Finance Committee on Feb. 25th, 2014

[Patricia Meredith]

The first thing is to replace or upgrade the existing payments systems, ACSS and LVTS, to carry more information in order to move to automated processing, and the second thing is for governments to require—which is something that a number of the Scandinavian countries have done—all suppliers to invoice them electronically and receive payment electronically, and to make all their payments to benefit recipients electronically to the greatest extent possible, recognizing that some people just aren't in a position to accept them.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

If we did that, what would be, by estimates, the initial cost to people, because naturally, if you're not already making the decision to go that way on your own, there's got to be some negative reasons, some negative repercussion. So what would be the costs and why would there be resistance to making that change?

[Patricia Meredith]

It's difficult to estimate the costs because it's going to vary from organization to organization. Some organizations would have to upgrade their accounting systems to receive the information electronically. A lot of the large organizations have already paid for those upgrades, because those upgrades are being implemented in Europe now. So SAP and Oracle, etc., have built them into many of their latest upgrades. So it's a matter of deciding that's where you're going to go and requiring the CPA to upgrade its systems to transfer the information.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I saw some head-nodding among some of the other witnesses.

Does anyone else want to comment on that before I go to my next question or observation?

Mr. Roberts.

[Todd Roberts]

I think there's a difference between a large value payment system and ACSS, which is the mid-range payment system. So the Bank of Canada has initiated a process to look at LVTS modernization. I think it's a very good process. It will make highly specific recommendations about the capital investments that will be required. They are in the tens to hundreds of millions of dollars range, a not insignificant amount. Those costs ultimately end up being borne by system participants so I think the process that is under way needs to look at the specific benefits we need and bring a bit more specifics to what is expected.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

But you agree with the overall assessment that if we did make those changes it would boost our GDP?

[Todd Roberts]

Yes. I think the attributions of 1% to 2% need to be more fully tested.

[The Chair, Conservative, James Rajotte]

Mr. Trost, you have about 40 seconds, but Monsieur St-Amant did want to comment. It's up to you how you want to use your time.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Sure.

[Jacques St-Amant]

Clearly if we are to upgrade those systems, there will be a cost to CPA, to the large providers such as the banks. I would assume that they can actually afford most of that cost over time. On the other hand, there would be significant benefits to all other economic actors in the country. So when you look at the costs on the one side and the benefits, it seems clear to me that the advantage is to the economy. The problem we have is that those who will bear the costs in the short term are saying, “No we're not”.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

In my last five seconds, I will guarantee that none of you will be able to convince my dad to use anything but cash. He still refuses to use an ATM machine, so solve that problem for me.

[The Chair, Conservative, James Rajotte]

Thank you. At least he's moving on from bartered goods; that's a progression.

Thank you, Mr. Trost.

I'm going to take the last few minutes and follow up on a couple of issues.

First of all, I wanted to follow up on Mr. Thibeault's line of questioning. I think some of the members of CIPMA and other organizations are excited about the new technologies and the innovation, but they are concerned about new costs. We've heard a lot of assurances today and in our last meeting, particularly from the telecommunications companies, that there will be no new costs associated with this.

Mr. Robinson, can I get you to address that? It begs the question of how Rogers will make money, because you will be providing a service. So legitimately people will say, “If Rogers is providing this good service, there must be some fee associated with that or some benefit to the company in doing so.” Can you explain how there will be no new costs associated with a transaction that you're involved in?

[David A. Robinson]

There are fees that we charge to the issuers typically for the service that we provide them. Knowing the scale of those fees, I would position them as incidental fees. Similar to how Canada Post is paid to distribute a plastic card today, we are paid to distribute a virtual card on a forward-looking basis.

The other reason we do it of course is that our customers are expecting this, so either we provide a service that our consumer and small-business customers use or our competitors will, and they'll be happy to switch carriers over to them. So it's a competitive issue for us in some respects.

[The Chair, Conservative, James Rajotte]

But to clarify then, you're saying there are fees, but those will be the ongoing fees. So for example, I now do a lot of my banking through my iPad. I have a Rogers account and I'm using the same Rogers account. I downloaded the app from CIBC, and I'm using CIBC and doing my banking online. But my Rogers monthly fee did not go up because I'm using within the.... Is that how it will operate? Is that why there is no increased fee?

[David A. Robinson]

Let me try to clarify. The mobile Internet connection, you know everything that you do providing you're even using the Internet.... The beauty of the payment on the SIM is that you can turn the cellular network off and you can still actually pay at the point of sale because the payment card application is actually stored locally in the SIM and presented through the NFC radio.

What I'm referring to is, like the mailman who distributes plastic cards today that are paid for by the issuer, we do charge the issuer for the service of secure distribution, storage, and support of their payment cards on our infrastructure. But those are fairly incidental fees.

[The Chair, Conservative, James Rajotte]

Can you clarify what is meant by incidental?

[David A. Robinson]

When we look at the dollars we've invested to be able to manage the secure distribution and storage of credentials and we look at the infrastructure that an issuer has put in place to be able to manage their account, those are considerably larger dollar amounts than are involved in the business relationships we have for the actual card credential from the issuer to the carrier.

[The Chair, Conservative, James Rajotte]

But right now if I go use my Visa card, there's an interchange. There's a certain transaction....

[David A. Robinson]

That's correct.

[The Chair, Conservative, James Rajotte]

Part of the problem is that it's very complex, depending on what card you're using. Can you break down your incremental fee by a transaction?

[David A. Robinson]

Yes, I can.

[The Chair, Conservative, James Rajotte]

What's that?

[David A. Robinson]

Zero. It is simply that simple. If the payment product that is in the phone is simply a form factor change. I have a plastic card and....

[The Chair, Conservative, James Rajotte]

Okay, but, sorry, I'm hearing two different things. I'm hearing incremental fee and I'm hearing zero.

[David A. Robinson]

All right. You asked me about the part of the transaction. I have no visibility whatsoever to the transactional fees that are charged between the merchant acquirer and the merchant, none whatsoever.