Evidence of meeting #19 for Finance in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was technology.
A recording is available from Parliament.
Conservative
The Chair Conservative James Rajotte
I call this meeting to order. This is meeting number 19 of the Standing Committee on Finance.
I want to welcome you all here today for the start of our study pursuant to Standing Order 108(2) of emerging digital payment systems. We are very pleased to have five organizations presenting here today.
We have, first of all, from EnStream a former colleague, Ms. Martha Hall Findlay, chief legal officer.
Welcome to the committee. It's nice to see you on that side.
Martha Hall Findlay Chief Legal Officer, EnStream
Wait until things get started before you say that.
Conservative
The Chair Conservative James Rajotte
Ms. Findlay was a very active member of this committee and I always appreciated her input.
We'll next have PayPal Canada speak, and we have Mr. Cameron Schmidt, general manager.
Welcome to the committee.
From MasterCard Canada we have the vice-president, emerging payments, Mr. William Giles.
Welcome as well.
From the Royal Bank of Canada we have vice-president, international cards and Canadian regulatory payments, Ms. Carolyn Burke.
Welcome to you.
And from Visa Canada Corporation we have the head of mobile innovation, Mr. Derek Colfer.
I'm sorry, we should have these in the proper order here but we are going according to the agenda. You each have five minutes maximum for an opening statement, and then we'll have a round of questions from each member, and then I believe there will be a presentation at the back of the room of any of your technologies.
We'll start with EnStream, please, for your opening statement.
Chief Legal Officer, EnStream
Thank you, Mr. Chair.
It is indeed a delight to be back. It's interesting to be on this side of the table.
Hello to former colleagues, it's great to be here.
Welcome, everyone.
My name is Martha Hall Findlay. I am the chief legal officer for EnStream, a joint venture established almost a decade ago by Bell, Rogers, and Telus. You have received a more complete brief, and my remarks today are therefore summary in nature. However, I do look forward to any questions you may have.
When it was first established, EnStream's purpose was to develop the technology that would permit Canadians to make purchases using their cellphones instead of credit cards and debit cards, or cash. After significant investment and years of work, we're very happy to say that the technology works. I now buy my soup and sandwich at my local Tim Hortons with my phone—no cash, no cards, no purse, just my phone.
It is important to stress that this technology is very different from limited value prepaid cards or stored value bar code apps, such as the one you can see at Starbucks. I think most of you might have seen that. The fundamental difference between what those applications are and what EnStream is involved in now is security. When I buy my coffee with my phone, it is as secure as when I use my chip and PIN credit card, whether inserted or waved. That same credit card's credentials are simply now securely loaded into my phone.
The convenience for consumers is terrific, and the opportunities for far more than payments is exciting. It is doubly exciting—and you can forgive me a bit of nationalistic pride, but given Canada's current successes at the Olympics, we obviously can't compare—in that in this regard, mobile payments, Canada is indeed a world leader. We're already a world leader in contactless payments. We're far ahead of most other countries on this, most notably the United States, where chip and PIN and contactless payments are almost non-existent.
In Canada, 19 of the top 25 merchants, by volume, accept contactless payments—where you can wave your card over the terminal. That is 75% of our major retailers, which have 250,000 contactless payment readers already. Compare that to the fact that fewer than 2% of U.S. retailers accept contactless payment. By far the majority of credit card transactions in the United States still use the magnetic strip reader, which is far less secure. In Canada, 10% of all transactions are now contactless, and some reports have that number growing by as much as 1% a month.
The good news for all those retailers who have invested in these new terminals that already use chip and PIN and contactless is that it is those same checkout terminals that will accept payments from your phone. The level of standardization in this area in Canada is in fact very, very high. As a note, the lack of standardization in terminals is one of a variety of reasons for why things are so far behind in the United States.
Also key for the merchants is that, whether a customer uses their credit card information to pay by inserting the card or waving the card or tapping their phone, the terminal sees exactly the same credit card information.
Now, we recognize that there are concerns about the level of merchant fees associated with certain cards. I'm sure some of my other colleagues will speak to that. We understand that. But in the case of a mobile payment, what we want to stress is that the merchant fees are the same for any card, regardless of which payment method is used. The system is form-agnostic. At the Tim Hortons where I pay, the fee would be the same for that retailer whether it was inserted, waved, or I was using my phone.
It is EnStream's mobile payment technology and services, and those of our key partners, which enable financial institutions to securely download encrypted financial credential information to their customers' smartphones, in real time, over the air, through the mobile networks. This enables those customers to in turn securely use their phones to make those purchases. EnStream's technology is rapidly becoming a standard in the market for Canada, as our customers now include most of the major Canadian mobile network operators, as well as several of Canada's major financial institutions. We continue to grow.
Our business model is based on the benefits of ubiquity. EnStream's technology and services are completely open to all mobile operators and all financial institution issuers, in effect acting as a utility. The market for the technology that permits mobile payments is somewhat unique, in that all participants—financial institutions, mobile network operators, consumers, and merchants—benefit from the ubiquity and the standardization of the implementing technology, from both the deployment and cost-effectiveness perspective.
These are key reasons that Canada is so far ahead.
Chief Legal Officer, EnStream
I'll look forward to any questions that anybody has for me.
Conservative
The Chair Conservative James Rajotte
There will be a lot of rounds of questions and opportunities to follow.
Thank you very much, Ms. Findlay.
We'll now go to PayPal Canada, please, for their presentation.
Cameron Schmidt General Manager, PayPal Canada
Bonjour. Thank you very much for the invitation to come here and speak today. I look forward to sharing with you how PayPal helps Canadian businesses to thrive and Canadian consumers to securely pay anytime and anywhere across the emerging digital commerce landscape.
PayPal is an eBay Inc. company, along with StubHub and Kijiji. Through eBay's marketplace, we connect millions of buyers and sellers across the globe and in fact enabled over $200 billion of commerce last year. PayPal was founded in 1998 to allow users to transfer money or pay securely online. Today, we have 143 million PayPal accounts globally and 5.5 million here in Canada.
I want to describe briefly what PayPal is and how it works. You sign up for a free PayPal account, either online or through the mobile app, and then you link your bank account, credit card, and/or debit card to that account. This enables you to make highly secure transactions online because no one sees your account details. In your physical wallet, you probably have some cash—if your kids haven't swiped it—a credit card, and maybe a debit card, so you can think of PayPal as a bit of a digital wallet, whereby you can access your money from your PayPal account on your laptop or smartphones and then shop online across Canada and at millions of stores globally.
The thing I particularly like about PayPal is that you can also use PayPal to raise funds for your favourite causes or to donate online to various charities. You can do this through CanadaHelps or directly to charities such as the SickKids Foundation or the Canadian Red Cross. You can also use PayPal to securely send money to your friends and family.
Access to your account is quite easy. All you need is an Internet-connected device. Whether it's your laptop or your cellphone, or even gaming consoles and television sets, all are access points to your account.
I think you probably all know that online commerce is booming across Canada. Fifty-six per cent of Canadian Internet users said they bought goods or services online last year. However, what I find kind of interesting is that only 20% of Canadian businesses are actually selling online today.
The opportunity to drive business growth, consumer delight, and the Canadian economy is quite compelling and substantial. As we all know, people are increasingly connected through these devices, and they have increasing expectations in regard to being able to pay any time, anywhere, and in any way they want, so a brick-and-mortar retail presence alone just isn't enough anymore. Thankfully, retailers such as our partners, the Hudson's Bay Company, Roots, Best Buy, and Future Shop, among many others, are recognizing the need to have a multi-channel footprint to cater to the connected consumer.
Also, as we know, small businesses in Canada are a critical engine of the economy. Every five minutes, a small business signs up to accept PayPal payments and opens their virtual doors to new consumers in Canada and around the world. There are no set-up costs or hidden fees for a small business to start accepting payments, and our fees are completely transparent and published on our website.
I have a brief comment about mobile. The next commerce revolution is being driven completely by mobile. Sixty-two per cent of Canadians have a smartphone. You may not know that this is the third-highest penetration level of any country in the world. The reality of this fact is that it's changing how we shop and pay. Businesses are interacting with these consumers in completely new ways, and the expectations, as I've said, are changing. Just to give a sense for how big this trend is, in 2013 PayPal processed $27 billion in mobile payments, up from $600 million only three years ago. There are many examples—we'll show some in the demo here—of how we are helping Canadian businesses, small and large, securely engage with today's connected consumer in useful ways.
Let me talk a bit about security. It's the foundation of our entire business. We recognize that our success and the success of commerce generally depends on our ability to provide trust and confidence to businesses and consumers. Without that trust, digital commerce will fail to reach its full potential. As I've said, security is a fundamental building block of PayPal's business. We allow people to send money or pay for goods and services without ever having to expose their financial or personal information. It also allows businesses to receive payments without the costs and potential liability associated with processing and securing financial information.
I look forward to answering any of your questions.
Conservative
The Chair Conservative James Rajotte
Thank you very much, Mr. Schmidt, for your presentation.
We'll now hear from MasterCard Canada, please.
William Giles Vice-President, Emerging Payments, MasterCard Canada
Thank you for the opportunity to take part in your study.
The subject matter at hand is very complex, and MasterCard recognizes that with the rapidly evolving nature of payments all stakeholders, including government, will have questions. We'd like to tackle those head on.
I'm going to focus the discussion today on a few areas that you've addressed in your study, but first let me start by giving you a little bit about MasterCard's role in the payment system. MasterCard is a technology company. Our technology and expertise powers 1.9 billion cards accepted at over 35 million locations around the world in 210 different countries. MasterCard runs a network that allows card transactions to take place. Individual banks get our cards into the hands of consumers. Those individual banks are the ones that manage the relationship with the customers. Our acquirers connect merchants to the network and enable them to take card payments.
Our goal is to offer all payment stakeholders—be they consumers, merchants, or banks—the widest array of technologically advanced products to meet their needs, which is a good place to begin the discussion about mobile payments, starting with an overview of where we stand with credit card payments in Canada today.
First and foremost I can assure you that the plastic cards in your wallet right now are not going away in our lifetime. That will remain a payment option for consumers and merchants for the foreseeable future. However, consumers want options and access to new payment technologies. The first evolution of this is the contactless payments, the tap-and-go features like MasterCard PayPass. These have offered tremendous benefits to consumers and merchants, particularly those in high-volume, low transaction value environments, by offering a fast checkout experience. Just think of the line at Tim Hortons and how fast it is when the person in front of you taps.
The next evolution will be the use of the same contactless technology, but incorporated into a mobile device. The MasterCard Mobile Payment Readiness Index ranks Canada second in the world in gauging the readiness of markets for mobile payments. For such payments, consumers will create a mobile wallet on their smartphone by downloading an app from a traditional app store, load their preferred cards into that device, and make purchases at the point of sale by tapping that same device I mentioned earlier.
For merchants there's no change from the regular contactless card purchase other than the form factor being the phone. Because they use the same basic technology, any merchant that accepts contactless cards will be able to accept mobile payments. Let me stress that the cost is the same. As for the state of mobile payments in Canada, there has been limited rollout to date, but you should begin to see the technology in market more frequently this year.
Let me now turn to the role of government. MasterCard believes the government has taken the right approach by creating an environment that allows companies such as MasterCard to offer innovative payment options in a competitive market. The protection that already exists for merchants and consumers, such as the code of conduct or the MasterCard zero-liability policy for unauthorized transactions, still applies to mobile payments, and that doesn't change when the form factor changes.
Vice-President, Emerging Payments, MasterCard Canada
We want to continue having a competitive environment for innovation. We recommend against any further government role. Competition and choice breed innovation. Where government has sought to limit competition, as with Canada's debit system, the result is an isolated domestic system that lacks economies of scale, international interoperability, and innovation.
Let me now address the third aspect of your study, and that's the benefit for consumers and merchants from these new options. This is almost an impossible task since the benefits are unlimited and continue to evolve as entrepreneurs and programmers the world over introduce new functionality for mobile phones. What we do know for sure, though, is that all of this new technology is improving the customer experience and convenience. It also benefits merchants through reduced staffing costs, shorter checkout lines, and fewer lost sales.
Thank you.
Conservative
The Chair Conservative James Rajotte
Thank you very much, Mr. Giles.
We'll go to Ms. Burke from RBC, please.
Carolyn Burke Vice-President, International Cards and Canadian Regulatory Payments, Royal Bank of Canada
Good afternoon. My name is Carolyn Burke and I am a vice-president of the Royal Bank of Canada.
I am very pleased to have this opportunity to speak to you about electronic commerce.
My colleague Jeremy Bornstein will be giving a demonstration following these discourses.
RBC is committed to providing both consumers and merchants with easy and secure payment options. We have a proud history of innovation in payments and strongly support Canada's leadership position as an electronic economy.
We are pleased to speak with you about our emerging commerce strategy and activities, and I'm going to address how our solution meets consumers' and merchants' needs for choice, security, and low-cost payments.
Having a credit or debit card on the phone, so consumers can pay differently, is not terribly interesting or very different from how your plastic card works today. What we are doing is working with a cross-section of merchants and consumers to understand their needs and deliver an easy, safe, and rewarding mobile commerce experience. We are working with merchants to help get consumers into their stores more often, giving consumers choice in how they pay—Interac debit, credit, or store gift card—and then providing live receipts in online and mobile banking. Our objectives with this program are to make commerce easier, safer, and more rewarding for consumers and merchants. RBC has always stood for providing clients with choice—choice in how they bank and choice in how they pay. We deliberately waited to bring mobile commerce to market until we were able to offer both Interac debit and credit for payment options.
That said, security is our clients' primary concern and our top priority. We developed a patent-pending mobile payment process and technology called RBC Secure Cloud to protect client payment data behind our firewall instead of putting it on the telephone. This is the first mobile payment service of its kind in Canada. We embedded commerce in our established mobile banking application to make the user experience simple. Payment is never more than two clicks away.
We rely today on the phone's NFC antenna as the last inch between the consumer and the merchant. We believe NFC, near field communications, provides the greatest opportunity today for ubiquitous, universal acceptance, with 19 of the top 25 merchants accepting contactless payments. But we are ready to work with merchants on however they want to get paid, be it NFC, QR code, or even flashes of light.
Finally, our commitment to merchants is that mobile commerce will not increase transactional costs. We will deliver the payment at the lowest cost based on how the client chooses to pay, whether it be Interac debit, credit, or store gift card.
Rather than create a solution in-house and hope that it addresses the needs of consumers and merchants, we engaged more than 60 consumers and merchants in a collaborative road test of our solutions and concepts. Over six months, we discussed how we are thinking about our emerging commerce, shared prototypes of our solutions, and worked together based on their feedback.
To meet those needs, we developed RBC Secure Cloud to make mobile commerce an easy, secure, and cost-effective solution. We started with the industry solutions, but then as RBC has consistently done to maintain our market-leading fraud and client experience, we created a proprietary solution to provide a higher level of security, choice, and client experience. Instead of putting sensitive client data on the telephone, we leave it securely behind our firewall. Importantly, this also allows our clients more choice. They can put all of their average of 2.1 RBC payment cards—Interac debit, primary credit card, and often a store-based co-brand credit card—on the phone. RBC Secure Cloud works by calling down encrypted data from our data centre, decrypting it, and then transmitting it to the payment terminal by NFC. The architecture is extensible to other purposes beyond payments, such as loyalty, identification, or access; however, our focus today is on enabling payment.
Thank you for having us here today. We hope we explained how our solution addresses consumers' and merchants' need for choice, security, and low-cost payments.
Conservative
The Chair Conservative James Rajotte
Thank you very much, Ms. Burke.
We will now hear from Visa Canada Corporation.
Mr. Colfer, please.
Derek Colfer Head, Mobile Innovation, Visa Canada Corporation
Thank you for the opportunity to speak today. My name is Derek Colfer, and I lead Visa Canada's mobile solution development. Although I am based in Toronto, I grew up in Ottawa. It feels good to be home. Thanks for having me.
As this committee knows well, there is a great deal of interest and excitement right now around the future of mobile payments. Visa's brand is really quite well known, but the organization's core functions are less understood.
Visa is not a bank. We do not issue cards. We do not issue debit cards or credit cards. We do not make loans. We do not set interest rates or the fees associated with card usage or acceptance. What we do is facilitate commerce between millions of people, businesses, governments, and their financial institutions around the world. We do this by operating a global electronic network, called VisaNet, that connects 1.6 billion payment cards, 29 million merchants, and more than 16,000 banks in 170 countries worldwide. VisaNet is capable today of processing 47,000 transactions per second. On an average day, VisaNet sustains 300,000 cyberattacks, not one of which has ever been successful. In fact, in the five minutes' time I am making these remarks, VisaNet has the potential to process over 14 million transactions in 175 local currencies, and block over 1,000 cyberattacks.
All of these capabilities are designed to advance our goal: facilitating the flow and encouraging the growth of electronic payments. Today's topic is a key element of this broader mission as mobile payments technology becomes more and more popular. A range of different mobile payment solutions in the market are now available to consumers in Canada to make their experience more rewarding and more cost effective.
I've circulated a chart to the members, entitled “Various Mobile Payment Solutions”, that I will be referring to.
First we have mobile acceptance. This mobile payment type turns a mobile device essentially into a payment terminal. A consumer plugs an accessory into the mobile device and it allows a consumer to accept payments. The mobile device becomes a card reader. Examples of this include the Square product that is currently in the market today in Canada.
Next is app purchases. This mobile payment type is something that millions of Canadians utilize on a daily basis. Purchasing and upgrading apps is an everyday occurrence for Canadians today.
Third is mobile e-commerce. This category of mobile payment is essentially an e-commerce experience, but instead of using a desktop or a laptop, you're using your mobile device to access the Internet.
Next is non-NFC at the point of sale. These types of mobile payments allow a consumer to utilize their mobile device at the physical store to make a payment. One of the most successful examples of this in the market today is the Starbucks app, which uses QR codes.
Finally we have mobile NFC at the point of sale. These types of payments are beginning to really take off in Canada. They utilize our payWave technology and require a consumer to wave or tap their mobile device onto a payment terminal to make a payment.
I would like to expand on NFC. Visa payWave provides the foundation for NFC payments. The Visa payWave application safely transmits encrypted data through an antenna on a card or the mobile device. For Visa, payWave is payWave, regardless of whether it's on a plastic card or a mobile device. The story of the growth and consumer adoption of payWave technology in Canada is truly remarkable. The majority of Visa cards issued today are payWave-enabled, and 80% of smartphones by 2016 will be NFC-enabled as well. For merchants, the benefits of payWave can be profound. Shorter lines, improved customer experience, and greater consumer experience are particularly valuable in today's fast-paced consumer environments. For consumers, using a mobile device is faster and easier than inserting your card or entering your PIN.
Visa sometimes hears security concerns about mobile NFC payments. I would like to address these concerns today.
Visa payWave credentials are dynamic. Every time you use your card, that payment credential actually changes. They can only be used once, and they can only be used once for a merchant limit, which is usually set at between $50 and $100.
The mobile device itself never leaves a consumer's hand during the entire payWave transaction. The risk of a card being used for fraudulent transactions is greatly reduced.
The vast majority of payment applications provide the consumer with the ability to actually password-protect that payment app. The mobile device itself provides the ability to have a second layer of password protection.
Finally, all of our transactions are covered by Visa's zero liability policy. If a fraudulent transaction is made through a consumer's Visa card, the consumer will not pay for that fraudulent transaction.
It is because of these safeguards that so many consumers and merchants are excited about this technology. The facts are clear: today mobile technology defines the lifestyle of millions of Canadians. Whether it is Visa, a large chain, or a small merchant, we need to make the shift to mobile payments in line with consumers, because when consumers win, we will all benefit.
Thank you for your time, and I look forward to taking any questions you might have.
Conservative
The Chair Conservative James Rajotte
Thank you very much for your presentation.
We'll begin members' questions. We have five-minute rounds for everyone.
We'll start with Mr. Thibeault, who has a few opinions on the subject.
NDP
Glenn Thibeault NDP Sudbury, ON
One or two. Thank you, Mr. Chair.
Thank you, everyone, for being here today. This is I think a very topical discussion and study that we are having right now. I know at the industry committee we've also looked at mobile payments. It's something that truly merges between the two committees.
Canadians are very active in terms of engaging in the mobile market, in the e-commerce market—I think if you went through everyone in this room, we would all have some type of smartphone that has NFC on it—and how we're going to engage that because we want to be able to be part of that next wave of technology.
One of the concerns though, and I know we've been talking about it quite often, is the interchange rate that affects small businesses. When this comes to a lot of the conversations that we've just been having, a lot of the information we've been hearing, the concern for small-business owners, and of course medium-sized enterprises, is about whether there is going to be another layer of cost tapped on top of the current interchange rate.
Mr. Colfer, maybe you can clarify for me, because I believe I heard you say at the beginning that Visa doesn't have any fees associated with it, but there's the interchange rate right there that Visa is part of. Did I just hear you inaccurately, sir?
Head, Mobile Innovation, Visa Canada Corporation
No, you didn't at all. I think your question is around the cost for NFC payments. As Visa we are steadfast in the notion that payWave is payWave, so whether you wave a plastic card at a merchant terminal, or a mobile device at a merchant terminal, that merchant is absorbing the same cost. There are no incremental costs for—
NDP
Glenn Thibeault NDP Sudbury, ON
Sorry, sir, what I was asking about was the interchange rates. Right now if you have a credit card, when you go up and you swipe that card there's a fee that's paid, of course negotiated with your acquirers, and your banks, and all of that other stuff.
I posed a question in November 2011 to Mr. Bradley, and at the time he said it was too early to comment on a fee structure. So I asked the same question. It was too early to comment on a fee structure related to an extra cost going on top of the interchange for a mobile payment. He said they embrace a transparent, open environment, and will make no secret of their interchange fees. They'll make sure that merchants and consumers are making wise choices. In that timeframe that Visa has now settled on are you saying that there will be no extra cost on top of an interchange rate when someone uses their phone?
Head, Mobile Innovation, Visa Canada Corporation
When Mike was responding to that...was two it years ago now?