Payment Type Overview - Payments System Review

Transcription

Table of Contents
1. Introduction
2. Payments Overview
a. What is a Payment?
b. The Canadian Payments Ecosystem
c. Canadian Payments System Regulatory Framework
3. Review of Payment Methods
4. Review of Participants in the Payments Ecosystem
5. Appendices
a. Participant Profiles
b. Review of Payment-Related Activities
c. Glossary of Terms
d. Further Reading
-1-
Prepared by Deloitte
2. Payments Overview: C. The Canadian Payments System Regulatory Framework
The regulatory responsibility for payments in Canada is shared by many actors
 Policymaking and oversight responsibility for payments regulation in Canada is primarily shared by the Bank of Canada and the
Ministry of Finance, with the Financial Consumer Agency of Canada (FCAC) being the enforcer of consumer protection provisions in
multiple acts and the Canadian Payments Association developing and enforcing rules that shape important interbank systems
− Bank of Canada has responsibility for oversight of designated payment and other clearing and settlement systems for the
purposes of controlling systemic risk. Systemic risk refers to the domino or spillover effect where the inability of one financial
institution to fulfill its payments obligations results in the inability of other financial institutions to fulfill theirs; or the failure of a
clearing house
− Through the Canadian Payments Act, the Ministry of Finance has directive and oversight powers over the Canadian Payments
Association as well as payment, clearing and settlement systems that it designates for oversight
 The payments system is governed or influenced by a number of statutory and voluntary obligations including the Canadian Payments
Act, the Payment Clearing and Settlement Act, the Bank of Canada Act, the Bills of Exchange Act, Federal and Provincial financial
institutions statutes, federal insolvency laws, federal consumer protection laws, voluntary codes (e.g., The Code of Practice for
Consumer Debit Card Services etc.) as well as by-laws and procedural rules
 There are also a number of participants (e.g., Interac, Visa, MasterCard and SWIFT) whose contracts of membership establish the
foundation for many important types of payments, and whose rules set the terms for use of their payment systems
 Payment card networks such as debit card service providers, credit card service providers and electronic money providers are
becoming increasingly important participants in the payments industry
− Many of the alternative participants are emerging and/or gaining market share. Emerging participants are not all federally
regulated entities and, therefore, are not overseen by OSFI
-2-
The payments industry operates under a complex regulatory regime, with an ultimate
goal of promoting systemic efficiency, safety and soundness
Types of
Regulation:
Description
Sample
Legislation
Sample
Policymakers
/Regulators
Sample SelfRegulation
Payments Rules &
Standards
Prudential Oversight
Consumer Protection
Safety and Security
• Rules that govern the
operation of the payments
system and the interaction
of participants
• Controls to monitor the
actions of participants to
ensure the soundness of
the system
• Controls to ensure that
consumer rights and
privacy are respected
• Protection against issues
such as fraud, antiterrorism and anti-money
laundering
• Canadian Payments Act
• Bank Act
• Payments Clearing &
Settlement Act
• Provincial credit union acts
• Bills of Exchange Act
• Bank Act
• Provincial financial
institution acts (e.g.
insurance companies and
credit unions)
• Consumer protection
provisions in various
financial institutions acts
(e.g. Bank Act)
• PIPEDA
• Foreign Corrupt Practices
Act
• Competition Act
• Money Laundering and
Terrorist Financing Act
• United Nations Act
• Special Economic
Measures Act
• Provincial Electronic
Transactions Act
• Electronic Commerce Act
• Criminal Code of Canada
• Minister of Finance
• CPA
• Bank of Canada
• OSFI (oversight of
individual bank health)
• Competition Bureau
• Provincial entities
• FCAC
• Federal/provincial privacy
commissioners
• Competition Bureau
• FINTRAC
• Minister of Finance
• Law enforcement
• Visa, MC, Interac, SWIFT
• Canadian Bankers
Association
• Canadian Payday Loans
Association
• Privacy statements
• Code of Conduct for the
Debit and Credit Industry
• Principles of Consumer
Protection for Electronic
Commerce: A Canadian
Framework
• The Code of Practice for
Consumer Debit Card
Services
Other
Controls
-3-
The regulatory framework governing payment, clearing and settlement systems in
Canada includes acts, statutes and codes of conduct
Sample Regulatory Authority
Description
The Canadian Payments Act
Establishes the role of the Canadian Payments Association and the Minister of Finance in the Canadian
Payments system. It gives the CPA Board the power to make by-laws (which require approval of the
Governor in Council) and rules that set out the procedures and standards governing the daily operations
of participants in its national clearing and settlement systems
The Payment Clearing and
Settlement Act (PCSA)
Gives the Bank of Canada responsibility for the oversight of payment and other clearing and settlement
systems in Canada for the purposes of controlling systemic risk. The Bank designates those systems with
the potential to create systemic risk as being subject to the PCSA and oversees designated systems on a
continuing basis for the appropriate control of systemic risk
Bills of Exchange Act
Sets out the statutory framework governing cheques, promissory notes and other bills of exchange
Federal and Provincial financial
institutions statutes
The federal financial institutions statutes (Bank Act, Trust and Loan Companies Act, Cooperative
Associations act, Insurance Companies Act etc.), coupled with legislation governing provincially
incorporated financial institutions, provide the statutory underpinnings of the Canadian system. These
statutes regulate such things as corporate ownership and business powers and define many aspects of
the relationships between financial institutions and their customers, the government and some
government agencies. OSFI (Office of the Superintendent of Financial Institutions) is responsible for
regulating and supervising federally chartered financial institutions, which includes many of the
intermediaries which provide payment services
Code of Conduct for Credit and
Debit Card Industry (the Code)
A new Code of Conduct was released in May 2010, which aims at:
Ensuring that merchants are fully aware of the costs associated with accepting credit and debit card
payments thereby allowing merchants to reasonably forecast their monthly costs related to accepting such
payments
Providing merchants with increased pricing flexibility to encourage consumers to choose the lowest-cost
payment option
Allowing merchants to freely choose which payment options they will accept
The Code of Conduct includes initiatives such as payment card networks will function with increased
transparency and disclosure, including providing a minimum notice of any fee increases or introduction of
new fees. Networks will also not require merchants to accept both credit and debit payments from their
payment card network, anymore. Further, the payment networks available on payment cards will be
clearly indicated, and issuers will no longer be obligated to give preferential branding to their brand over
others. There are a total of 10 policy elements in the new Code
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Financial institutions are regulated primarily by OSFI and Canadian Payments
Association Standards, but must comply with provincial statutes as well
Key Industry Participants
Description and Sample Regulatory Requirements
Description:
Under the Canada Bank Act, Schedule I are banks that are not a subsidiary of a foreign bank, i.e.
domestic banks, even if they have foreign shareholders. There are over 20 domestic banks in Canada
Schedule II banks are Canadian banks which are subsidiaries of foreign banks .There are over 20
schedule II banks in Canada, although some are under liquidation
Schedule III banks are foreign banks with branches in Canada, which may offer full line of banking
services or engage in lending activities only
Issuers (Financial Institutions)
E.g. Domestic - RBC, TD, CIBC,
Scotiabank, and Foreign - Amex
Bank of Canada, Citibank Canada,
ING Bank of Canada
Sample Regulatory Requirements:
 Subject to oversight by OSFI and must comply with relevant financial services legislation including the
Bank Act and supporting guidelines as well as the Proceeds of Crime, Money Laundering and Terrorist
Financing Act and Basel II
Canadian Payments Association Standards
Consumer Protection (including Compliant handling), Foreign Corrupt Practices Act, Competition Act etc.
Due to the legal structure (public company), would also need to comply with various public company
requirements including Sarbanes Oxley
Provincial Electronic Transactions Act, Electronic Commerce Act
Personal Information Protection and Electronic Documents Act (PIPEDA) and other provincial privacy
legislation
Voluntary codes of conduct including:
− Guidelines for Transfers of Registered Plans
− Small Business Banking Code of Conduct
− Principles of Consumer Protection for Electronic Commerce: A Canadian Framework
− CBA Code of Conduct for Authorized Insurance Activities
− Code of Conduct for Credit and Debit Card Industry
-5-
Financial institutions are regulated primarily by the Canadian Payments Association
Standards*, but must comply with provincial statutes as well
Description:
Acquirers may be domestically owned or subsidiaries of a foreign parent, privately-held or publicly
traded, independent or owned by a parent financial institution
In addition to the common regulatory elements, each acquirer is additionally regulated in accordance
with their ownership structure (e.g, disclosure rules for publicly traded corporations)
Acquirers
E.g. Moneris, Chase Paymentech,
Global Payments, TD Merchant
Services
Must comply with Proceeds of Crime, Money Laundering and Terrorist Financing Act and Basel II for
certain transactions
Canadian Payments Association Standards
Consumer Protection (including Compliant handling), Foreign Corrupt Practices Act, Competition Act etc.
legislation
Voluntary codes of conduct including:
− Small Business Banking Code of Conduct
− Principles of Consumer Protection for Electronic Commerce: A Canadian Framework
− CBA Code of Conduct for Authorized Insurance Activities
− Code of Conduct for Credit and Debit Card Industry
Description:
The CPA operates in a highly-controlled and managed structure
Limited to performing tasks within its government-provided mandate
Clearers and Settlers
E.g. Canadian Payments
Association
Governed by the Canadian Payments Act with oversight from the Minister of Finance
Relevant privacy and other legislation
* For prudential purposes, Financial institutions are also regulated by OSFI
-6-
While payment service providers are subject to indirect oversight by OSFI (incl. Bank
Act), payment networks are subject to limited regulation at the federal & provincial levels
Payment Service Providers (PSPs)
E.g. Symcor and Intria are
controlled by federally-regulated
financial institutions, and are
therefore subject to oversight by
OSFI
Payment Networks (not-for-profit)
E.g. Interac Association
Description:
As outsourcing partners of financial services (banking, wealth management, brokerage, insurance),
retail, utility and/or telecommunications organizations, PSPs are financial processing companies providing
infrastructure services for transactions involving currency (ABM and commercial deposits, treasury
management), cheques, remittance (retail and wholesale lockboxes), information management and
delivery (statement production services) and/or credit cards
As a result of ownership structure, payment service providers controlled by federally-regulated financial
institutions are subject to oversight by OSFI including Bank Act and supporting guidelines as well as the
Proceeds of Crime, Money Laundering and Terrorist Financing Act and Basel II
PIPEDA and various provincial privacy legislation
Provincial Consumer Protection, Competition Act etc.
Due to the legal structure, would also need to comply with various public company requirements
including Sarbanes Oxley
Description:
The Interac Association is currently a not-for-profit organization, governed by a 14-Member Board of
Directors, appointed annually based on the business sector and the volume of transactions processed.
Composed of a diverse group of members, including banks, trust companies, credit unions, caisses
populaires, merchants, and technology and payment related companies. The Board operates under a
Consent Agreement, designed to enhance competition, as well as outline requirements for the
organization's governance, access to the network and revenue model
Canadian Code of Practice for Consumer Debit Card Services (CBA voluntary code)
Global Payment Card Industry / Data Security Standards (Industry Standard)
legislation
Consumer Protection and Competition Acts
-7-
Payment networks are subject to limited regulation at the federal and provincial levels
Description:
Visa operates the world's largest retail electronic payments network and facilitates global commerce
through the transfer of value and information among financial institutions, merchants, consumers,
businesses and government entities
MasterCard Worldwide has a role as a franchisor, processor and advisor in developing and marketing
secure, convenient and rewarding payment solutions, processing more than 16 billion payments each
year, and providing analysis and consulting services that drive business growth for its banking customers
and merchants
Payment Networks
Personal Information Protection and Electronic Documents Act (PIPEDA) and provincial privacy
legislation
Consumer Protection, Foreign Corrupt Practices Act, and Competition Acts etc.
E.g. Visa and Mastercard
Additional Notes:
 Both Visa and MasterCard became public companies with the past few years (historically operated as
bank run associations) providing them with more strategic flexibility. In Canada, the federal
government has introduced new regulations governing credit cards. While the full implications of these
proposed changes are still unclear, they are expected to have a significant impact on financial
institutions that issue credit cards
 Globally, central banks and competition authorities in a number of jurisdictions have taken an interest
in regulating bankcard payment networks including imposing restrictions on interchange rates. In
Australia, regulation of interchange rates by the Reserve Bank of Australia, resulted in unintended
consequences including higher costs for consumers
-8-
Cheque-cashing providers, money service companies and loyalty & rewards program
providers are not considered financial institutions and are not regulated as such
Description:
In Canada, most cheque-cashing providers are independent, privately-owned companies
Cheque-cashing Providers
E.g. Money Mart
Money Service Companies
E.g. Western Union
Provincial acts related to usury and other lending terms
Privacy regulations
Description:
In Canada, most money service companies are privately-held companies or subsidiaries of domestic or
foreign parents
Money service companies are generally not financial institutions and are not regulated as such
Money Laundering and Terrorist Financing Act
Provincial Electronic Transactions Act
Electronic Commerce Act
Description:
Private/public companies that operate loyalty programs, or retailers who have a loyalty offering as part of
their business
Generally not financial institutions, and are not regulated as such
Loyalty & Rewards Programs
E.g. Aeroplan, Air Miles
Redemption of loyalty points for goods & services is not covered under the bank act, nor any of the
payments-specific legislation
Consumer protection laws
Federal/provincial privacy laws
-9-
Table of Contents
1. Introduction
5. Appendices
d. Further Reading
- 10 -
This section provides an overview of key payment types used in the Canadian
economy
 The Canadian payments landscape features a multitude of payments options, from cash to cheques to contactless mobile payments. In this
section, a number of established and emerging payment types are profiled, including:
− Cash
− Cheques
− Debit Cards (Point-of-Sale)
− Debit Cards (Cash Dispensing)
− Credit Cards
− AFT Debits
− AFT Credits
− EDI/Electronic Remittances
− Proprietary/Closed Loop Prepaid Cards
− Large Value Transfer System (LVTS)
− SWIFT Transfers
− International Remittances
− Rewards & Loyalty1
− eWallets
− Person-to-Person Electronic Transfers
− Mobile Network Payments1

Estimating the market size and outlining historical trends for each payment type is challenging due to a number of factors such as:
– Differences in methodologies employed by agencies that track the value and volume of payment transactions in Canada. For example, the
Bank of International Settlements (BIS) excludes LVTS transactions while the Canadian Payments Association (CPA) includes these in their
market totals. Unless specified otherwise, the data shown in this section is based on publically available CPA estimates
– Cash usage in payments is unknown and is not easily determined due to anonymity of cash transactions. A model based on the estimated
number of cash transactions and the value of cash retail payment was adopted to estimate the size of the cash payments market
1A
more detailed review of these payment related activities plus payday loans are provided in Appendix b.
- 11 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Payment Type Overview:
Cash
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
.
P2P Trans
Remittance
Rewards
eWallet
Description
 Cash is the ultimate open payment technology, in that it is legal tender and is freely and anonymously (within certain limits) used for payments for goods and
services and transfer of value between individuals
 The volume of cash in circulation is managed by the Bank of Canada through the Bank Note Distribution System
 While cash continues to be an important part of the payments landscape, it is increasingly being displaced by electronic forms of payment. The rate of further
cash displacement will depend on technological innovation and willingness of the participants in the Payments System to adopt emerging payment forms.
However, cash will certainly continue to play an important role in payments due to low perceived transaction costs, universal acceptance, instantaneous
processing time and associated privacy attributes
Characteristics
Cash Volumes
 Cost: Consumers do not encounter transaction costs with cash payments,
and in some cases are even incented to pay by cash. However, for
merchants and issuers there are real storage costs, transactional costs (e.g.,
cash management), opportunity costs (e.g., forgone interest) and security
risks for holding cash (e.g., shrinkage, theft and counterfeit currency). The
government incurs significant expenses during the printing/minting of legal
tender
 Acceptance: Cash has almost universal acceptance
 Time: Transfer of value occurs immediately upon payment of cash
 Security: There is limited traceability of a cash payment without a secondary
tracking mechanism (i.e. receipt). Cash exposes the merchant to the risk of
theft (internal or external) and counterfeiting, as well as to the risk of human
error during the exchange. Personal safety can be compromised by carrying
large amounts of cash. Government revenue is lost when cash-based
transactions are used as part of the underground economy
Cash Trends
 Cash transactions as a portion of the total payments in the economy are
believed to be in decline
 Emerging substitutes over the last decade have been debit and credit cards,
and electronic funds transfer
Challenges of Estimating Cash Transaction Volumes:
 The volume and aggregate value of cash transactions is impossible to
calculate with certainty
 Unlike electronic or paper-based transactions, there is no reliable audit trail
of cash transactions
 The Bank of Canada maintains approximately $55B of currency in the
Canadian market. However, this does not indicate the “velocity” of the
currency, which is the aggregate value of cash which changes hands
Methodologies for Estimating Cash Transactions
 One unpublished report used ABM and teller withdrawals combined with
Examples of Usage
Form Factors
average purchase assumptions to estimate that the Canadian market
currently transfers $131B in value using 8.1B transactions annually
• Paper currency
• Coins
• Foreign currencies
used in place of
Canadiandenominated cash
Sources: Bank of Canada; Bank for International Settlements Report prepared by Committee on Payment and Settlement Systems of the Group of Ten Countries, 2009; Trends in
Retail Payments and Insights from Public Survey Results, 2006; Bank for International Settlements Remarks by Pierre Duguay, Deputy Governor of the Bank of Canada, to the
Senate Committee on National Finance, Ottawa, Ontario, 2010
- 12 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Cash
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
.
P2P Trans
Remittance
Rewards
eWallet
Simplified Payment Interaction Model
Illustrative
Payer
Payee
Funds
Key Players
• Bank of Canada controls the Canadian Money Supply
• Financial Institutions hold and dispense cash to their customers
Sample Revenue and Cost Items of Participants
Participants
Revenues
Costs
Payer
 No fees are associated with cash payments, although there are very real costs associated with the safekeeping and processing of cash by both
Payee
merchants and financial institutions
Sources: Deloitte Research and Analysis
- 13 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Cheque and Other Paper Remittances
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 A cheque is a paper instrument instructing a financial institution to pay a specific amount of a specific currency to a specific Recipient. Cheques are still
frequently used in business-to-business transactions and certain person-to-person transactions, but have limited acceptance at point of sale
 Cheques continue to exist in paper form, although processing is conducted in the electronic state, with cheque images and electronic recognition
 In addition to cheques, paper remittances include paper bill payments MICR-encoded with a Corporate Creditor Identification Number (CCIN), for credit to a
corporate entity
 Many comparable countries (e.g., Norway, UK, Australia) have initiatives in place to eliminate cheques in the short to medium term, while some have already
eliminated cheques (e.g., Netherlands, Sweden)
 Cheques are payment mechanisms that are used to withdraw funds from chequing and savings accounts
Characteristics
Historical Trends
 Cost: There may be nominal costs associated with cheques for the
Cheque Transactions and Purchase Value (1998-2009)
accountholder in addition to their monthly chequing account fees, including
charges for account debits, cheque ordering, imaging costs, etc. Paperbased payment methods are costly to process for businesses and financial
institutions involved due to the handling and imaging required
Volume CAGR: -2.17%
Value CAGR: -13.91%
 Acceptance: Cheques are still frequently used in business-to-business, and
some person-to-person transactions, but have limited consumer-to-business
acceptance at the point of sale. This may be attributed to increased
penetration of debit cards, which allow similar access to personal funds with
lower processing time
 Time: Cheques can take 1-3 days to clear; the recipient’s financial institution
may hold the funds beyond this period before granting clear access to funds
 Security: Cheques include personal information, such as name and account
number, and are therefore easy to forge, making them a target for fraud. The
risk of non-payment due to bounced cheques is also high
Examples of Usage
Form Factors
• Paper
• Electronic, once the
paper cheque has
been imaged
 Cheques suffered a drop in usage in 1999 with the introduction of LVTS
 The number of transactions and total value continue to decline. Average
cheque values have remained relatively constant
 A part of this downward trend may be explained by the disappearance of
small value cheque transactions by retail users, including purchases and bill
payments, as these transactions are moving to other payment types, like
credit and debit cards, and electronic funds transfers
Sources: Bank for International Settlements Report prepared by Committee on Payment and Settlement Systems of the Group of Ten Countries, 2009; Royal Bank of Canada;
Citizens Bank; National City Seminars; Canadian Payments Association http://www.cdnpay.ca/
- 14 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Illustrative
Cheque Issued
Sender of
Funds (Start)
Recipient of
Funds
CPA
3
6
Monthly
Statement
7
5
Clearing and Settlement
Debit
Posted to
Account
3
4
Issuing bank
receives imaged
cheque
Payments
Service
Provider
(PSP)
Credit
Posted to
Account
Recipient’s bank
receives cheque;
sends to PSP
Issuer
(Sender’s FI)
2
Deposit
Cheque
1
Acquirer
(Recipient’s
FI)
Funds
Data
Key Transaction Participants
Issuers: Financial institutions that issue cheques to their customers and where cheques are deposited
Acquirers: Financial institutions that represent the Recipient of funds
Merchants (limited): Accept cheques in exchange for goods and services
Businesses/Government: May Issue cheques to employees and suppliers
Processors/Payment Service Providers: Provide cheque processing services to financial institutions, including converting paper cheques into electronic
documents e.g., Symcor and Intria
CPA: A not-for-profit organization engaged in clearing and settlement of cheques and other payment types
- 15 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Sender of Funds
(Account holder)
Revenues
 N/A
Costs
 Usage Fee: May range from a portion of a monthly plan to per-debit transaction fees
(typically $0-$1.25 per cheque)
 Insufficient Funds Fees: Charged to Sender if funds are insufficient
 Monthly fees typically range from $0 to $14
 Miscellaneous Fees: Includes cheque book ordering and electronic cheque viewing
 For businesses, internal handling costs for approvals and accounts payable
Issuer (Sender's FI)
 Monthly plan and transaction fees
Transactional Costs:
 Insufficient funds fees: Charged to Sender if
 Cheque Processing Fees paid to Cheque Clearing Company
funds are insufficient
 Miscellaneous Fees: including cheque book
ordering and electronic cheque viewing
 Cheque Printing and Postage
 Insufficient funds related expenses
Operational Costs
 Personnel and Operational cost, Customer Service
 Fraud Losses, Risk, Fraud Management and Dispute Resolution
 Corporate Support Functions, Technology
Cheque Clearing
Company/Processor
 Cheque processing revenues
CPA Services Network
(CSN)
 Association fees from member financial
Acquirer (Recipient's FI)
 Cheque processing fees, in some cases like
 Technology and imaging (may be shared between the Acquirer and Issuer FIs)
 Cheque processing (clearing and settlement) expenses
institutions
commercial accounts, may be charged to the
Recipient
 Insufficient funds fees: Charged to Recipient if
funds in Sender's account are insufficient
 Personnel and Operational cost
 Network, EDP and Telecom
Transactional
 Cheque Processing Fees paid to Cheque Clearing Company
 Technology and imaging (may be shared with Cheque Clearing Company)
 Insufficient funds related expenses
Operational
Recipient of Funds
 N/A
 Insufficient funds fees: Charged to Recipient if funds in Sender's account are insufficient
 Cheque processing fees, in some cases like commercial accounts, may be charged to
the Recipient (typically $0-$3 per cheque)
 Manual processing costs in handling and accounts receivable
 Opportunity cost if funds held by financial institution
- 16 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Debit Card (Point-of-Sale)
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 Card issued by a financial institution that provides instant access to funds online or at a merchant’s checkout for purchase of goods & services. Funds are
instantaneously withdrawn from the user's account
 Most transactions are processed through Interac Direct Payment (IDP). MasterCard and Visa are in the process of entering the market to compete with Interac.
Interac and MasterCard currently offer fixed transaction fees, while Visa has proposed a fixed plus percentage-based model
 The federal government introduced the voluntary Code of Conduct, which increases transparency for merchants and enables consumer and merchant choice
Characteristics
Historical Trends
 Cost: Consumers or accountholders may incur charges if they exceed the
number of debits permitted on their accounts under their monthly plan.
Interac currently operates on a cost recovery model, where acquirers charge
a merchant discount rate to merchants on debit cards equal to the acquirer
fee plus Interac cost recovery fee. For merchants, processing an Interac card
payment is still lower cost than processing a credit card payment
 Acceptance: Interac enjoys widespread acceptance among merchants and
consumers, although online acceptance of Interac Online is still low.
Acceptance of Visa and MasterCard debit is still being established, as is
acceptance of contactless debit
 Time: Debit transactions occur in real-time where the purchaser’s account is
debited immediately, but the merchant account is settled end of day. The
issuing and acquiring financial institutions settle net positions through the
CPA
 Security: Debit cards are a reasonably secure payment type, although
increased fraud has been observed over the past five years, more than
doubling in value between 2005 and 2009. This was in part due to magnetic
stripe skimming, which may decrease in the future with the introduction of
Chip and PIN technology
Examples of Usage
Debit Card Transactions and Purchase Value (1998-2009)
Volume CAGR: 7.95%
Value CAGR: 8.39%
Form Factors
 The average value of individual debit transactions has remained relatively
• Card (Magnetic/Chip)
• Contactless (Card/Mobile-
emerging)
• Internet (Online)
• Telephone Banking
• Mobile Network (Emerging)
stable over the last decade, while the number of transactions has increased
dramatically
 As debit cards become more widely used, debit as percent of total payments
continues to grow on a merchant-by-merchant basis
 The introduction of Visa and MasterCard debit may spur additional debit
volumes
Sources: “Payments Systems: The Debit Card Market in Canada” Library of Parliament ; “CPA Canadian Payments Market Forecasting” Canadian Payments Association;
http://www.cdnpay.ca/ , The Nilson Report, 2010
- 17 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Immediate
Debit to
Account
Illustrative
Merchant/
Recipient of
Funds
Customer \
Sender of
Funds
Transaction
Customer’s
Account
4
Issuing FI
(Start)
1
8
End of Day
Settlement
9
Settlement
3
Transaction
Data
Acquiring FI
5
Transaction
Data
CPA
7
Merchant
Acquirer
2
Payment
Network
Transaction Data
6
Funds
Data
 Issuers: Any organization that issues debit cards to users, e.g., banks, credit unions
 Acquirers: Members of a payment network that maintain merchant relationships and receive all bankcard transactions from the merchant, e.g., Moneris,
PaymentTech
 Merchants: Any merchant who accepts debit cards from one of the debit card payments networks, e.g., Home Depot, Zellers
 Payment Networks: Provide validation of transactions and system for the transfer of money from the customer or initiator of the POS transaction, e.g. Interac
 CPA: A not-for-profit organization engaged in clearing and settlement of POS transactions executed using debit cards
- 18 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Sample Revenue and Cost Items of Participants (1 of 2)
Participants
Sender of Funds
(Cardholder)
Revenues
 Loyalty rewards
Costs
 Usage Fee: May range from a portion of a monthly plan to per-use debit transaction
fees (typically $0.50-$1.25 per transaction)
 Merchant can levy a surcharge on Interac transactions (typically $0.05-$0.50)
Issuer (Cardholder's FI)
 Account Service Fee Revenue
Transactional Costs
 Usage or Convenience Fee Revenue
 Switch Fee
 Foreign Exchange transaction revenues: Charged
Operational Costs
to customers on cardholder transactions where the
debit card issuer country is different from the
country of usage
 Potential interchange revenue ($0 for Interac
transactions)
 Marketing and Sales: Includes new account marketing, promotions and collateral
 Customer Service, Card Issuance, Corporate Support Functions
 Technology, Network and Telecom
 Cost of cards
Payment Service
Provider/Processor
 Processing Fee: Varies with service provided
Transactional Costs
 Revenue from assisting (small) issuers with record
 Account fees paid by issuer: May include a minimum with the remaining varying with
management, network connectivity and outsourced
call centres and collections, among other services
volumes
Operational Costs
 Customer Service, Corporate Support Functions
 Risk, Fraud Management and Dispute Resolution
 Marketing and Sales
- 19 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Payment Network
Revenues
Costs
 Data processing revenues: Represent revenues earned for
authorization, clearing, settlement, transaction processing services
and other maintenance and support services that facilitate
transaction and information processing among the Company’s
customers globally
 Foreign Exchange transaction revenues: Charged to customers on
cardholder transactions where the cardholder’s issuer country is
different from the country of usage
 Risk, Fraud Management and Dispute Resolution Services fee
(Visa/MasterCard debit only)
Merchant Acquirer
 Merchant Discount Fee: In return for offering them a facility to
accept debit cards, the Acquirer charges the Merchants a discount
fee
 Periodic Account Fees: Including minimum fees the merchant must
pay the acquirer
 Capital Investments: Major costs involve POS Terminals, Mainframe
Computers, Software, Personal Computers for staff, Furniture &
Fittings, Office Renovation, Network and Telecom
 Merchant Sign-up Cost: Includes printing of Merchant Agreements,
Display Decals, Standees
 Interchange Fees: Sharing of Merchant Discount Revenue with the
Issuers and networks whose cardholders used cards at the
Acquirer’s Merchants (currently $0 for transactions)
Recipient of Funds
(Merchant)
 N/A
 Merchant Discount Fee
pay the acquirer
 POS equipment upgrade costs
- 20 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Debit Card (Cash Dispensing and Point-of-Sale)
Top 5 Countries in Debit Use (2007)
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Top 5 Countries in Use of ABMs for Cash Withdrawals
 The industry-wide adoption and support of Interac has resulted in Canadians ranking among the heaviest users of debit cards in the world
 The average number of debit card purchases per inhabitant in Canada was over 100 in 2007, second only to Sweden which was closer to 125
 Cash withdrawals per inhabitant were about 30 in Canada, below the UK average of 46 and at par with the Swedish numbers
Debit Card Fraud in Canada (Interac)
250,000
60,000
200,000
50,000
16,886
40,978
16,424
37,200
16,190
2002
34,699
2001
26,149
23,447
2000
15,950
10,000
31,377
2007 2008 2009
Reimbursements
16,160
2005 2006
Losses
16,624
2004
20,000
16,546
0
18,824
$0
30,000
16,806
50,000
14,748
40,000
100,000
17,174
$100
39,138
150,000
Cardholders
Reimbursed
Fraud Losses ($M)
$200
Number of ABMs in Canada by Ownership
2007
2008
0
 While debit card fraud as a percentage of value transferred is still quite low,
debit card fraud has more than doubled to $142 million from 2005 to 2009.
The number of cardholders who have suffered debit card fraud has
increased by over 230% since 2005
 Industry initiatives such as the introduction of chip & PIN and contactless
debit (no PIN to exploit) are efforts to limit losses
2003 2004 2005 2006
White Label Bank Owned
 Over two thirds of all ABMs in Canada are owned and managed by non-
bank participants. While the number of bank-owned ABMs is stable, the
number of private-label ABMs continues to grow
Sources: Canadian Payments Association; Interac website www.interac.ca; Bank of International Settlements (BIS); Canadian Bankers’ Association, Interac Association
- 21 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Debit Card (Cash Dispensing)
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 Card issued by a financial institution that permits the withdrawal of cash at Automated Banking Machines (ABMs) from chequing and savings accounts. Withdrawals made at the
same bank as the card issuer are considered “on-us”, while withdrawals made at another institution’s ABM are considered “not on-us”
 ABM usage has expanded into non-payment functionality including cross sell, basic banking transactions (cheque deposits, address change), and bill payments . These
transactions are not generally considered when calculating cash dispensing volumes
Characteristics
Historical Trends (1998-2009)
 Cost: In addition to chequing and savings account fees, the consumer usually pays
Interac Shared ABM Withdrawals by Transaction/Volume
fees levied for cash withdrawals not made on home bank machines, (e.g., “not-on-us
“transactions). For ‘not on-us transactions’, issuers pay an interchange fee to
acquiring ABM providers to defray the real cost of stocking and maintaining the bank
machine
 Acceptance: Almost every debit card in Canada is set up to access cash through
ABM machines, and almost every ABM machine is set up to support cash withdrawals
through debit and credit cards . Interac, MasterCard Cirrus and Visa Plus-branded
cards enjoy wide acceptance across Canada, while Plus and Cirrus networks have
wide global acceptance. The Exchange Network and ACCULINK cater mainly to credit
unions. Many Canadian credit cards process domestic cash advances over the
Interac network, while relying on Plus and Cirrus for international withdrawals
 Time: The user’s account is debited real-time, during the transaction, and the
settlement between the acquiring and issuing institutions occurs at the end of day, in
the case of ‘not-on-us’ transactions
 Security: Debit cards are trusted because of the CHIP and PIN security required to
use the card, however, fraud still exists as the magnetic stripe can be skimmed and
the PIN may be cracked
 Figures above are for Interac shared cash dispensing only. When on-us withdrawals
are included, current volume is estimated to be 7.4B transactions worth $111B
 The number of ABMs – hence the unattended cash withdrawal locations – has
Examples of Usage
increased dramatically since the Competition Bureau permitted private operators to
connect third-party bank machines to the Interac network
Form Factors
 Card (Magnetic/Chip)
 Volumes of ABM cash withdrawals have declined gradually over the past four years,
while the average withdrawal amount has remained high
 Note that most sources include on-us transactions (withdrawals made at your own
bank’s ABMs) as a payment type, while others only count transactions which are
processed as a “not on-us” transaction over the Interac network
Sources: “Payments Systems: The Debit Card Market in Canada” Library of Parliament ; “Canadian Payments Market Forecasting” TSI; http://www.cdnpay.ca/ ; The Nilson Report
2010
- 22 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Simplified Payment Interaction Model (Not-on-us cash withdrawal)
Transaction Data
Illustrative
1
External
ABM
Customer’s
Account
Customer
7
(Start)
Immediate
Debit to
Account
4
7
Issuing \
Home FI
Amount Transfer
2
ABM Funds
Replenished
9
Transaction
Data
8
Acquiring
FI
5
Settlement
Transaction
Data
CPA
6
Payment
Network
3
Funds
Data
 Issuers: Any organization that issues debit and/or credit cards that can be used to withdraw cash from ABMs, e.g., banks, credit unions, monoline card issuers
 Acquirers: Financial institutions with ABMs made available to external customers, non-bank ABM operators, e.g., Laser Cash
 Payment Networks: Provide validation of transactions and system for the transfer of money, e.g., Interac, Plus, Cirrus
 CPA: A not-for-profit organization engaged in clearing and settlement of payments
- 23 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Sender/Recipient of
Funds (Cardholder)
Revenues
Costs
 N/A
 Usage Fee: May range from a portion of a monthly plan to per debit
transaction fees (typically $0.-$0.50)
 Additional Convenience Fees: May be charged by acquirer and
issuer for not on-us transactions (typically $1.50-$3 each to issuer
and acquirer)
 Monthly account fees will typically range between $0 and $14
 Foreign exchange conversion costs may be incurred for international
withdrawals
Issuer (Cardholder's FI)
 Account Service Fee Revenue: Consists of primarily monthly plan
fee revenue
Transactional Costs
 Switch Fee
 Usage or Convenience Fee Revenue: May be charged in addition to
monthly plan fee, based on the agreed terms; Also includes revenue
from credit card cash advances made through ABMs
 Interchange Fees: Paid to acquirer
Operational Costs
 Real estate costs
 Marketing and Sales: Includes new account marketing, promotions
and collateral
 Card costs
Payment Service
Provider/Processor
Transactional Costs
 Revenues from assisting (small) issuers with record management,
 Set-up and Recurring fees
network connectivity and outsourced call centres and collections,
among other services
Operational Costs
 Customer Service, Corporate Support Functions
- 24 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Payment Network
Revenues
Costs
 Service revenues: Service revenues predominantly represent
payments by customers with respect to their card programs carrying
marks of the Visa brand and are based principally upon spending on
Visa-branded cards for goods and services
 Data processing revenues: Represent revenues earned for
authorization, clearing, settlement, transaction processing services
and other maintenance and support services that facilitate
transaction and information processing among the Company’s
customers globally
 Foreign Exchange transaction revenues: Assessed to customers on
different from the country of usage
 Risk, Fraud Management and Dispute Resolution Services fee
Acquirer (External ABM
Provider)
 Convenience Fee: For permitting use by a customer of a different
issuer
 Capital Investments: Major costs involve ABM machines, Mainframe
Computers, Software, Personal Computers for staff, Furniture &
Fittings, Office Renovation, Armoured vehicles, Network and
Telecom
 Interchange from Issuer
 Cost of maintaining cash supply
 Security & cash delivery
 Theft
- 25 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Credit Card
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 A credit card allows its holder to pay for goods and services from an approved credit line, based on the cardholder’s commitment to pay the issuer for these
purchases, and for an interest on funds borrowed/revolved beyond the grace period
 Credit cards in Canada are typically issued by large banks, credit unions, monolines (financial institutions who only offer credit products), and retailers. Retailer
credit cards are typically white labelled from financial institution issuers, with some retailers, like Canadian Tire and PC Financial, electing to issue their own
 Prepaid cards are processed similarly to conventional credit cards, except that a pre-loaded balance is drawn down rather than charged to a line of credit
Characteristics
Historical Trends
 Cost: The cardholder may pay an annual fee for access to card features e.g.
Credit Card Transactions and Purchase Value (2000-2008)
rewards, float in between statements, and credit limit, or may have a no-fee
card. Interest on revolving balances must also be paid, which is typically
higher than traditional lines of credit interest rates. The merchant must pay a
portion of the transaction amount to the payment network acquirers and
issuers, termed as the switch fees, acquirer fee and interchange
respectively. Credit card payments appear to be more costly than other
modes of payment for both, financial institutions and merchants
 Acceptance: Broad acceptance (~700,000 locations) in Canada and globally
across a range of channels including POS, mail, telephone, online, etc.
 Time: Transactions are instantly authorized, where information of the
purchaser’s available credit and the validity of the transaction are confirmed
via the payment network. The cardholder’s limit is immediately decreased
and the payment details are communicated in the monthly statement. The
merchant parts with the good or service immediately, however, receives
payment at the end of day
 Security: Trusted and relatively secure. Prevalence of fraud on magnetic
stripe technology is driving the move to Chip & PIN. Credit cards offer “zero
liability” for card users in the case of fraud
Examples of Usage
Form Factors





Card (Magnetic/Chip)
Internet (Online)
Telephone Banking
Mobile Network (Emerging)
Contactless (Card/Mobileemerging)
Volume CAGR: 9.33%
Value CAGR: 11.74%
 The number of credit cards in Canada has grown between 7 and 10% every
year for the past five years
 This increase is due to the increased acceptance of credit cards at point of
sale, the collection of reward miles by consumers and an increased
willingness of retailers to accept bill payments via credit card
 The Canadian market has also seen an increase in competition from
monoline card issuers, where credit cards are often the only significant
Canadian product offering
Sources: The Nilson Report, 2010; Bank for International Settlements Report prepared by Committee on Payment and Settlement Systems of the Group of Ten Countries, 2009
- 26 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Credit Card
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Placeholder
1
Merchant
Initial Transaction
Customer
Issuer
(Start)
8
7
4
2
Transaction
Data
Merchant
FI
6
5
Clearing & Settlement
Via Visa/MC Network
Payments
Network
Acquirer
Transaction Data
Transaction
Data
3
Funds
Data
 Issuers: Any organization that issues credit cards to users . e.g., banks, credit unions, monoline card issuers, merchants with in-house credit cards
 Acquirers: Members of a card association that maintain merchant relationships and receive all credit card transactions from the merchant. e.g., Moneris,
Chase PaymentTech
 Merchants: Any merchant that accepts cards from one of the payments networks. e.g., Canadian Tire, Zellers
 Payment Networks: Provide validation of transactions and system for the transfer of money. e.g., Visa, Mastercard
- 27 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Credit Card
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Sender of Funds
(Cardholder)
Revenues
Costs
 Loyalty rewards
 Periodic Fees (usually annual)
 Cash Back
 Incremental Discretionary Fees (e.g., overlimit fees)
 Access to “free money” in between statements
 Interest charge or revolving credit expenses
 Interest Revenue or revolving credit revenue
Transactional Costs
 Fee Revenue: Includes annual fees and incrementals. In some
 Switch Fees
cases including select prepaid cards, additional fees may be
charged for access to call centres
 Interchange Revenue
 Processor costs
Operational Costs
 Cost of Funds
 Marketing and Sales: Includes new account marketing, promotions
and collateral
 Collections, Customer Service, Credit Processing (Adjudication and
Credit Decisioning), Card Issuance, Corporate Support Functions
 Cost of cards
Payment Service
Provider/Processor
Operational Costs
 Usually assist issuers with record management, network
connectivity (for smaller issuers) and outsourced call centres and
collections, among other services
 Collections, Customer Service, Corporate Support Functions
- 28 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Credit Card
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Payment Network
Revenues
Costs
Service revenue
 Service revenues predominantly represent payments by issuers with
respect to their card programs carrying marks of the card brand and are
based principally upon spending for goods and services
Data processing revenue
 Revenues earned for authorization, clearing, settlement, transaction
processing services and other maintenance and support services that
facilitate transaction and information processing among the Company’s
customers globally
Foreign Exchange transaction revenue
 International transaction revenues are assessed to customers on
different from the merchant’s country
Other Revenue
 Revenue from providing additional security (e.g., Verified by Visa,
Secure Code, fraud analytics)
Acquirer
 Merchant Discount Fee: In return for offering them a facility to accept
credit cards, the Acquirer charges the Merchants a discount fee
 Periodic Account Fees: Including minimum fees the merchant must pay
the acquirer
Recipient of Funds
(Merchant)
 Merchant Sign-up Cost: Includes printing of Merchant Agreements,
Display Decals, Stands
 Capital Investments
 Personnel and Operational costs
 One-time set-up fees paid by merchants
 Switch Fees
 N/A
 Merchant Discount Fee (interchange plus merchant acquirer
transaction fees plus periodic fees): Ranges from 1.2%-2% per
transaction plus acquirer processing and periodic account fees
pay the acquirer
 POS rental fees
 POS equipment upgrade costs
 With the liability shift in October 2010 merchants not equipped to
process Chip and PIN transactions will absorb fraud losses
- 29 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 Automated Funds Transfer (AFT) Debits are Pre-Authorized Debits (PAD) usually set up by the Recipient based on an underlying PAD agreement between the
accountholder/Sender and the Recipient of funds. This payment type is most commonly used for mortgage and other bill payments, as well as funds transfer
and corporate cash management payments
 The Recipient’s financial institution initiates the automated debit of the Sender’s account; the Recipient’s account is automatically credited at agreed intervals
 Standards for AFT transactions are set by the Canadian Payments Association, which processes all AFTs
Characteristics
Historical Trends
 Cost: AFT Debit transactions are low cost payment options for recurring
funds transfers for Senders and Recipients. The processing costs incurred
by the Sender’s bank cover the steps of validating the payment, confirming
debit instructions and availability of funds, the actual debit, and sending
batch files to the central processor. Most of this process is automated and
requires no manual intervention after set-up, further decreasing the costs
AFT Debit Transaction Volumes and Values (2000 - 2009)
Volume CAGR: 3.38%
Value CAGR: 6.19%
 Acceptance: An increasing number of recurring transactions are being
processed through this system, implying broad and growing acceptance
 Time: AFT Debit transactions take T+1 days for the recipient. Before the
Sender’s and Recipient’s banks settle their accounts, the Sender’s account is
debited and the Recipient’s account is credited (see steps 4 and 6 in the
interaction map)
 Security: With this method, payments are traceable and pose low security
risks. Since payment occurs electronically, there is lower risk of loss of funds
as opposed to paper payment instruments which may be forged, mutilated or
lost. AFT Debit authorizations are revocable by the funder (consumer)
Examples of Usage
Form Factors
 Electronic funds transfer through
pre-authorized debits
 The growth rate of the value of AFT debits has far exceeded the growth
rate of the volumes of AFT debits, implying that the transaction value of an
AFT debit has been increasing
 Volumes leveled off in 2009 due to the recession, as business-business
transfers were cut back. Growth is expected to resume in 2010
Sources: Canadian Payments Association; Deloitte Analysis
- 30 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Illustrative
Pre-authorized
debit (PAD)
agreement
Recipient of
Funds
1
Sender of
Funds
6
Sender’s
Account is
Debited
Sender’s FI
(Start)
7
2
PAD
Information
Settlement
Recipient’s
Account is
Credited
PAD
Information
CPA
4
5
3
Recipient’s
FI
CPA
Services
Network
(CSN)
PAD Information
Funds
Data




Sender’s Financial Institution: Any financial institution the Sender has an account with, which interacts with the CPA. e.g., banks
Recipient’s Financial Institution: Any financial institution the Recipient has an account with, which interacts with the CPA. e.g., banks
CPA: A not-for-profit organization engaged in clearing and settlement of payments
CPA Services Network (CSN): Facilitates the transmission of AFT and EDI files between institutions
- 31 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Sender of Funds
(Account to be debited)
Revenues
Costs
 N/A
transaction fees
 Miscellaneous fees: May include one-time set-up fees and fees
based on size and nature of transaction
Sender's FI
Transactional Costs
 CPA Fees
Operational Costs
 Corporate Support Functions
 Fraud Losses
 Capital Costs
(CSN)
 Association fees from member financial institutions
Recipient's FI
 N/A
 Capital Costs
Recipient of Funds
(Account to be credited)
 N/A
 N/A
- 32 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 Automated Funds Transfer (AFT) Credits are usually set up by the Sender of funds, and imply a direct deposit in the Recipient's account (e.g., payroll deposits,
payment of dividends, tax refunds)
 The Sender’s financial institution initiates the automated debit of the Sender’s account, and the Recipient’s account is automatically credited at agreed intervals,
with the transaction amount
 Standards for AFT transactions are set by the Canadian Payments Association, which processes all AFTs
Characteristics
Historical Trends
 Cost: AFT Credit transactions are low cost payment options for recurring
funds transfers. The processing costs incurred by the Sender’s bank cover
the steps of validating the payment, confirming credit instructions and
availability of funds, the actual debit and credit, and sending electronic batch
files to the central processor. Most of this process is automated and requires
no manual intervention after set-up, further decreasing the costs
AFT Credit Transaction Volumes and Values (2000- 2009)
Volume CAGR: 4.16%
Value CAGR: 7.98%
 Acceptance: An increasing number of recurring transactions are being
processed through this system, implying broad and growing acceptance
 Time: AFT Credit transactions take T+1 days where the payment settlement
occurs one day after the transaction. Before the Sender’s and Recipient’s
banks settle their accounts, the Sender’s account is debited and the
Recipient’s account is credited (see steps 3 and 5 in the interaction map)
lost
Examples of Usage
Form Factors
 The growth rate of the value of AFT credits has exceeded the growth rate
of the volumes of AFT credits, implying that the transaction value of an AFT
credit has been increasing
 A significant portion of Canada’s $730 billion in payroll is delivered via AFT
credits
 Electronic funds transfer through
pre-authorized credits
Sources: Canadian Payments Association; Canadian Payroll Association; Deloitte Analysis
- 33 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
3
Illustrative
Recipient’s
Account
Sender’s
Account is
Debited
Sender of
Funds
(Start)
Sender’s FI
1
6
Direct Deposit
Information
2
Settlement
Recipient’s
Account is
Credited
Direct
Deposit
Information
CPA
5
4
Recipient’s
FI
Direct Deposit
Information
CPA
Services
Network
(CSN)
Funds
Data




Sender’s Bank: Any financial institution the Sender has an account with, which interacts with the CPA. e.g., banks
Recipient’s Bank: Any financial institution the Recipient has an account with, which interacts with the CPA. e.g., banks
CPA Services Network (CSN): Facilitates the transmission of AFT and EDI files between institutions
- 34 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Sender of Funds
Revenues
Costs
 N/A
transaction fees
Sender's FI
Transactional Costs
 CPA Fees
Operational Costs
 Fraud Losses
 Capital Costs
Payment Service
Provider/Processor
(CSN)
Recipient's FI
 N/A
 Capital Costs
Recipient of Funds
 N/A
 Must hold a bank account to receive the credit
- 35 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
EDI and Electronic (EDI) Remittances
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 Electronic Data Interchange (EDI) payments are corporate-to-corporate transfers routed through the CPA. Electronic (EDI) Remittances are a variation, in that
the transfer is consumer-to-business. Remittance Recipients must have a Corporate Creditor Identification Number (CCIN). Common uses are for procurement
and bill payments. EDI payments are similar to AFT Debits, but differ in that they are not automated or pre-approved, are processed as a one-time payment
and the Recipient must have a CCIN
 The clearing process for electronic payments is more streamlined than for cheques and other paper-based payment items, as there is no requirement to image
or deliver a physical payment item
Characteristics
Historical Trends
 Cost: For the Sender, the costs are bank charges for each filed payment to
be processed plus system and personnel costs. On the payer institution side,
processing costs incurred cover the steps of validating the payment
instruction against biller files supplied by the central processor, confirming
funds are available, debiting the account, issuing a receipt and sending
batch files to the central processor. On the biller institution side, they cover
the costs of creating and delivering payment files to each of the institution’s
billers, and crediting and reconciling the biller’s account
Paper and Electronic Remittance Transaction Volumes and Values
(2003- 2009)
Volume CAGR: 13.09%
Value CAGR: 14.23%
 Acceptance: Electronic payments are broadly accepted due to the low cost
and elimination of potential errors in processing
 Time: Payment settlement usually occurs one day after the transaction
lost
Examples of Usage






Business-to-Business
Consumer-to-Business
Business-to-Consumer
Business-to-Government
Government-to-Business
Citizen-to-Government
Form Factors
 Electronic payments to
organizations with a CPA
Corporate Creditor
Identification Number (CCIN)
 Volumes and Values include EDI (corporate-to-corporate credits carried out
via electronic data interchange), Electronic Remittances and ABM
adjustments made to correct errors from Shared ABM Network
Transactions
 Electronic remittances and EDI have been on the rise over the last decade,
while paper remittances have been on a steep decline
 Volumes leveled off in 2009 due to the recession. Growth is expected to
resume in 2010
Sources: CIBC; Scotiabank; Bank of Montreal; Canadian Payments Association, Issues Paper: Bill Payments in Canada TelPay; Canada Post
- 36 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Simplified Payment Interaction Model (Bill Payments)
Illustrative
Recipient’s
Account
Sender’s
Account is
Debited
Sender of
Funds
(Start)
2
Sender’s FI
1
Debit Instruction
3
Settlement
Recipient’s
Account is
Credited
6
Transaction
Data
CPA
5
Recipient’s
FI
CPA
Services
Network
(CSN)
4 Transaction Data
Funds
Data




Sender’s FI: Any financial institution the Sender has an account with, which interacts with the CPA. e.g., banks
Recipient’s FI: Any financial institution the Recipient has an account with, which interacts with the CPA. e.g., banks
CPA Services Network (CSN): Facilitates the transmission of electronic payment files between institutions
- 37 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Sender of Funds
Revenues
Costs
 N/A
transaction fees
 Often requires specific software and technology to support
Sender's FI
Transactional Costs
 CPA Fees
Operational Costs
 Fraud Losses
 Capital Costs
Payment Service
Provider/Processor
(CSN)
Recipient's FI
 N/A
Recipient of Funds
 N/A
- 38 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Proprietary/Closed Loop Prepaid Card
AFT Credit P2P Trans.
EDI
Remittance
Closed Loop Rewards
LVTS
eWallet
SWIFT
Description
 A closed loop card is a form of prepaid card usually issued by retailers (e.g., Petro Canada Card) or consortiums (e.g., malls)
 Closed loop cards may behave like a standard credit card, but differ from open-loop credit cards in that they can only be used at specific retail locations.
Because they are not processed via Visa, MasterCard or similar, the cost structure of delivering closed loop payments can be different from open-loop cards
 While the closed loop cards are popular for some consumer segments, these transactions represent a very small portion of the Canadian payments landscape
Characteristics
Projected Closed-Loop Volume ($B) (2010-2015)
 Cost: Closed loop and gift cards can be a low-cost payment method for
users. Typical user fees for prepaid closed loop cards can include activation
fees, balance inquiry call centre fees, reloading fees and non-usage fees.
For issuers/merchants, this payment instrument can be attractive due to the
high rate of non-usage, (breakage) where the purchaser loads the card with
an amount paid upfront, but does not redeem the balance for goods or
services. The unutilized balance on the card is generally retained by the
issuer subject to regulatory guidance. Use of a closed-loop instead of an
open-loop card also results in the merchant avoiding paying interchange and
other open-loop card fees
 Acceptance: Closed loop cards have limited acceptance and may be
usually used only within the issuer’s business. With the availability of open
loop cards, the acceptance and popularity of closed loop cards is
diminishing further, although their use as gift cards remains a major portion
of their appeal
 Time: The card balance is deducted immediately upon purchase of a good
or service
 Security: There is low security associated with gift cards as they may be
lost or stolen, though many allow for user registration and protection
Examples of Usage
 Business-to-
Consumer
 Consumer-toConsumer
Form Factors
 Closed loop prepaid cards in Canada are estimated to grow to 1% ($4.5
billion) of the total card volume by 2015; growth rate slower than in the US
 Growth in closed loop payments is leveling off, as prepaid closed loop
cards reach saturation
 Card (Magnetic/Chip)
 Internet (Online)
Source: ‘Payment instrument Choice: The Case of Prepaid Cards’ - Sujit Chakravorti and Victor Lubasi ; Deloitte Research and Analysis; Statistics Canada;
http://www.cbc.ca/consumer/story/2008/12/01/f-giftcards.html ; http://www.statcan.gc.ca/pub/11-621-m/2006051/t/4054404-eng.htm
- 39 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
EDI
Remittance
Closed Loop Rewards
LVTS
eWallet
SWIFT
Simplified Payment Interaction Model (Prepaid Version)
Illustrative
Card purchased/loaded
online or at retail
location using credit
card, cash, or debit
Issuer’s
Liability
Account
2
4
Card
Purchaser
1
(Start)
Value loaded to prepaid card
Payment
Processor
Funds booked to revenue
Or transferred to redemption
location (e.g., franchisee)
3
Prepaid card
redeemed
Prepaid card
debited
4
Issuer’s
Revenue
Account
Funds
Data
 Corporate Accounts: Maintains complete account details of all prepaid card balances
 Franchisees: Sell/activate prepaid closed loop cards and accept payments by prepaid closed loop cards, in lieu of cash/debit/credit cards
 Purchaser of card: May be different from user, and pays for the card through other accepted modes of payment
 User: May be the same as or different from the purchaser of card, and uses the balance on the card to make purchases
- 40 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
EDI
Remittance
Closed Loop Rewards
LVTS
eWallet
SWIFT
Participants
Purchaser of Card
Revenues
Costs
 N/A
 Activation Fee: May be charged a fee to activate the card
 In some provinces, there may also be an expiry date and/or a fee
for inactivity
 Card Replacement Fees may also be charged in case of lost or
stolen cards
 Balance Inquiry Fees: Some card issuers charge a fee for these
inquiries, typically ranging from 50¢-$1.00 per call, if a toll-free
number is called
 Opportunity cost of funds loaded on card
Issuer (Usually a retailer)
 Activation Fee: May charge a fee to activate the card
Transactional Costs
 Expiration of unused balances may be an additional source of
 Processing Fees
revenues, or there may be fees levied for inactivity
Operational Costs
 Card Replacement Fees may also be charged in case of lost or
stolen cards
 The revenue from the sale of an unredeemed gift card may be
recognized as revenue
 Balance inquiry fees, etc.
 Float from prepaid balances
Franchisees or
Consortium members
(when different from
issuer)
 Marketing and Sales: Includes marketing, promotions and collateral
 Card costs
 The revenue from the sale of an unredeemed gift card may be
recognized as revenue
Transactional Costs
 Processing fees
Operational Costs
 Customer Service
 In-store Risk, Fraud Management and Dispute Resolution
- 41 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
LVTS Wires
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Description
 The Large Value Transfer System (LVTS), an electronic wire transfer system introduced by the Canadian Payments Association in February 1999, facilitates
the transfer of irrevocable payments in Canadian dollars across the country virtually instantaneously
 Through LVTS, funds can be transferred in real time between participating financial institutions on behalf of clients, and the money is available to the payment
Recipient immediately
 LVTS payments are preferred by corporations for large transfers (>$50,000) as the amounts are immediately transferred and irreversible
Characteristics
Historical Trends
 Cost: LVTS payments are relatively low cost per dollar of amount
LVTS Transaction Volumes and Values (2000 - 2009)
transferred. As they are backed by collateral pledged to the Bank of Canada
by the participating financial institutions, the implicit costs may be higher than
the immediately incurred expenses
Volume CAGR: 5.22%
Value CAGR: 4.50%
 Acceptance: LVTS payments are preferred by large institutions as they are
final and irrevocable in real time. Once sent, a payment cannot be reversed
by the payer or the financial institution that sent it. There is no risk of stop
payment orders, insufficient funds or forged endorsements
 Time: Financial institutions are assured of same-day settlement for LVTS
transactions, even in the unlikely event that a participating institution were to
fail
 Security: The certainty of settlement reduces systemic risk (i.e., the risk that
the inability of one financial institution to meet its settlement obligations could
cause other institutions to fail in a domino effect). Each LVTS payment is
also subject to real-time risk-control tests to confirm sufficient collateral is
available. If a payment does not pass the applicable tests, it is rejected
Examples of Usage
Form Factors
 LVTS electronic or paper instruction
form
 During the peak of the financial crisis in 2008-09, the value and volume of
LVTS transfers decreased
 The CPA projects the growth rates will be about 7% and 5% for volume
and value respectively, over the next five years
Sources: Bank for International Settlements Report prepared by Committee on Payment and Settlement Systems of the Group of Ten Countries, 2009; Canadian Payments
Association; Canadian Payments Forecast, 2009
- 42 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
LVTS Wires
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
(Provides funds, transaction fee and recipient
information including IBAN and BIC codes)
Illustrative
1
Recipient
Sender
(Start)
2
Sender’s FI
Sender’s
Account is
Debited
5
3
Transaction
Data
CPA
Settlement may be through the CPA or
directly via Correspondent Accounts
6
Recipient’s
FI
Transaction Data
4
CPA via
SWIFT*
Network
Funds
Data




Sender’s FI: Any financial institution the Sender has an account with, which interacts with the CPA. e.g., banks
Recipient’s FI: Any financial institution the Recipient has an account with, which interacts with the CPA. e.g., banks
SWIFT Network: A not-for-profit organization engaged in transmitting funds transfer information among member banks; SWIFT does not facilitate funds
transfer, rather, it sends payment orders, which must be settled via correspondent accounts that the intuitions have with each other
- 43 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
LVTS Wires
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
Participants
Revenues
Costs
Sender of Funds
(Account holder)
 N/A
 Fee: May range from periodic to transaction-specific fees
 Fee: May range from periodic to transaction-specific fees
 Processing Fees paid to Clearing Company
 SWIFT/CPA Fees
Operational Costs
Clearing
Company/Processor
SWIFT Network
 The CPA does not play a role in the pricing of LVTS services, but
have fees associated with SWIFT. Each financial institution will
establish its own pricing structure for LVTS payments, just as they
do for other products and services
 Technology
 Processing expenses
 Processing fee
 Network, EDP and Telecom
Acquirer (Recipient's FI)
 May charge a processing fee
 Processing Fees paid to Clearing Company
 SWIFT/CPA Fees
Operational Costs
Recipient of Funds
 N/A
- 44 -
SWIFT Transfers and Person-to-Person Transfers
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
SWIFT Transfers
Description
Payment Interaction Model
 SWIFT is the Society for Worldwide Interbank Financial
Telecommunication, a member-owned cooperative
− SWIFT is solely a carrier of messages. It does not hold funds, manage
accounts on behalf of customers, or store financial information on an ongoing basis
− As a data carrier, SWIFT transmits messages between two financial
institutions
− Used in Canada for international payments
 Often used for, but not limited to, business-to-business payments such as
paying international suppliers
Person-to-Person Electronic Transfers
Description
Payment Interaction Model (Interac Email Money Transfer)
 Person-to-person money transfer using a purpose-built electronic payment
method (as opposed to cash or cheques)
 Interac Email Money Transfers (IEMT) are the primary electronic person-to-
person vehicle in Canada, with emergent products such as Zoompass
gaining traction
 Sending an Interac Email Money Transfer typically costs a consumer
$1.50 + regular withdrawal fees, or is included in a monthly fee package
Source: www.swift.com, interac.ca
- 45 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
International Remittances and Rewards Redemption
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
International Remittances
Description
 Money that one party sends to another party outside of the country
 Typical usage is for immigrants to send money to family members in their
country of origin
 Differs from SWIFT payments in that the Recipient does not require a bank
account to receive the funds, as the dispensing service is provided by the
payment network (e.g., Western Union)
Rewards Redemption
Description
 Loyalty programs allow consumers to earn rewards (e.g., discounts,
1
 Consumers can use reward points to “pay” for goods or services
7
10
9
Transaction Data
2
retain payment/banking customers
Transaction Data
 Financial Institutions are heavy users of reward programs to attract and
6
Accumulated Points
and redemptions held
on account
Merchant B
Rewards Purchase
Amount
(Start)
 There are closed-loop programs, whereby retailers reward customers
through discounts at their stores, and open-loop programs, whereby an
issuer provides points which can be redeemed at a number of retailers
8 Redemption of Points
Customer
Transaction
Merchant A
Monthly Statement
frequent flier miles), cashback or a combination of the two
5 Purchase of Points
Acquirer/
Processor
3
Transaction
Data
Loyalty
Program
Issuer
4
Transaction
Data
Rewards
Plan
Provider
Funds
Data
Sources: Multi-Channel Merchant, http://multichannelmerchant.com/mag/loyal_subjects_1001/; Opticard, http://www.optinc.com/programs-services/loyalty-card-programs; American
Express, http://www.americanexpress.com/lacidc/iccsite/pdf/mr_enrol.pdf; Forbes, http://www.forbes.com/2007/01/02/frequent-flyer-miles-ent-sales-cx_kw_0102whartonloyalty.html
- 46 -
Cash
Cheque
Debit POS
Debit ABM
Credit Card
AFT Debit
Digital Wallets/eWallets
AFT Credit
EDI
Closed Loop
LVTS
SWIFT
P2P Trans.
Remittance
Rewards
eWallet
eWallets
Description
 Software that can hold digital cash, billing, shipping, and payment
information; some eWallets have a digital certificate with a digital signature
for online transactions. eWallets allow users to make electronic commerce
transactions quickly and securely, e.g. PayPal
 Generally unregulated, as providers operate outside of traditional financial
frameworks
Sources: PayPal website, JP Morgan Website, eMarketer report, Gartner report, eBay January 2008 Investor Update
- 47 -
Table of Contents
1. Introduction
5. Appendices
d. Further Reading
- 48 -
This section provides overviews of participant types within the Canadian Payments
Ecosystem

The Canadian payments system is made up of a variety of different players with varying sizes and roles. The following section provides an
overview of the various participant types within the Canadian payments system. These participant types are accompanied by a sample of
company profiles for selected players in the appendix

These overviews and profiles provide a snapshot of the payments industry on a participant level and allows comparison of their various
characteristics, from both a current and historic perspective. The participants within this section all impact the Canadian payments landscape, in
different and often overlapping ways. Profiled groups include:

Issuers

Acquirers

Payment Networks

Clearers & Settlers

Payment Service Providers

Payday Loan Providers

FOREX Providers

ABM White Label Operators

Closed Loop Prepaid Providers

Loyalty and Rewards Programs

eWallet Providers

Alternate Payment Vehicle Providers

Only publicly available information was used in the compilation of this section. As such, information relating to some companies was unavailable,
in particular where those companies are privately owned. Where possible, industry trends were used to replace unavailable information

The most up-to-date information was used in every instance. However, data up to 2009/2010 was not always available. A list of references has
been provided at the end of Appendix 1
- 49 -
Competition exists at every stage in the payments process – traditional vertically
integrated value chains are fragmenting and new players are entering
Key Players in the Canadian Payments Ecosystem
Payment
Originators
Payment
Recipients
Payment Connectors
Cash
Payment
Originator’s
Financial
Institution
Sender
of Funds
(Consumer)
(Business)
(Government)
Debit Cards
(POS & ABM)
Debit
Networks
•TD Merchant Services
Credit Cards,
Open-Loop Prepaid
(Issuer)
AFT Credits and
Debits, EDI
•Royal Bank of Canada
•Desjardins Group
•Canadian Imperial Bank
of Commerce
•The Toronto Dominion
Bank
•Sears Holdings Corp.
•President’s Choice
Financial
Merchant Acquirer
Interac Association
Credit Card Network
•Moneris Solutions
•American Express Company
•MasterCard Worldwide
•Visa Inc.
•Chase Paymentech
Canadian
Payments
Association
CPA Services
Network
Payment
Recipient's
Financial
Institution
Payment Service Provider
Cheques and other
paper remittances
•First Data Corporation
•INTRIA Items Inc.
•Symcor Inc.
LVTS
Wires
SWIFT/LVTS
Recipient
of Funds
White Label
ABM
Operators
(Consumer)
(Merchant)
(Business)
(Government)
•Clear Card
Payment Solutions
•Cash N Go Ltd.
•Royal Bank of Canada
•Desjardins Group
•Canadian Imperial Bank of
Commerce
•The Toronto Dominion Bank
Society for Worldwide
Interbank Financial
Telecommunication
Canadian Payments Association
Cash in
Circulation
Transaction/
Processing
Support
Cash in
Circulation
Bank of Canada
Transaction/
Processing
Support
Payment Enablers (Simplified)
National Cash Register; Cash N Go
Ltd.; Frisco-ATMs
ABM Service Providers
Money Transfer Companies
Rogers Communications Inc.; Telus
Corporation; Bell Mobility
Mobile Network Operators
Currency Exchange and Trading Companies
Bank of Canada; Royal Bank of
Canada; Travelex
TelPay Inc.; Zoompass
Loyalty & Rewards Provider
Payday Cheque Cashiers/Loan Organizations
Money Tree; Cash Money; Money
Mart
First Data Corporation; INTRIA Items
Inc.; Symcor Inc.
Service Providers to Industry Participants
eWallet Providers
Google Checkout; Facebook Credits;
PayPal Inc.
Western Union Company; PayPal Inc.
Payment Regulators (Simplified)
Federal Regulators
Department
of Finance
Bank of
Canada
Competition
Bureau
Provincial Regulators
CPA
FCAC
OSFI
OCA
Securities
Regulators
- 50 -
Consumer
Protection
Financial Svcs.
Commissions
Self-Regulators
CBA
CPLA
Interac
IDA
Payment
Enabler
Business
Relationship
Participant Type Overview:
Issuers
Role within the Canadian Payments System
 Role: Financial institutions who enable payments on behalf of their customers. In most cases the payment is funded from a chequing or savings account, credit
facility or prepaid account. In addition to enabling the payments transaction, issuers may also extend additional services such as overdraft protection and
revolving credit. Issuers is a broad category which includes large financial institutions, credit unions, monoline issuers (credit cards are the only product line, e.g.,
Capital One) and merchants with closed-loop credit cards, e.g. Petro-Canada
 Degree of Consolidation: Depends on payment type. Approximately 62% of Visa and MasterCard credit cards in Canada are issued by five companies: BMO,
MBNA, TD Canada Trust, RBC and CIBC. Over 80% of debit transactions are processed by the six largest financial institutions. The ‘Big Six’ banks, Desjardins
Caisse network and credit union system have market share of greater than 60% of the savings account and greater than 80% of the chequing account market
 Relative Stability: The market has enjoyed relative stability over recent years. Large financial institutions continue to process the majority of transactions. The
recession has caused some monoline issuers to exit the Canadian marketplace. Smaller players continue to face challenges maintaining profitability
Market Participant Examples
•
•
•
•
•
•
•
•
•
•
American Express Company
Bank of Montreal
Bank of Nova Scotia
Canadian Imperial Bank of Commerce
Capital One
Desjardins Group
President’s Choice Financial
Royal Bank of Canada
The Toronto Dominion Bank
Vancouver City Savings Credit Union
Timeline
 1817: Bank of Montreal founded
 1832: Bank of Nova Scotia is established
 1955: The Bank of Toronto and the Dominion Bank merge to form the
Toronto-Dominion Bank
 1959: BNS first Canadian bank to introduce a revolving credit plan
 1961: CIBC was formed through the merger of The Canadian Bank of
Commerce and the Imperial Bank of Canada
 1996: Capital One began operations in Canada
 2000: TD Bank and Canada Trust merge
 2008: TD Bank Financial Group acquire Commerce Bancorp; Competition
Bureau lifts restriction on issuers and acquirers who simultaneously issue
multiple credit card brands or acquire transactions for multiple card networks
Challenges and Issues
Challenges:
 Offer customers payment mechanisms they want
securely and at a low cost; differentiated offers
 Combating fraud
Issues:
 Increasing regulatory complexity, e.g. Code of
Conduct, Anti-Money Laundering
 Recent industry changes have required very
significant investments, e.g. Chip and PIN,
Truncation and Electronic Cheque Presentment
 Aging technology makes changes costly and slow
Industry Value Drivers
 Revenue is driven by:
 Number of customers
 Volume of transactions and fees
 Chequing account fees
 Interest on accounts
 Spread on revolving balances
 Foreign exchange spread
 Costs are driven by:
 Volume of accounts and transactions
 Straight through processing
 Fraud/risk management effectiveness
 Complexity of customer offerings
Regulatory Framework
 Federal: The Bank Act; Bank of Canada Act; the
Payment Clearing and Settlement Act; the
Canadian Payments Act; oversight by OSFI;
PIPEDA; Competition Act; Bills of Exchange Act;
FSI legislation incl. Proceeds of Crime (Money
Laundering) and Terrorist Financing Act and
Basel II
 Self-Regulated: Canadian Code of Practice for
Consumer Debit Card Services; Global Payment
Card Industry/Data Security Standards
 Provincial: Consumer Protection Act; Electronic
Transactions Act; Electronic Commerce Act
Sources: See end of section
- 51 -
Merchant Acquirers
 Role: Acquirers connect merchants to payments networks. In addition to providing POS terminals, online payments and telecommunications services, acquirers
may also provide integration with merchant cash registers and computer systems. Acquirers generally perform four key functions: (1) sign up and underwrite
merchants to accept network-branded cards; (2) provide the means to authorize valid card transactions at client merchant locations; (3) facilitate the clearing and
settlement of the transactions through the payment network; and (4) providing other relevant information or processing services, such as loyalty programs.
 Degree of Consolidation: Almost 90% of transaction volume is processed by four companies: Chase Paymentech, Global Payments, Moneris Solutions and TD
Merchant Services
 Relative Stability: Some issuers (e.g., CIBC, Scotia, etc.) sold off their merchant acquiring business in the 1990s and 2000s. Currently, the market is reasonably
stable with emerging players serving online merchants
•
•
•
•
•
•
•
•
Beanstream
Chase Paymentech
Desjardins Group
First Data Corporation
Global Payments Systems
Moneris Solutions
TD Merchant Services
VersaPay
Challenges:
 Growth in types of electronic payments
 Keeping fixed costs low as new payments
products enter the market
 Combating fraud
Issues:
 Increasing regulatory complexity
 Limited ability to influence rates, policies and
network rules
 Significant ongoing capital costs for Chip and PIN,
contactless and mobile
Timeline
 1967: National Data Corporation founded
 1983: Chase Manhattan sells merchant acquiring unit to NaBanco
 1996: Paymentech brand created and IPO executed
 2000: Moneris created as a joint investment between RBC Financial Group
and BMO Financial Group (including Chicago-based Harris Bank)
 2001: Global Payments spun off from National Data Corporation; Global
Payments acquires National Bank of Canada’s and CIBC’s merchant services
businesses
 2002: Paymentech acquired Scotia and Citibank merchant acquiring portfolio
 2003: Global Payments acquired DolEx Dollar Express; Moneris acquires
Ernex Marketing Technologies
 2005: Paymentech integrated with Chase Merchant Services; Interac Online
service launched
 Acquiring is very much a scale-dependent
 Federal: Code of Conduct for the Credit and Debit
business, with high fixed costs and low
transaction costs. In particular, acquirers require
scale in:
 Merchant client base
 Volume of transactions
 Networks supported
 Acquirers collect a relatively small share of the
merchant discount rate, making volume important
 Incremental revenue from consulting and valueadded services can help the bottom line
 Technological innovation to reduce costs of POS
devices and increase efficiency
- 52 -
Card Industry in Canada; Personal Information
Protection and Electronic Documents Act;
Competition Act
Consumer Debit Card Services (CBA voluntary
code); Global Payment Card Industry/Data
Security Standards (Industry Standard)
Payment Networks
• Role: Payment networks provide the technological and operational frameworks to enable transactions. In addition to operating payment switches and related
technology, payment networks create and develop card brands, set rules for operations, set fees and interchange rates, develop fraud-prevention strategies, act
as intermediary entities between acquirers and issuers and bring new payments innovations to market
• Degree of Consolidation: Visa and MasterCard dominate the credit card space with 40% and 20% of the 2009 Canadian credit and debit purchase transaction
volume respectively, while Interac has almost 100% of the domestic debit market
• Relative Stability: After a period of stability the market is on the verge of significant change. The introduction of duality means that financial institutions can offer
both Visa and MasterCard, while on the debit side Interac is facing competition from Visa Debit and Maestro (MasterCard)
• American Express Company
• Discover Network
• Interac Association
• MasterCard Worldwide
• Visa Inc.
Challenges:
 Combating fraud
 Disintermediation from non-traditional participants
(e.g., eWallets )
 Ability to differentiate
Issues:
 Increasing costs due to regulatory complexity, e.g.
Code of Conduct, AML
 Merchants pressing government to impose limits
on amounts of interchange fees, which would put
downward pressure on rates
Timeline
 1958: Bank of America launch first general purpose credit card; American
Express issue first charge card
1973: National BankAmericard launch first electronic authorization system
1983: MasterCard introduces hologram security device, an industry first
1984: 5 FIs link their own ABM networks in Canada
1986: Launch of Shared Cash Dispensing service in Canada as Interac
1993: Visa is first to apply neural network technologies to payments
1997: Competition Tribunal approves Consent Order, expanding Interac
membership, creating a new marketplace for Interac shared services
 2006: MasterCard becomes a publicly traded company
 2007: Visa launches Visa mobile platform
 2008: Chip technology rolls out across Canada; launch of IPS global platform
for debit and prepaid issuer processing; Visa becomes publicly traded






 Payment networks require a large volume of
 Federal: Code of Conduct for the Credit and Debit
transactions to amortize fixed cost base. In
particular, networks require scale in:
 Number of issuing FIs and acquirers
 Card base, both issued and active
 Number of accepting merchant locations
 Diversity of payment channels (card, online
etc.)
 Volume of cross-border payments, including
currency conversion activities
 Technological innovation to reduce fraud losses
 Value-added services such as consulting
Card Industry in Canada; PIPEDA; Competition
Act; oversight by OSFI; relevant FSI legislation
including Bank Act, the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act
and Basel II
Consumer Debit Card Services; Global Payment
Card Industry/Data Security Standards
- 53 -
• Role: Clear (exchange and reconcile payment items that result in a transfer of funds from one FI to another) and/or settle (adjust financial positions of individual
FIs to reflect the net amounts due) non-cash payment transactions. There are two systems in Canada through which all non-cash payments settle:
1. Canadian Payments Association
2. Credit Card Networks: Clear and settle transactions conducted on their networks
 Degree of Consolidation: The majority of payments in Canada are settled through the Canadian Payments Association
 Relative Stability: Reductions in cheque usage and the introduction of branded debit (Visa, MasterCard and Amex do not clear through the CPA) may result in
reduced volumes for the CPA. Unlikely to see a private competitor to the CPA enter the market
• American Express Company
• Canadian Payments Association
• MasterCard Worldwide
• Visa Inc.
Timeline
 1973: National BankAmericard launch first electronic authorization system
(“Base I”)
 1974: National BankAmericard launch electronic clearing and settlement
system (“Base II”), the precursor to VisaNet
 1980: Canadian Payments Association established by an Act of Parliament
 1986: Visa develops multiple-currency clearing and settlement in 21




Issues
 Cost burden created by regulation
Canadian Payments Association:
 Aging technology
 Cheque usage has been declining
 Governance
 Declining volume in some payments
 Emerging global standard choices
Credit Card Networks:
 See section on Payment Networks
currencies
1988: MasterCard acquires the Cirrus ABM network
1998: LVTS is launched in Canada and enters first phase of “live” operation
1999: LVTS begins full operations in Canada
2008: Launch of IPS (Integrated Processing Solution) global platform for debit
& prepaid issuer processing
 The clearing and settling process is reliant on the
volume of transactions in:
 Cheque transactions
 Credit card transactions
 Bill payments
 Debit card transactions
 LVTS transactions
 Technological innovation – reduction of cost of
clearing and settlement
 Straight through processing
 Federal: The Payment Clearing and Settlement
Act; the Canadian Payments Act;
 Self-Regulated: Consent Order of the
Competition Tribunal; CPA by-laws; CPA rules
and standards
- 54 -
Payment Service Providers
 Role: Payments Service Providers offer a range of processing services to issuers and acquirers. Some examples include card manufacturing, authorization,
clearing, settlement, customer service, back office functions, diverse infrastructure services for transactions involving currency (ABM, commercial deposits,
treasury management), cheques, remittances (retail and wholesale lockboxes), information management and delivery (statement production services)
• Degree of Consolidation: High degree of consolidation for core activities. Symcor processes approximately 80% of cheques within Canada. Most financial
institutions use either TSYS or First Data to manage their credit card portfolios
• Relative Stability: Whilst the participant landscape remains stable, the market is undergoing product diversification as participants align their product offerings
with the technological changes taking place in the payments industry
• Everlink Payment Services Inc.
• First Data Corporation
• INTRIA Items Inc.
• Symcor Inc.
• Threshold Financial Technologies Inc.
• Total System Services, Inc.
Challenges:
 Achieving scale in response to downward
pressure on rates and volume (in some cases)
 Combating fraud
Issues:
 Disintermediation by different payment types
 Industry changes require significant capital
investments, e.g. Chip and PIN, Truncation and
Electronic Cheque Presentment
Timeline
 1959: TSYS founded as bankcard processing division of Columbus Bank and
Trust Co.
 1976: First Data becomes the first processor of Visa and MasterCard bankissued credit cards
 1994: TSYS launches TS2
 1996: Symcor founded as joint venture between TD, RBC and BMO; Intria
formed by CIBC
 1997: Threshold Financial founded
 1998: TSYS upgraded TS2 to support multiple languages and currencies on a
single platform
 2003: Everlink Payment Services formed
 2004: Everlink becomes Direct Connector on Interac Member Network
 2007: Merger with KKR closes, First Data becomes private equity company
 Payment service providers depend on a large
 Federal: PIPEDA; Competition Act; indirect
volume of transactions to offset high fixed costs.
In particular, payment service providers require
scale in:
 Merchant client base
 FI client base
 Value-added services such as consulting
oversight by OSFI; relevant FSI legislation incl.
Bank Act, Proceeds of Crime (Money Laundering)
and Terrorist Financing Act and Basel II; in some
instances, public company requirements incl.
Sarbanes Oxley
 Self-Regulated: Appropriate governance policies
and processes outlined by parent companies
 Provincial: Consumer Protection Act
- 55 -
Money Service Companies (Payday Loan Providers)
 Role: Payday loan and cheque cashing companies service the unbanked and under-banked population by providing immediate access to cash and bridge
financing at retail locations. These providers may also offer foreign exchange; remit or transmit funds; issue/redeem money orders, traveler's cheques or other
similar negotiable instruments
 Degree of Consolidation: Mixed (money service companies range in size from large companies such as Money Mart to smaller entities such as Cash Money; in
some instances smaller companies partner with larger firms in providing a service (e.g., Cash Money is partnered with Western Union in providing remittance
services)
 Relative Stability: Continuous change with more providers entering the market
• Cash Money
• Money Tree
• National Money Mart Company
Challenges:
 Managing loan portfolio and controlling loan loss
rates
Issues:
 Changes in provincial regulation may place
downward pressure on rates
 Increasing regulatory complexity, e.g. Code of
Conduct, AML
 Treasury management to manage foreign
exchange exposures
Timeline




1982: Money Mart founded
1992: Cash Money founded
1996: Dollar Financial Group, Inc., purchases Money Mart
2004: Canadian Payday Loan Association established
 Money service companies are dependent on
 Federal: PIPEDA; Competition Act; relevant FSI
transactions for fee revenue. In particular, money
service companies require scale in:
 Number and location retail outlets
 Foreign exchange spread revenue are drivers of
revenue for providers offering remittances
legislation including the Proceeds of Crime
(Money Laundering) and Terrorist Financing Act;
Bill C-26 Criminal Code Amendment (Criminal
Interest Rates);
 Self-Regulated: Code of Best Business Practices
 Provincial: Consumer Protection Act; Fair
Trading Act; Payday Lending Act; Electronic
- 56 -
Money Service Companies (FOREX Providers)
Foreign Exchange within the Canadian Payments System
 Description: The foreign exchange (FX) market is the largest financial market in the world and is highly liquid. Most of the trading is conducted electronically or
by phone. FIs use the FX markets to manage risks associated with fluctuations in currency rates and to make payments between entities
 Role: Payment instruments in foreign currency requires conversion to the local currency at the market prices for a given time. Businesses and consumers pay
fees and spreads for foreign currency payments
 Degree of Consolidation: Foreign exchange payments are undertaken by a vast majority of financial entities, ranging in size
 Relative Stability: Average daily turnover for traditional foreign exchange markets in April 2007 was $3.2 trillion USD, an increase of 71% at current exchange
rates and 64% at constant exchange rates since April 2004; average daily turnover for the OTC derivatives markets was $2.1 trillion USD in April 2007 (20% 4yr CAGR). The foreign exchange market is impacted by shocks experienced in the domestic, regional and global economies
Market Turnover
• Accu-Rate Corporation
• Bank of Canada
• Bank of Montreal
Turnover CAGR: 9.52%
• Custom House Global Foreign Exchange
• Royal Bank of Canada
• Travelex Holdings Limited Company
*Chart represents daily averages for the month of April in US dollars
Challenges:
 Combating money laundering and maintaining
anti-money laundering and know your client
(KYC) compliance
 Managing rate fluctuations
Issues:
 Changes in regulations may place downward
pressure on rates
 Foreign exchange companies are dependent on
 Federal: Proceeds of Crime (Money Laundering)
transactions as a revenue generator. In particular,
money service companies require scale in:
o Number of branches
o Volume of transactions
 Foreign exchange companies’ largest revenue
base are transactional fees and margin (spread)
on exchange rates, making volume particularly
important
and Terrorist Financing Act; Bank of Canada Act;
Bank Act; the Payment Clearing and Settlement
Act; the Canadian Payments Act; oversight by
OSFI; PIPEDA; Competition Act; Bills of
Exchange Act; Basel II
• Provincial: Consumer Protection Act; Electronic
- 57 -
ABM White-Label Operators
 Role: Independent operators who provide an alternate source of cash dispensing for customers through the provision of privately branded ABM machines
commonly referred to as “white labels”. These ABM machines are independent from banks and financial institutions and customers are required to pay an
additional fee to use their service. The companies profiled in this section vary from independent service operators (ISOs) who run their own ABM networks to
outsourcers who manage ABM networks on behalf of other players
 Degree of Consolidation: Large number of small independent players, some concentration at top end (e.g., Frisco-ATMS, Threshold’s Laser Cash)
 Relative Stability: Whilst there have been a number of mergers and acquisitions within recent years, the market is relatively stable with changes mainly
occurring in product development
• Cash N Go
• Frisco-ATMs
• Threshold Financial Technologies Inc.
Timeline
 1884: NCR founded
 1972: Frisco-ATMs (a division of Frisco Bay’s systems) founded
 1996: Changes in regulations by the Competition Tribunal allow




Challenges:
 Complying with mandatory security upgrades,
resulting in additional expenses
 Increasing competition from low-cost banks and
credit union-operated ABMs
 Aggressive competition for ABM locations
Issues:
 Increasing pressure on Government to reduce
ABM fees
 Lower transaction volumes compared to bankoperated ABMs
intermediaries to deploy and operate ABMs
1997: NCR becomes publicly traded company after being spun-off from AT&T
1998: Frisco-ATMs deploy white label ABM machine
1998: Cash N Go founded
2004: Frisco-ATMs acquired by Stanley Works
 ABM service providers are scale-dependent with
high fixed costs. In particular, ABM service
providers require scale in:
 Number of ABMs
 Technological efficiency - single function cash
dispenser ABM machines are much cheaper to
install than bank multifunction ABMs allowing
ABM providers; manage service costs through
location selection
 Federal: The Canadian Payments Act; PIPEDA;
Competition Act
 Members of the Interac network are subject to the
same security compliance requirements from
Interac, Visa and MasterCard, as bank operated
ABMs
- 58 -
Closed Loop Prepaid Providers
• Role: Retailers who offer electronic cash-replacement cards that can be loaded with a dollar value and used like a debit/credit card where accepted. Stored
value cards are typically touted as substitutes for cash, however they only serve as pre-payment for the goods and services of participating stores. Stored value
cards may be reloadable
 Degree of Consolidation: Closed loop cards are provided by a number of businesses in Canada, and are generally operated on behalf of the retailers by
issuers and/or acquirers
 Relative Stability: Closed loop cards are widely popular in Canada. Contactless technology may require some closed loop providers to revamp their cards in the
face of growing competition
• Esso Speedpass
Timeline
 1997: Esso Speedpass introduced
 2001: Starbucks introduce card targeted at gift-buying market and frequent
• Shop! Card
Starbucks customers
• Starbucks Corporation
 2004: Shop! Card introduced as Canada’s first mall-based gift card program
 2008: Starbucks launch gold card and rewards program introduced for
registered Starbucks cards
 2009: Mini Starbucks card introduced
Challenges:
 Closed loop represents a very small portion of the
payments landscape and are usually targeted
value proposition to loyal customers
Issues:
 Slumping economy affects the amount of funds
people are willing to load into card accounts
 Reduced company investment in closed-loop
programs is limiting growth




Value drivers for Closed Loop Prepaid Cards are:
Value loaded on card
Unused value
Drives sales to retailer - loyalty
 Federal: PIPEDA; Competition Act; Proceeds of
Crime (Money Laundering) and Terrorist
Financing Act
 Provincial: Consumer Protection Acts (Alberta,
BC, Manitoba, Nova Scotia, Ontario and
Saskatchewan); New Brunswick Gift Cards Act –
legislation generally bans expiry dates and
dormancy fees from being imposed on gift cards;
provincial privacy legislation
- 59 -
Loyalty & Rewards Programs
 Role: Offer programs as incentives for card companies and retailers to entice customers to make purchases. There are typically three types of rewards
programs; point-based, cash-back and frequent flyer miles. Rewards companies operate in conjunction with many partners across numerous sectors. Loyalty
and rewards can be offered directly by retailers such as the Hudson’s Bay Company (the Hbc family includes the Bay, Zellers, Home Outfitters and Fields), or as
part of a consortium such as Air Miles. They can also be managed in-house, e.g. Canadian Tire Money, or outsourced to companies such as GE Money
 Degree of Consolidation: Loyalty and rewards are offered by a wide range of businesses of varying sizes. Air Miles and Aeroplan Canada are the most widely
used rewards companies with over 60% of Canadian households participating in one or both of their programs
 Relative Stability: The market for loyalty and rewards has been gaining popularity over recent years with more retailers offering a loyalty and rewards program.
Air Miles and Aeroplan continue to partner with various retailers to offer a wider variety of rewards
• Aeroplan Canada Inc.
• Air Miles
• Hbc Rewards
• Petro-Points (Petro-Canada)
Timeline
 1984: Aeroplan is created by Air Canada
 1992: Airmiles founded
 2002: Aeroplan established as a wholly-owned limited partnership of Air
Canada; Groupe Aeroplan, a publicly held company, owns Aeroplan
 2006: ACE Aviation Holdings approved a special distribution to its
shareholders of units of Aeroplan Income Fund. The distribution represented
in the aggregate approximately 10.1% of the units of Aeroplan Income Fund
on a fully diluted basis
Challenges:
 High competition requires Rewards companies to
reinvent their offering and differentiate themselves
 Tangible benefits are perceived as the minimum
by a more demanding customer
 Dependence on top accumulation partners for
revenues
Issues:
 Loyalty and rewards are generally paid for each
point accumulated, which is a direct product of the
number of points collectors and average spend
 Consortium points programs rely on broad
acceptance to drive collection and point
purchasing
 Merchant-specific loyalty programs rely on instore spending to drive points profitability
 Federal: Personal Information Protection and
Electronic Documents Act; Competition Act
 Provincial: Consumer Protection Act
 Partner companies operate in highly regulated
environments such as the airline industry and
changes in regulation effecting partners will effect
Rewards companies
 Lower redemption rates drive higher profits, but
deliver lower perceived value to consumers
- 60 -
eWallet Providers
 Role: Online payment and money transfer with expected growth to $22.8 billion globally by 2010. eWallets conducts online transactions by allowing customers to
store billing, shipping, payment, preference and other similar information; and then use this information to automatically complete a merchant's check-out page
 Degree of Consolidation: As an emerging participant type, the market is made up of few participants with the highest usage rates for PayPal (approximately 4M
active Canadian account holders)
 Relative Stability: Highly-fluid market. The popularity of Facebook may provide increased usage of Facebook Credits, which was fully rolled out in 2009
accommodating 14 currencies. Greater development of mobile technology will also see a change in how eWallet providers operate. Further innovation, such as
PayPal’s Adaptive Payments, also has potential to change the landscape of eWallets
• Facebook Credits
• Google Checkout
• PayPal, Inc.
Challenges:
 Charge for using eWallet payment service stops
many people from using the service
Issues:
 Traditional debit and credit payments are still
dominant in online commerce (an estimated 26%
of online payments are now made using alternate
products)
 Over-coming online payment security concerns
for many people
Timeline




1998: PayPal founded
2002: PayPal acquired by eBay in 2002 for $1.5B USD
2006: Google Checkout introduced by Google
2009: Facebook Credits platform rolled out
 eWallets are dependent on online transactions to
generate revenue. They require scale in:
o Merchant client base
o Growth in online transactions
 Consumers value the convenience and security
offered to merchants
 Smaller merchants appreciate the flexibility and
lower cost of eWallets
Financing Act
 Provincial: Consumer Protection Acts; Provincial
Electronic Transactions Act, Electronic Commerce
Act
- 61 -
Alternative Payment Vehicles
• Role: Alternate payment vehicles is a broad catch-all category that includes Mobile Payments Providers, Canada Post ‘s epost and Transit Authorities (e.g.,
PRESTO). These payment vehicles and enablers continue to emerge with the most prevalent being payments by mobile phone
• Degree of Consolidation: As an emerging participant type, the market is made up of a broad range of payment vehicles
• Relative Stability: Highly-fluid market. Continued technological innovation is diversifying alternative payment vehicles. Further development of mobile and
contactless technologies coupled with the continued increase in the popularity of electronic bill payment will drive growth in the use of alternative payment
vehicles and businesses offering these payment types
• ePost (Canada Post Corporation)
Timeline
 1981: TelPay founded as a research and development project of Comcheq
Services Limited
• Presto
• TelPay Inc.
• Zoompass
 1998: Epost founded as a joint venture between Canada Post Corporation
and BMO’s wholly-owned e-commerce subsidiary, Cebra Inc
 2004: Presto project conceived and currently under development by the
Ministry of Transportation and municipal transit service partners
 2009: Zoompass founded and operated by EnStream (a joint venture between
Bell Canada, Rogers Communications Inc. and TELUS Corporation)
Challenges:
 Increased competition from card networks and
eWallets could reduce market share of an already
fragmented market
 Traditional payment types are often required to
“load” the alternate payment vehicle
 Could create collaboration opportunities
Issues:
 Alternative Payment Vehicles are still in the early
stages of development but have great potential
 Alternative Payment Vehicles are dependent on
transactions to generate revenue. They require
scale in:
o Merchant client base
o Growth in online transactions
 Payment transactions are rapidly moving to
electronic formats due to their convenience, low to
no costs and speed-to-pay
 A decline in paper-based payments will allow
further growth opportunities for Alternate Payment
Vehicles




Financing Act
Provincial: Consumer Protection Acts
ePost acts primarily as a consolidator of bill
information into the online banking application,
credit card, or by electronic funds payment
Transit Authority has regulatory obligations similar
to closed loop cards
Most countries have not yet specifically regulated
contactless or mobile payments
- 62 -
References
ABM Service Providers
1.
Arnfield, Robin [8 January 2009] Canadian White-Label ABMs Face an Uncertain Future, ABM and Debit News http://www.allbusiness.com/bankingfinance/banking-lending-credit-services-cash/11969616-1.html
2.
Canadian Bankers Association, http://www.cba.ca/en/media-room/50-backgrounders-on-banking-issues/118-abm-market-in-canada
3.
TNS Smart Network, http://www.tns-smart.net/company.html
Account Fees
1. Financial Consumer Agency of Canada [2009], The Cost of Banking Guide
Alternative Payment Vehicles
1.
Deloitte research and analysis
1.
American Express, http://home3.americanexpress.com/corp/os/history.asp
2.
Bank of Canada, http://www.bankofcanada.ca/en/financial/financial_gen.html#cpa
3.
Business Wire [28 April 2000] INTRIA-HP Solves Need for Resource Optimization with Account4, Business Wire http://www.allbusiness.com/companyactivities-management/contracts-bids/6430740-1.html
4.
Canadian Payments Association, www.cdnpay.ca
5.
MasterCard, http://www.mastercard.com/us/company/en/ourcompany/company_milestones.html
6.
MasterCard Canada, http://www.mastercard.com/ca/company/en/corp_history.html
7.
O’Connor, Sean [Autumn 2003] Developments, Issues and Initiatives in Retail Payments, Bank of Canada Review
8.
Visa, http://corporate.visa.com/about-visa/our-business/history-of-visa.shtml
Closed Loop Prepaid Cards
1.
ABM & Debit News [15 October 2009] Open-Loop Prepaid is Slowing Funds Loads Into Closed-Loop Accounts, ABM & Debit News
http://www.allbusiness.com/marketing-advertising/market-research-analysis/13221084-1.html
2.
- 63 -
References
eWallet
1.
2.
Graeber, Catherine [28 September 2001] PayPal Set to Challenge Banks on Bill Pay, Forrester
3.
PayPal Canada Blog, https://www.paypal-blog.ca/
FOREX Providers
1.
BIS [September 2007] Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2007
2.
Visa Commercial [2006] The Inefficiencies of Cross-Border Payments: How Current Forces are Shaping the Future
3.
Financial Transactions and Reports Analysis Centre of Canada, http://www.fintrac.gc.ca/re-ed/fx-eng.asp
4.
World Trade Organization [2009] International Trade Statistics
5.
Robertson, David [10 July 2006] Measuring and Communicating the Value of a Bank’s Payments Business, Journal of Payments Strategy and Systems
Vol. 1 No. 1
6.
US Securities and Exchange Commission, http://www.sec.gov/answers/forcurr.htm
Issuers
1.
Bank of Canada, www.bankofcanada.ca
2.
Bank for International Settlement [2003] Payment Systems in Canada, Bank for International Settlement
3.
Bank of Montreal, http://www2.bmo.com/content/0,1089,divId-4_langId-1_navCode-5001,00.html
4.
Canadian Imperial Bank of Commerce, http://www.cibc.com/ca/about.html
5.
Committee on Payment and Settlement Systems of the Group of Ten Countries [2009] Statistics on Payment and Settlement Systems in Selected
Countries, Bank for International Settlements
6.
Fraser Milner Casgrain [2002] Banking Legislation in Canada: Early Changes in the New Millennium
7.
8.
Royal Bank of Canada, http://www.rbc.com/canada.html
9.
Scotiabank, http://scotiabank.com/cda/eventdetail/0,1005,LIDen_SID106,00.html
10.
The Toronto-Dominion Bank, http://www.td.com/150/index.jsp
11.
Deposit and Fixed Income Advisory Service [2010], Investor Economics
- 64 -
References
Loyalty & Rewards
1.
Canadian Newswire [30 April 2010] VersaPay Announces 2009 Year-End Results, Canadian Newswire
http://www.newswire.ca/en/releases/archive/April2010/30/c7306.html
2.
Carbo-Valverde, Santiago and Linares-Zegarra, Jose M. [December 2009] How Effective are Rewards Programs in Promoting Payment Card Usage?
European Central Bank
3.
Groupe Aeroplan [2008] Annual Information Plan
4.
Industry Canada,
http://www.ic.gc.ca/app/ccc/srch/nvgt.do?lang=eng&prtl=1&sbPrtl=&estblmntNo=234567098966&profile=cmpltPrfl&profileId=501&app=sold
5.
Loyalty One [11 April 2009 ] Over 114 Million Active Canadian Loyalty Program Memberships in First-Ever Measurement of Canadian Loyalty
Participation, According to COLLOQUY Research, Loyalty One http://www.loyaltyone.com/whoWeAre/NewsReleasesItem.aspx?id=0c8362ed-851c-4d7ca688-84e9dafc86ca
6.
MX Money, http://cxa.marketwatch.com/TSX/en/Market/companyfinancials.aspx?type=AnnIncomeStmt&symb=VPY&sid=4400368
7.
Pilecki, Mary [19 July 2007] New Bank Rewards Programs Improve Customer Retention, Forrester
Merchant Acquirers
1.
Bank for International Settlements [2003] Payment Systems in Canada, Bank for International Settlements
2.
3.
Chase Paymentech, www.chasepaymentech.com
4.
Competition Bureau Canada, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_00148.html
5.
Credit Union National Association [6 January 2010] CUNA Issue Summary: Interchange Fees, Credit Union National Association
6.
Credit Union National Association [23 June 2010] Senate conferees accept House option on interchange, Credit Union National Association
7.
8.
Department of Justice Canada, http://laws.justice.gc.ca/en/P-8.6/
9.
Electronic Funds Transfer Working Group [2004] Consumers and Debit Card: Canadian Code of Practice for Consumer Debit Card Services, Canadian
Bankers Association
10.
Financial Transactions and Reports Analysis Centre of Canada, http://www.fintrac-canafe.gc.ca/intro-eng.asp
11.
Global Payments Canada, www.globalpaymentsinc.com/Canada/
12.
Kjos, Ann [October 2007] The Merchant-Acquiring Side of the Payment Card Industry: Structure, Operations, and Challenges, Federal Reserve Bank of
Philadelphia
13.
Ministry of Consumer Services Ontario, http://www.sse.gov.on.ca/mcs/en/pages/default.aspx
14.
Moneris, www.moneris.com
15.
Mutual Funds Dealers Association of Canada [23 January 2003] Member Regulation Notice: Electronic Signatures, Mutual Fund Dealers Association of
Canada
16.
17.
PCI Security Standards Council, www.pcisecuritystandards.org
18.
TD Bank Financial Group, www.tdbank.com
- 65 -
References
Payday Loan Providers
1.
Canadian Payday Loan Association, http://www.cpla-acps.ca/english/aboutcpla.php
2.
Cash Money, http://www.cashmoney.ca/about-us.aspx
3.
Financial Transactions and Reports Analysis Centre of Canada, http://www.fintrac.gc.ca/re-ed/msb-eng.asp
4.
Money Mart, http://www.moneymart.ca/about/
5.
Western Union, http://corporate.westernunion.com/history.html
Payment Networks
1.
American Express, http://home3.americanexpress.com/corp/os/history.asp
2.
3.
Competition Bureau Canada, http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/h_00148.html
4.
Credit Union National Association [6 January 2010] CUNA Issue Summary: Interchange Fees, Credit Union National Association
5.
Credit Union National Association [23 June 2010] Senate conferees accept House option on interchange, Credit Union National Association
6.
7.
Department of Justice Canada, http://laws.justice.gc.ca/en/P-8.6/
8.
Electronic Funds Transfer Working Group [2004] Consumers and Debit Card: Canadian Code of Practice for Consumer Debit Card Services
9.
Financial Transactions and Reports Analysis Centre of Canada, http://www.fintrac.gc.ca/re-ed/msb-eng.asp
10. Interac, http://www.interac.ca/about.php
11. MasterCard, http://www.mastercard.com/us/company/en/ourcompany/company_milestones.html
12. MasterCard Canada, http://www.mastercard.com/ca/company/en/corp_history.html
13. Ministry of Consumer Services Ontario, http://www.sse.gov.on.ca/mcs/en/pages/default.aspx
14. Mutual Funds Dealers Association of Canada, http://www.mfda.ca/regulation/notices/MR-0016.pdf
15. PCI Security Standards Council, www.pcisecuritystandards.org
16. Sullivan, Richard J. [21 May 2010] The Changing Nature of US Card Payment Fraud: Issues for Industry and Public Policy, Federal Reserve Bank of Kansas
City
17. Visa, http://corporate.visa.com/about-visa/our-business/history-of-visa.shtml
- 66 -

Payment Type Overview - Payments System Review

Transcription

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