Industry Committee on Nov. 2nd, 2011

[Doug Kreviazuk]

We've been doing work in the recent past that will continue through 2012 to try to promote the introduction of global standards for payments. That will allow the financial institutions and the scheme operators to develop or expand existing platforms, which should drive further efficiencies. So adoption of global standardization will reduce cost.

With straight-through processing, manual intervention is removed within the handling of the payment, whether it's at the merchant's back end when they do the reconciliation.... All of that should lend itself to further efficiencies in the system.

[Phil McColeman, Conservative, Brant, ON]

Right.

All of you might want to comment on this. As we move to these new technologies and the digital era, it would seem that one of the many benefits beyond convenience is just that: we are able to offer more efficiencies to both businesses and consumers.

Is that how you see the business model unfolding, or is it just to maintain the status quo in terms of the way in which the processes you have today maintain that same cost structure?

[Michael Bradley]

I'd be happy to take that one, or at least take a first crack at it.

We're always looking for efficiencies in the system. That includes things like fraud reduction and better credit scoring. We build technologies right into VisaNet that help to reduce those costs. Certainly, as we've moved to chip, there's been some favourable early results in terms of fraud reduction, which we think is good news for the system as a whole.

There's an important element to remember, I think, as we move to the new technologies, which is that they often co-exist with previous technologies. As David and I think Don said earlier, the card that you're carrying today, in the same way that it still has the raised numbers on it for when you run into one of those click-click machines, will probably be in your pocket for a long time to come.

So the enablement on a cellphone is probably going to run in parallel, for the foreseeable future, with the plastics you have today. So I would just temper expectations on that front in terms of significant cost reductions.

[Phil McColeman, Conservative, Brant, ON]

Anyone else?

[David Robinson]

I think it will raise efficiency, because it will be easier to distribute virtual cards through the phone. I think that will ultimately benefit the merchants. Merchants prefer some card types over others—they love their store cards and they love gift cards, because people come back to their stores—and we'll be able to lower the barriers of being able to present those cards to the merchants.

Now, it is critical that the acquirers also cooperate to allow those now “credentials”, or cards, to be accepted in those store locations. That's going to be an important part of it.

[Phil McColeman, Conservative, Brant, ON]

On another line of questioning here, I'm interested to know, Mr. Bradley, on those 300,000 attacks per day, what technologies you employ to sustain those attacks.

[Michael Bradley]

First off, true confession: I'm not a technology expert. I can tell you, though, that they come from far and wide and that we invest tens of millions of dollars every year in VisaNet protection.

That protection ensures that the data, as it's travelling through the network, is not able to be hacked and that the fraudsters who are attacking with a really wide variety of attacks are thwarted before they get too far.

I would be very happy to connect you with someone who's more qualified to provide you with more technical detail on that.

[Phil McColeman, Conservative, Brant, ON]

Okay. I was just curious.

Do you support the personal information protection of electronic documents legislation, our PIPEDA legislation, which would require companies to report material breaches to both the Privacy Commissioner and their customers?

[Michael Bradley]

We do. We absolutely do. In fact, we believe we take it a step further, by ensuring—based on our standards that we stand behind—that we're continuing to protect cardholder data in merchant environments.

For example, it is critical that a merchant not store complete “track two” data, as we call it, which is effectively the image of the magnetic stripe that is the gold mine for many fraudsters in a pre-chip environment, and still is for a lot of international fraud.

So the standards that we take not only adhere to PIPEDA but in fact take it a step higher.

[Phil McColeman, Conservative, Brant, ON]

Okay. Thank you.

[The Chair, Conservative, David Sweet]

Mr. McColeman, that's all the time we have. I apologize; I know we always fight against that enemy: time.

Mr. Masse, for five minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair.

Thank you for being here.

I'll start with attacks, and I'd like to hear from the panel on the technologies. I actually fell victim to the PS3 attack, and I had to get my Visa redone.

One of the important things that we haven't talked about is how sometimes you can get your online ticket and go to the airport, but if it fails, then you have a problem. I always have a backup; I have my printed ones with me as well.

Maybe you could share with me what's being done in the field right now to prevent these kinds of backup failures. Even last week, I went to the airport and tried to use my Visa card, and the machine was down from the attendant. I was lucky I had American money on me from being over in the States recently. I had no Canadian money, but I was able to settle the debt right there.

We've also had network failures, and this can have significant consequences in the economy.

So I'd like to hear a little bit about that, and then I'm going to turn the rest of my time over to Mr. Thibeault.

[Don Lebeuf]

I really can't speak to the telecom networks, but most merchants today....

To Mike's earlier point, the days of imprinters have long gone. Most merchants have electronic terminals. If they have an issue with their terminal and it breaks, as they do from time to time, then yes, they have to contact their acquirer, financial institution, or whoever is providing the terminal for them and get it resolved. Certainly it's usually fixed quite quickly, because the retailer wants to get back up and running as quickly as possible. There's typically no backup to an imprinter, or creating paper sales drafts any more. Those days are kind of gone.

As you may recall, when we had the power blackout several years ago, a lot of merchants were effectively off the air as far as card acceptance, because the terminals need electricity.

Was there a question about phones?

[Brian Masse, NDP, Windsor West, ON]

It just seems we're anticipating a perfect world of technology and power source and everything else to be able to operate. As we move more and more to e-commerce and e-payments, we have greater vulnerabilities to the actual practicality of paying for merchandise at a time when perhaps the device might not work. It might lock. The network could be down. You used a good example with the power blackout.

I'm curious to know if anybody is thinking about any of this stuff. We're building this stuff for a perfect operating system, but that often isn't the case.

[Michael Bradley]

We're not. These are incredibly complex transactions that are taking place. Your card swipe at the Ottawa airport has to touch the acquirer, potentially a gateway provider, a processor, before it gets to VisaNet.

I'm very happy to say that at our level we have what we call “five nines” of reliability--that's 99.999%--with maybe one outage in the last 14 years.

That's not to say there aren't places along the chain where there can be challenges. It really is important that the consumer transactions are able to continue. When I commented earlier that having the cellphone doesn't mean you're not going to have your card, it's for that reason. When I commented earlier that you still have the raised numbers on your card, it's for that reason. You'll still run into a taxicab driver, for instance, who still relies on the basic form of Visa acceptance. We designed the system that way, and we think it's important to maintain.

[Glenn Thibeault, NDP, Sudbury, ON]

How much time do I have, Mr. Chair?

[The Chair, Conservative, David Sweet]

You have a minute and a half.

[Glenn Thibeault, NDP, Sudbury, ON]

For our colleagues across the way, PS3 is PlayStation3 by Sony.

[Voices]

Oh, oh!

[Glenn Thibeault, NDP, Sudbury, ON]

You were all scratching your heads when he said that about PS3.

I have just a minute and a half, so I'm going to jump in quickly.

Mr. Lebeuf, thank you for that earlier answer. In relation to your talking with Mr. Regan about co-badging, I talked about the “stop sticking it to us” campaign. Even bigger than that campaign was a huge campaign in relation to the retailers and merchants concerned about co-badging of cards, priority networks.

If we are to see the co-badging of cards being used on mobile payments, will those rates be the same as currently used by Interac? Or will they be significantly higher if they go on to the priority routing, if it is MasterCard, Visa, or whatever? There are serious concerns from the other side that the debit market is the one place where you can make a transaction and they know what their so-called fixed cost is. If this comes into place, will those costs be significantly higher for the SMEs?

[Don Lebeuf]

I would say no. I meet with the CFIB and the RCC, so I'm aware of the spin they put on that.

I will lay out some facts. When we rolled out our debit program in Canada, called Maestro, the cost was one-third less than that of Interac--not more, less. And we took an approach where we didn't feel negative option acceptance was acceptable for us. So each merchant was presented with a business opportunity, a business case, and they had to agree and sign a contract where they were required to agree to accept that product. Tens of thousands of merchants did.

With the code of conduct, we had to unbundle that entire debit program, which in effect cost merchants millions of dollars in savings that they've lost because our program was cheaper than Interac. If we made it more expensive than Interac, nobody would accept it. So it was cheaper than Interac, and that was the play given that it was debit.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Lebeuf. That was a sophisticated question that required that much of an answer, and we went a bit over.

Now on to Mr. Braid for five minutes, please.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Thank you, Mr. Chair.

Thank you to all the witnesses for being here this afternoon.

I'm curious to know your perspective on why we don't have mobile wallets in Canada today, or why we didn't have them sooner.

Everyone who would like to can contribute.

[David Robinson]

May I try first?

You've seen them in Korea. You've heard about them in Japan. You heard all about the Japanese folks using mobile phones for getting into the transit system. Honestly, that's where a lot of the stuff started. The problem was the transit system used contact cards and they wore out. Someone said they should find something that didn't wear out and they invented contactless.

The Japanese market is very vertically integrated, as you know, so that Sony technology was, not surprisingly, integrated into Sony phones. As a result, it showed us a very interesting future model of what could be, but it was a proprietary made in Japan, a solution only useful in Japan.

Now we're getting to a standard global methodology for doing more or less the same thing, and it takes time to get those standards developed, which is what we did in the GSMA, and now it's coming out in all the mobile phones.

Even though it seems as if we're behind because you've seen it in Japan, there was no problem in this country that needed solving with contactless, as it did in Japan. Now that we have globally accepted contactless platforms and phones coming with the required technology, now is the time for it to come to fruition. We have all the pieces in place to truly lead the world in a global standard world.

[Don Lebeuf]

I would agree with that, and it depends on how you define mobile. For quite some time you've been able to use your BlackBerry or mobile device to do online purchases. It's no different from a personal computer at home. I've often bought stuff online from airports. That component has been in place for quite some time.

The NFC, near field communication, which is what David is alluding to as the next phase that's going to be rolling into Canada, needs a bedrock of acceptance of contactless. That's where MasterCard was the pioneer in rolling out contactless in Canada with PayPass. We now have an acceptance base where you're hitting all the merchants who are fit-for-purpose, where they're queue-sensitive, high-volume, and they have long lineups; that's really the fit-for-purpose area for contactless.

With an acceptance footprint that's really solid in Canada--and I'm not sure if you're aware, but Canada is, quite frankly, the leader in contactless globally--now the time is ripe to take NFC and then use that acceptance footprint to move mobile payments into the future.