Good afternoon, and thank you for the invitation to appear today.
As mentioned, my name is Don Lebeuf. I'm the head of customer delivery at MasterCard Canada.
By way of introduction, MasterCard is part of the financial services world, but we are essentially a technology company. Globally our technology connects over 24,000 financial institutions with over one billion cardholders and over 30 million merchants globally. It gives people in every corner of Canada and indeed the world the ability to conduct commerce in a fraction of a second.
For the purposes of this study and our presentation, I will start with a broad definition of e-commerce, that being any financial transaction that is not using cash or cheques. If you consider that definition, one could argue that e-commerce has been a reality for decades.
What has changed and what continues to evolve is how credit cards are used, with the latest innovations being chip and PIN technology, contactless applications like MasterCard PayPass, and the movement to link payments to smart phones. Regardless of the medium, however, the function remains the same: a short-term extension of credit to the consumer to make a purchase.
Coupled with these advances, there have been innovations outside the financial sector that have opened up new frontiers, with the Internet being the most obvious example. Our payment system allowed merchants large and small anywhere in the world to open their doors to a global customer base. It is not an exaggeration to suggest that online commerce would not have happened without credit cards. At MasterCard we like to say that we are at the heart of commerce, and nowhere is that truer than in the online marketplace. Revolutionary online distribution models such as iTunes and Netflix simply wouldn't exist without online payments.
From our perspective, Canada is among the leaders in e-commerce. For example, according to Stats Canada, in 2010 51% of Internet users ordered goods and services, and in Canada Canadians placed nearly 114 million orders online valued at approximately $15.3 billion. As Mike noted, 89% of these transactions were completed using a credit card.
I would like to stress that adopting these technologies remains a choice for merchants and consumers. Some merchants have expressed concern that new payment technologies might be forced upon them. I can reassure everyone in this room that the plastic in your wallet is not going to disappear. It will remain a payment vehicle for as long as merchants choose to accept credit cards and consumers want to use them. Some consumers may gravitate to payments through smart phones or other technologies, and some merchants may choose to accept that payment option, but the choice will always be theirs.
I want to add a caveat, though, to my comment that Canada is not a laggard in e-commerce. What I've been discussing thus far deals with the merchant-to-consumer relationship. According to research conducted by the Canadian Federation of Independent Business, such areas as business-to-business, government-to-government, and government-to-business still have a heavy reliance on cheques.
These are areas where MasterCard can play a role; for example, as part of the government's strategic and operating review to save 5% in overall government spending by 2014. If we can play a role as a facilitator of electronic options for these transactions to reduce the manual processing costs, and if businesses and governments want electronic options, we welcome that discussion.
Let me now turn to security, which is a critical underpinning of the world of e-commerce. Consumers need to have confidence in the security of the transactions, as do merchants. For online payments, MasterCard has developed several solutions to meet the unique needs of these transactions. The card security code confirms that the actual card issued is in fact being used for the purchase; AVS, address verification service, allows the merchant to ensure that the address they are shipping to is in fact the same as the one used by the card issuer; and SecureCode provides online authentication of the cardholder. Additionally, cardholders are protected by MasterCard's zero liability protection.
I know you are interested in the future of e-commerce and any potential barriers to further innovation and growth in this area, and there are at least two that I'd like to bring to your attention.
First is Canada's debit system. Regulatory structures and voluntary codes have been put in place that effectively give Interac a debit monopoly for transactions in Canada. Online debit in Canada is extremely limited, and there is no global interoperability for Interac debit. In other words, you cannot make an online debit purchase using Interac anywhere outside Canada and at only a handful of merchants in Canada.
It doesn't have to be this way. MasterCard's global debit system allows cardholders to use their debit card anywhere in the world, either at the point of sale or online. Online debit is a widely accepted form of payment throughout the world, and we believe it is a payment option that Canadians would embrace if available. This is one area where Canada is sorely lagging behind the rest of the world.
Second, while MasterCard supports the Code of Conduct for the Credit and Debit Card Industry in Canada, and agrees with the CFIB that it is working well, there are some elements that may be at odds with the evolution of electronic payments in Canada.
For example, there is a provision in the code that states that debit and credit card functions cannot reside on the same payment card. As payments become an option through smart phones and digital wallets, it begs the question how this position will be interpreted.
Will it be possible to have credit and debit functions on the same phone, given that, as David suggested, the phone is essentially duplicating your physical wallet? If we want Canada to play a leadership role in e-commerce, policy makers must ensure that regulatory structures are sufficiently flexible to adapt to and encourage these innovations.
To sum up, MasterCard's role in e-commerce is largely as a facilitator in the consumer-merchant relationship. Merchants, understanding the global utility and benefits of credit cards, created the online marketplace, and we provided the payment solutions to help everyone prosper from it.
Thank you. I look forward to your questions.