Thank you.
I have to operate two of these.
First of all, I just want to show you the mandate for the task force, which directed us to “ensure that the framework supporting the payments system remains effective in light of new participants and innovations”. Mobile payments were a very important component of our mandate.
As Clayton Christensen described in The Innovator’s Dilemma, from time to time industries are disrupted by new technologies.
This is exactly the situation that we face in payments. The top line in this graph is the old technology. It has served us well for the last 40 years. But it has been continuously improved through innovations such as Interac debit and more recently cheque imaging. But with the convergence of computing power onto mobile smartphones and tablets connected to the Internet, it is now possible for parties to transact directly with each other bypassing the traditional networks and the legacy mainframe systems.
For example, you can download the Starbucks app onto your phone, pre-order your drink, and leave the store without standing in line to pay. Or you can download a game onto your phone and upgrade it while you are actually playing the game. These are mobile-enabled payments most of which are supplied by technology companies and retailers. While wireless carriers and traditional FIs have a role to play, payments are being embedded into the retailing experience.
Canadians have been early adopters of smartphones and tablets. We are among the world's heaviest users of online banking and shopping. According to the World Bank 83% of Canadians use the Internet regularly. According to the CBA, 67% of Canadians prefer online banking, up from 8% in 2000. Canadians have embraced smart devices with data plans. These have grown exponentially from 33% in 2010, to 48% in 2011, to 57% in 2012 as phone contracts come up for renewal. Mobile banking, which was introduced while the task force was in play, increased to 5% in 2011 and 22% in 2012. Rapid adoption of mobile computing technology is already disrupting the payments industry. At the current rate, it will be fully penetrated by 2020.
What does that mean? Essentially disruptive technologies usually disrupt the business model. So the traditional four-party business model that has been in effect in payments for many decades is likely to be disrupted.
Roles are changing. The companies that are disrupting so many other industries are also disrupting payments. Those companies are Apple, Amazon, Google, Facebook, and PayPal, along with a myriad of much smaller players. These companies come into the payments arena with entirely different business models from the existing ones.
To illustrate, this is a slide from PayPal. What it reflects is the fact that people shop very differently. Certainly my 17-year-old son shops very differently than I do. He pulls out his phone, he searches for the item that he wants, he does comparison pricing, he checks with his friends, he reads the reviews, he sees whether or not the item is in stock, and often he purchases it without ever stepping into the store.
For a retailer to be successful in today's environment they must be integrated into this end-to-end shopping experience, provide advertisements and inducements, just-in-time coupons, and track loyalty. Payments are an important part of this end-to-end process for two reasons: first, to ensure the transaction does not get dropped at the checkout counter; and second, and more importantly, to get all of the necessary data to support the marketing and loyalty engines.
As the slide on PayPal illustrates, the new model is forcing players like Amazon, PayPal, Apple, Google, and hundreds of other new technology companies into the payments business, not necessarily to make money on payments but to fuel their advertising, marketing, and information-based business models.