplier of invoice(s) being paid

– Experiment with electronic invoicing

– Establish internal validation systems to match payments

– Leverage account validation routines

Consider for your payments strategy Part B

• Invest strategically/selectively in electronic processing

– Take Action — Walk before you run • Test & learn — Pilot projects

• Practice what you preach — start by adopting electronic payments internally for payroll and expense reports

• Talk to your vendors of core systems

• Explore new payments options e.g. eTransfers

• Get involved in the discussion

Polling Question 2

Does your company have an active program in place to reduce the number of cheques you either receive or send?

A. Yes

B. No

C. Partially

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Getting ready for 2012: Update of the work of the Task Force for the

Payments System Review and the CPA’s Payments Strategy

Doug Kreviazuk Vice-President, Policy & Public Affairs Canadian Payments Association

Payment System Review

Has focused its work on:

• Safety, soundness & efficiency

• Innovation

• Competitive landscape

• Needs of consumers & businesses

• Review of oversight mechanisms

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Market Gaps

• Overarching & common regulation across all payments

• Limitations of CPA’s mandate

• Access & participation within the clearing system

• Straight-through processing (i.e. user to user)

• Enhanced remittance data

• Interoperability with other/global payments systems

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CPA Payment Strategy

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Polling Question

Should Canada legislate an end to cheques?

A. Yes

B. No

Pillar 1: Electronic Payments

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• Improving electronic bill payments

• Facilitating contactless payments at the point-of-sale (POS)

• Focus on mobile payments

• Enhancing the framework for online payments

Pillar 2: Payment Efficiencies

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• Review barriers to increased electronic payments

• Opportunities to improve straight-through-processing (STP)

• Opportunities for remittance data

• Leverage image technology

What You Can Expect

• Task Force for the Payments System Review

• ISO 20022

• Review of CPA’s Clearing and Settlement Framework

• Business case for centralized common settlement model (CCSM/ACH)

• International Payments Framework Association (IPFA)

• Potential to open gateways to other countries

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Kirkland Morris Vice-President, Enterprise Strategy Interac Association / Acxsys Corporation

The Payments Landscape – An INTERAC Perspective

Changing marketplace

Canadian Payments

System

New Competition

New Products

and Brands

Regulatory Uncertainty

New Technology

Payments used to be boring…

…not anymore!

Growth of e-payments

• Significant shift to electronic payment methods in the consumer payments space

– Widespread use of debit and credit cards

– Significant uptake of online banking and bill payment

• Poised for significant further inroads in remaining paper-intensive segments

– Contactless payments set to take off

• Cash and coin replacement focused on <$20 transactions

• $90 billion annual opportunity

• 12 billion annual transactions

– Increasing use of Web and mobile payment solutions for P2P and remittances

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Source: McKinsey Global Payments Map

INTERAC e-Transfer

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Creative solutions needed in B2B space

28 Source: McKinsey Global Payments Map

• Canada a world leader in consumer electronic payments…but a laggard in adoption of electronic B2B solutions

• Challenges different and more complex…but drivers very similar

• INTERAC seeking to apply what works in the consumer space to the business payments environment

Security Convenience Cost

Effectiveness

Looking ahead to 2012

• Significant uncertainty across the payments landscape

• Some things will become clearer in the year ahead – Task Force report due at year-end

– Consumer response to contactless payment will be evident

– Mobile payments trials in Canada and elsewhere will help shape use cases, business models, value propositions

• But, we are a long way from equilibrium – Government response to the Task Force and potential public policy decisions?

– Mobile payment adoption and who will win?

– Solving the security and fraud challenge with next generation authentication?

– Finding the right formula for B2B?

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Questions ?

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