Industry Committee on Oct. 17th, 2011

[Samer Forzley]

You can't easily become a bank in Canada. For you to become a bank there's a significant process and it's very restrictive. In the U.S., you can put down a $100,000 deposit and in short order you become a bank. It's that simple, and as soon as you want, whether you're a bank or a processor, you can start moving money, and by virtue of that you can start competing, whether it's on the credit card side, the debit card side, or an alternative side. It's easier to access that banking network and become part of that network. It's not that easy here.

[Lee Richardson, Conservative, Calgary Centre, AB]

All right. Thanks.

[The Chair, Conservative, David Sweet]

Thank you, Mr. Richardson.

Madam LeBlanc.

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

My question is for Mr. St-Amant, to follow up on the conversation started by my colleague Mr. Thibeault. He was talking about electronic wallets.

Do you think it would be appropriate to create here in Canada a type of authority, governmental or otherwise, that would focus exclusively on electronic payments?

[Jacques St-Amant]

In the discussion paper published in July, the Task Force for the Payments System Review suggested a structure that included a joint organization and a monitoring and regulatory agency. Various stakeholders provided comments and requested greater clarification about the proposal. But, as far as I know, no one has so far said that it was a bad idea.

I think we're going to have to give some thought one way or another to a system of regulating and monitoring these payments. In Australia, for example, it is very clearly the Reserve Bank of Australia that monitors payments. It's a little more complicated in the United States, but the Federal Reserve plays an extremely important role. Right now, we are looking at a review of the financial sector regulations in the United Kingdom, and they are going to ensure that these questions will be addressed by state regulators.

To go back to the previous question, I should say that the financial sector is special and that, in may cases, to increase competition, the regulation needs to be a little more and a little better. Because the financial sector uses or handles peoples' savings—your savings, the payments you want to make and the payments you want to receive. So, if we want new players on the market, we need to ensure, in the interest of macro-economics and in the interest of the various individual stakeholders, that we have in place rules that have been adapted. Prudential supervision, for example, applies to a bank that has $500 billion in assets, but may not apply to a small provider. But there need to be rules all the same. Right now in Canada there is absolutely nothing.

We need rules and we need someone to put them in place, to encourage more competition. But we need to ensure that everyone knows the rules, both for electronic payments and traditional payments. We are now seeing a situation where an increasing number of merchants are refusing to accept cash. But for the 5% or 10% of Canadians who do not have a credit card or a debit card, refusing money issued by the Bank of Canada poses a problem.

[The Chair, Conservative, David Sweet]

We lost our translation.

Go on, Mr. St-Amant.

[Jacques St-Amant]

I'm sorry. I'm sure I was speaking too quickly.

Not only do we need to consider electronic payments, but we also need to rethink the issue of payments altogether. Increasingly, it's a world that is changing and payments, as I said earlier, are essential to all forms of electronic commerce.

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

Two of you—and perhaps your colleagues will concur—mentioned a changing framework and said that we should have a flexible regulatory framework.

What would the conditions be to meet the needs particularly of consumers and businesses, as well as banks? We know that all this technology is changing very rapidly. What would the conditions be for an evolving legislative framework?

[Jacques St-Amant]

There are some basic regulatory principles that are neutral when it comes to technology that could be used and that would be easy to adapt.

The other aspect that most stakeholders have been wanting for years is the implementation of a forum that would allow people to sit down around a table and discuss these issues intelligently, coherently and in an organized manner. It's one of the suggestions made in the task force's discussion paper. Although it isn't easy to put in place, it would be an extremely useful tool. There are already some forums, but they aren't enough.

Obviously, the considerable challenge we are facing in this sector, as is the case in the telecommunications sector, is that there are a small number of players who are extremely influential and who have so far found the situation very much to their liking. So the change is likely to upset them a little. We need to explain to them that if we make this change correctly, in a larger market, even with perhaps a slightly smaller share, they are going to make more profit and even they could be winners.

[The Chair, Conservative, David Sweet]

Thank you very much, Mr. St-Amant.

We will now go to Mr. Lake for five minutes.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Thanks, Mr. Chair.

Mr. Geist, I'm going to come back to you, if I could.

Earlier you talked about Canada having an opportunity to be a world leader in the digital economy. Over time you have said that many times, I've read. You have many ideas on how that might be. There are so many different things on the table right now: the type of discussion we are having here; the digital economy strategy; the Jenkins report that is coming out; the anti-spam, copyright, and PIPEDA legislation you referred to earlier; and the discussion about spectrum and foreign ownership.

As you think of the manufacturers and exporters Mr. Wilson and Mr. Lavoie are here representing--the retailers and small and medium-sized businesses--and not thinking about the technical folks, the IT people, what are the opportunities for them if we get this right? What would that world look like for them? What are the opportunities they are missing right now?

[Dr. Michael Geist]

A decade ago, when people were talking about e-commerce, what they were talking about, to a significant extent, were low barriers to entry. The idea was that someone, anyone, a small business person, could suddenly now access a global marketplace. Frankly, what I have heard for the last almost two hours now is that the barriers to entry are even higher than most envisioned they would be. In fact, they may well be higher now than they are in the offline world, which certainly isn't the promise e-commerce provided.

Mrs. Cukier talked about disaggregating things a little bit. I would disaggregate not so much on success and failure but on the different kinds of businesses. There are low barriers to entry in the service sector, where we are not necessarily talking about big equipment or products and the like. We are seeing some movement in that area, although not nearly enough, in part because of the absence of protections. Let's say you are trying to create a platform, and you are now liable for everything everybody says on your platform. That's a significant risk in Canada that doesn't exist in the United States.

There are opportunities both to sell physical products and to engage in some of those services. It is pretty clear that if we have barriers, whether legal risks or business risks or simply barriers-to-entry challenges—and it's clear that we are facing all three—a lot of this promise remains unfulfilled.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

If the environment were to look like you would like it to look, and we have talked about what that environment might look like, what would it look like for the manufacturer? What would your world look like for the exporter or the retailer in Canada? What would the interaction with the consumer look like in your perfect world?

[Dr. Michael Geist]

You would start to see it the way you see it in some other countries. You see it to a certain extent in the United States in basic retail. You see it in places like Japan and South Korea, where using the network for many services, games, and entertainment, what we are characterizing here as e-commerce, becomes the primary way people purchase and interact. That presents a tremendous commercial opportunity.

It is important to recognize that we have talked about Canada being a small market and about the desire to move elsewhere. In many instances, it's almost a requirement to, because the market is small and you face these barriers. If we create an environment in which companies start here, grow here, and become large here, you will have the opportunity to sell to a global market. We are all familiar with the challenges RIM has faced recently. RIM is a classic example of something that started here and very quickly became a global player. It's trite to say that we need more of those, but we need more of those. One of the things we need to do is identify what in our current framework may be inhibiting that from taking place.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Mrs. Cukier, do you want to comment on that at all?

[Prof. Wendy Cukier]

Yes. As I said at the outset, you definitely need an environment that doesn't impose impediments, and I don't disagree with that. But you also need people who aspire. One of the things that is often said about Canadian...we have lots of start-ups; they don't make it to the next level. I think Professor Geist's point about what Canadian entrepreneurs often aspire to is being sold to someone else is unfortunately true. We just did a study that showed more than half the start-ups we looked at were getting financing outside of Canada. That has something to do with the risk aversion of many of the financiers and the difficulties in accessing capital in Canada.

What I would argue--I could be proven wrong--is that you could make a lot of the regulatory changes that are being discussed here. You could open up things. You could drive down prices. But if we don't address those issues around a culture where people are encouraged to try and fail, if we don't ensure that engineers are coupled with people who understand what a market is and how to meet the needs of a market, if we don't get those things right, you can deregulate everything and I'm not sure we'll be further ahead.

The only other thing I want to say--as I've been around since we had the discussions of interconnection and long-distance competition--is if you're outside the major urban areas, the issues around access to infrastructure and so on.... I haven't heard very many people talking about those issues. If we're interested in moving the Canadian economy ahead and the quality of life for all Canadians, we do have to grapple with some of those access issues.

Total deregulation may not be the solution to addressing the needs of people in northern Ontario. That's something I'd like to make sure gets on the record as well.

[The Chair, Conservative, David Sweet]

Thank you very much, Madam Cukier.

We have now finished the second round. We're moving to the third round. We have just enough time for that round. We will probably be a couple of minutes over to make sure everybody gets their full five, but we'll need to stay disciplined on that, so please excuse me in advance if I have to interrupt you.

Mr. Braid, for five minutes.

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

Thank you, Mr. Chair.

You mentioned earlier, Mr. Chair, the sophistication of the answers, but you were silent on the sophistication of the questions. I don't know if that was intentional or not.

Ms. Cukier, my riding is Kitchener--Waterloo. We have a strong climate for innovation there. There are a range of reasons for that. One is the policy at the University of Waterloo for professors to own their intellectual property. Could you comment on that, and perhaps describe what your policy is at Ryerson as well?

[Prof. Wendy Cukier]

Many people believe the Waterloo policy is the way to go at universities. At Ryerson, faculty and students retain their intellectual property except in cases where the university has invested significantly, in which case the university negotiates a share with the individual. But as a good friend of mine said, 10% of nothing is nothing. So it really is important to encourage innovation.

Again, in my view, we don't do enough real evaluation, so a lot of what we talk about is anecdotal, but most people would say that Waterloo has got back exponentially what it gave up by not taking a very restricted view of intellectual property.

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

I have some questions for our OCRI representatives as well. Ottawa, of course, has also built a strong climate for innovation. OCRI has been part of that.

Could you describe or explain how OCRI has helped to foster and support innovation in the Ottawa area?

[Blair Patacairk]

Sure.

There are really three fundamental pieces to OCRI. One is the entrepreneurship centre, where we take young companies and foster them and get them going. Basically, we hatch them and get them rolling.

Part two is the regional innovation centre, which is a provincially funded program that takes the more mature companies looking for seed funding, whether it's first, second, third round, etc., and prepares them to go and actually make the pitch and get the money. This is a big deal considering there's not a whole lot of money sitting around in Canada these days, so internationally.... We work with different programs federally to get them money, whether it's through OCE or IRAP, etc. We really get them rolling, making sure they have a good foundation to grow their business.

The third part is the one on my side, where they throw them over the fence to me and I take them to the world through business development and basically make sure they hit the road running internationally.

I think our model, the model that's in your area of Waterloo, with CTT and Communitech, for example.... These are excellent examples of what can happen when you have good organizations working collaboratively with universities and colleges.

I wanted to pick up on one of the things that Wendy was saying, and that is, we need more champions in Canada. We need more RIM champions to go and do what they're doing--not just the company, but the individuals who come out, like Balsillie...the Terry Matthews of the world to take on these companies.

To your earlier point, we can put any program we want in place and we can do all the mentoring we want at our level and at the university level, but the rubber really hits the road when the industry guys come out and help mentor those people. There are very few people out there who are true entrepreneurs. The number is pretty small, and out of that number, we're only grabbing a fraction of those folks. What we say at OCRI is that if 10% are true entrepreneurs and we're only grabbing 3% to 5% of them, if we could up that by 2% to 3%, exponentially we've got a whole lot more people on the ground building a great entrepreneurial culture.

That's very hard to do, because it's not just us, it's not just government, it's not industry, it's everybody together pushing the same way. That's what organizations like ours, and Communitech and CTT, do very well, working collaboratively.

[Prof. Wendy Cukier]

I was just going to add that some of the new programs, like FedDev, are particularly valuable in promoting that sort of collaboration. We've certainly had huge benefits with our corporate partners in harnessing talent and innovation by accessing programs that really promote those sorts of partnerships rather than reinforcing the silos.

The only thing I would add is, I'm not convinced that we have done as good a job as we could in documenting, evaluating, and telling the stories of some of those successes and failures. A lot of our start-ups don't make it and we don't necessarily understand why. I think more work needs to be done.

[The Chair, Conservative, David Sweet]

Thank you very much.

Now on to Mr. Julian for five minutes, and he'll be sharing his time.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Yes. Thank you very much, Mr. Chair.

I'd like to come back to Ms. Cukier. I didn't get a chance to ask you this question in the first round.

You identified some of the key areas where the post-secondary sector could contribute, around digital skills, research, innovation, and commercialization model users. I wanted to ask you, globally, how do you think our educational sector is doing across the country? Are they stepping up in those areas? If so, could you give us one or two examples? If not, what's required in order to have our post-secondary institutions providing that important role?

[Prof. Wendy Cukier]

What I would say is that at post-secondary institutions there are many pockets of innovation. There are many institutions across the country--too many to name--that are doing interesting and innovative things.

What I would also say, however, is that many of the existing structures of funding, of rewards systems and so on, don't actually reinforce those behaviours. I think you have to recognize that many of the structures currently in place were developed many, many years ago when R and D in the telecom sector meant that Bell-Northern Research was trying to figure out how to stuff more information down pipes or how to do it wirelessly. Those things are still important, but we know that a lot of the opportunities, especially in the e-commerce space, are very fast and require different models of development.

So while we have to continue to support discovery-based research--it's critically important to Canada and to the universities in particular--I think new mechanisms to promote these kinds of partnerships, market-driven research, and experiential learning for students are hugely important, because we know that youth unemployment in Canada is a really serious problem. We've been very lucky and are not a victim of what that can lead to, but I do worry. If we don't find ways to break that catch-22 for young people and for immigrants--if you don't have the experience, you can't get the job, and you can't get the job because you don't have the experience--we're going to run into problems. That's why I think innovation and thinking of new and creative ways to tap those skills are critically important.