Mr. Chair, I'm very pleased to be here today representing the Canadian Bankers Association and our 60 members, which include domestic banks, foreign bank subsidiaries, and foreign bank branches operating in Canada. I welcome the opportunity to speak about emerging digital payments systems in Canada and to highlight the banking industry's work in this area and what we see as some of the key public policy considerations for decision-makers.
There is no question that the payments ecosystem is experiencing a surge of innovation in Canada and around the world. Innovation is especially evident in the area of retail payments, with the proliferation of web-based payment technologies and near-field communication, or NFC, applications.
In Canada banks are at the forefront of creating a modern and efficient payments experience for consumers and merchants. The principal innovation in retail payments since 2010 has been the wide rollout of NFC technology to facilitate contactless credit card and debit card transactions at the point of sale. The rollout has been among the most extensive in the world. Approximately 10% of all credit card transactions are now done through NFC.
With the recent data showing that more than half of Canadians own a smartphone, we see further opportunity for growth in mobile wallets and mobile payments, offering Canadians an additional choice that is efficient, secure, and convenient.
To facilitate the adoption of mobile payments in Canada for the benefit of consumers and businesses, Canadian banks and credit unions worked together to develop the Canadian NFC mobile payments reference model, which is a set of agreed-upon principles for mobile payments. Several mobile wallets have been launched by banks using this model.
Among other things, the model specifies the need for, first, data security, which is the essential foundation for any payments system and product, and second, consumer control over what type of payment they use and how they access it. The model is also built around the use of existing technologies, such as contactless payment terminals. This will provide merchants with a seamless opportunity to take advantage of these technologies using the systems that are already in place for debit and credit card acceptance.
The payments ecosystem involves the coordination of many parties to function effectively. It's our objective that providing early clarity on the design of systems that enable mobile payments will help build efficiencies into the future deployment of those systems in Canada.
Innovation in the payments system must be encouraged, but not without sufficient safeguards to ensure the safety of consumers and the stability of the current payments system. As this committee knows, rapid growth and innovation in digital payments has resulted in a much more fractured payments market, with new entrants and competitors offering novel payment solutions that are attractive to consumers. The emergence of this shadow payments system presents a variety of risks to Canadian consumers and to the security of the payments system, particularly in the context of consumer protection, consumer disclosure, data protection, and system stability.
This is especially evident in e-commerce and online payments, for which consumers can store their credit card and debit card credentials in digital wallets or load funds into online accounts for subsequent payments. Many of these solutions leverage existing payment clearing and settlement systems and credit card networks in the exchange of funds and payments data.
The banking industry has undertaken some analysis of these issues with a view to understanding their impacts and what is needed to address them, thereby encouraging debate and discussion.
As a result of this, we've come to a view that there is a strong case for implementing regulatory measures for shadow payments systems that would achieve three main objectives. One, it would ensure that consumers are properly informed about the payments services being offered. Two, payments service providers would be held to prudential and operational standards and thresholds to minimize the likelihood of a service provider causing harm to consumers and others in the payments system. Three, consumers would have access to some form of recourse should there be a failure to deliver the payments services as agreed.
The banking industry is proud to be an integral part of the evolution of Canada's strong payments system. Banks support an open, competitive, and innovative digital payments system that promotes consumer confidence and focuses on the safety and soundness of the broader payments system.
I look forward to your questions.