Industry Committee on Nov. 2nd, 2011

[Doug Kreviazuk]

I would add from the CPA's perspective that we looked globally at what the developments have been in other countries. Some countries had a particular need that the mobile could address. I don't have to look any further than South Africa. They were underserved by banks, by bank branches. They needed to get access to payments out into the community, and mobile served that purpose.

We similarly don't have that same type of pressing need in this country. We are generally very well served by the financial markets or by financial services and from our payments industry.

[Michael Bradley]

I would add that I absolutely agree with the points made thus far. The only addition I'd make is that I wouldn't take the notion that we are behind, that the solutions that have been developed and deployed around the world are typically one-off solutions, not globally interoperable.

Even the current state of global interoperability still has some work to do before we can be absolutely certain that a phone with a contactless card on it now is going to be accepted with the same service level quality that Canadians would expect when it's used in Malaysia or even the United States.

We've been testing the stuff for a number of years. Visa and Rogers together with one of our key clients, RBC, did a pilot a couple of years back whereby we were able to test for consumer response to the technology, what it would mean to provision card credentials onto a phone, security and such. It takes some time to get from those tests and working through those issues to something that can be produced on a production scale.

I echo the comment that we're absolutely at a tipping point for making this stuff happen, which is exciting.

[The Chair, Conservative, David Sweet]

You have 90 seconds.

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

Great.

Well, Mr. Thibeault knows what the PS3 is, but I want to know if he remembers Pac-Man.

[Voices]

Oh, oh!

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

I'm getting a blank stare.

[A voice]

What about Donkey Kong?

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. Braid.

When Pac-Man was around, they were actually putting my card through like that.

Madame LeBlanc, for five minutes.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for being here. I would like to put a question to Mr. Robinson as well as to the other participants.

My question relates both to consumers and to small and medium-size businesses. We keep adding middlemen. There are institutions issuing credit cards, and there are middlemen processing payments for small businesses. That is another set of intermediaries which I was not aware of. And then, in the future, there will be the cellphone companies.

As far as I am concerned, this can only increase the costs not only of consumers but also of small businesses. As e-commerce or mobile commerce expands, there will be more and more transactions and I wonder if that will lead to a reduction of costs or, on the contrary, to an increase.

[David Robinson]

I've actually been waiting for that question, so thank you for asking it.

My belief is that from a mobile perspective, we are just carrying the card. We're creating a different vessel into which you will place a MasterCard, Visa, American Express, or Interac card, but we're open to any type of card. It doesn't have to be a payment card any more. But there are merchants out there who love their store cards. They want to see gift cards that they've sold. They want to be able to distribute gift cards. You can do that all virtually, and therefore you can accept them very easily.

So although we had to build this whole system around the rigour of globally accepted payment networks—Visa, MasterCard, American Express, etc.—once it's in place with all those security layers, you can put other things on it that I think consumers will want to carry, because it's going to be so easy. They will be able to have mobile wallets that reflect their personality and where they shop.

I shop at Home Depot. I should carry a Home Depot card. I don't, because I just refuse to make my wallet any bigger. But if I had 50 store cards, or a whole series of gift cards in my mobile phone, it doesn't get any bigger; it's just memory. That's great for the consumer, but when the merchants see those cards, they're going to want to accept them.

Initially there will probably be no change, but as the ability to carry, the willingness to carry, and the ability to accept expand, as merchants and consumers embrace this new technology, I think overall fees will lower. All these alternative payment types in the mobile phone will be accepted by the merchants.

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

All right.

I hesitated to ask you a question because I feared mispronouncing your name.

[Doug Kreviazuk]

“Doug” is good.

[Voices]

Oh, oh!

[Hélène LeBlanc, NDP, LaSalle—Émard, QC]

Thank you.

You said that they are some barriers to Canada becoming a digital economy. Some of them were mentioned during your presentations. Could you tell us a bit more about those barriers that prevent Canada from becoming a digital economy?

[Doug Kreviazuk]

It's not a simple one; it's a very complex challenge, particularly among the small to medium-sized businesses. Many of them are only now becoming really automated with their accounts receivable and their accounts payable processes. Until this time they've relied on cheques to give themselves all of the remittance data they need to do all of their accounting.

As you move forward, not only do the corporates and small businesses have to adopt the technology, they have to adopt the software applications. Those applications need to be universal or interoperable with the standards on the payment side. So when they receive the data, whether they're receiving it to an Intuit application, or an SAP platform, or whatever the platform, they have to be able to integrate to all of that.

So there are costs, not only from a financial institution and the industry to develop the standard, but the users and the corporates to be able to take that data, incorporate that within their systems, and invest into that digital economy. So it's not just one person's problem; it's really the industry's problem.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Kreviazuk.

Thank you very much, Mrs. LeBlanc.

For our researchers, what does the acronym SAP mean?

[Michael Bradley]

You've got me.

[Doug Kreviazuk]

It's a major provider of a software application used for financial services.

[The Chair, Conservative, David Sweet]

Now we will go on to Mr. Richardson, for five minutes.

[Lee Richardson, Conservative, Calgary Centre, AB]

Thank you.

I think one of the major concerns or preoccupations of government in this regard is security of consumers, safety in the marketplace, consumer protection generally. But as we've been hearing on this committee...and I should say, incidentally, that these presentations were superb. You guys know what you're talking about.

It's a more and more complicated field. It's moving so quickly that I sometimes wonder if governments can really keep up in that role without entering unintended consequences, problems, or concerns to a greater extent than any problems they might be solving in terms of protecting consumers.

I'm hopeful that we're going to see that competition is such in the marketplace that...and your concern, of the same kind of trust. We've heard some of the examples today of where people have made mistakes, and there have been hacks and other problems in security.

Is it sufficient, in your mind...? I'd just like to ask this question generally. I mean, you can't afford not to have the ultimate trust of consumers or you're going down. There's enough competition there that consumers are going to go someplace else if they feel they're being defrauded or ripped off or whatever.

Is that not the case?

[Don Lebeuf]

I would say that is the case, which is why—you'll hear this from the retailer side sometimes—the payments industry got together, in a rare event where all the competitors got together, and created the PCI, or payment card industry, standards. PCI standards are standards for retailers.

Now that the online marketplace is burgeoning, they were storing lots of card data on websites that could be hacked. We're all aware of data breaches. We're aware of Winners, PS3, and that type of thing. It's incumbent on us as an industry to make sure we put out standards to safeguard the consumers' data and their privacy.

That is where the PCI standards came from. It's a global initiative and it's rolled out—I'm sure it's through your network as well—where it's embedded in our rules, and merchants must comply with this so they can safeguard their end of the financial transaction and ensure they're not storing data they shouldn't be that puts consumers in harm's way.

Quite frankly, it's the banks that issue the cards that ultimately hold the risk, because they do protect the consumer with zero liability.

[Michael Bradley]

I would add that building a payments network is an extraordinarily complex thing. You start with the principles: security, convenience, reliability, and international interoperability—making sure that your payment product is going to work anywhere that Visa is accepted—and try to make all of those things work among the significantly changing buying and selling environments as we move to consumers' buying stuff on Facebook, buying stuff through a tablet computer, or buying things through a smart phone at the airport.

All of those things require a huge amount of thoughtful.... In our world, I will use the word “regulation”. I don't mean a regulation of the government sort but the management that's involved in building a network.

I think the challenges of adding another layer of regulation on top of that can be that it then puts government in a place where it has to be on top of everything that's changing in the environment in order to accommodate new ways of doing business or there could be a risk that Canada falls behind from a competitiveness standpoint. We've seen some examples of that.

Visa fundamentally believes that the voluntary code of conduct is a good step forward in terms of managing the payments marketplace and some of the very legitimate concerns that have been raised on increasing transparency and increasing disclosure. So we think it is a very positive step. The fact that it is a voluntary code leaves a lot more flexibility with regard to the industry's being able to interact to address stakeholders' concerns. Visa supports continuing to allow it to work and move forward.

[Doug Kreviazuk]

In addition, the task force that's looking at the payments system review right now is driven by a set of principles, and one of those is light regulation. The CPA has advocated not only light regulation but more principle-based regulation. Technology is moving so quickly that regulation has a difficult time keeping up, and setting it out more as principles allows the industry to innovate faster and bring product speed to market.

[Lee Richardson, Conservative, Calgary Centre, AB]

Thank you.

[The Chair, Conservative, David Sweet]

Thank you very much.

Mr. Blanchette, you have five minutes.