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FMI
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IGF JOURNAL
VOLUME 24, NO. 1
Canadian Payments for
e-business: Challenges,
Responses and Trends
Nicholas Grillas
Abstract
Electronic payment adoption is well
underway and gaining momentum
as organizations look for ways to cut
costs and streamline processes. With
traditional
paper-based
forms
of
payment giving way to electronic forms
of payment, the migration of payments
from paper to electronics presents a
unique opportunity for the Government
of Canada. This article provides an
overview of the broad issues facing the
Government in accelerating the use of
electronic payments. It explores some of
the innovation gaps in the adoption of
electronic payments and presents some
emerging new developments.
Introduction
Deregulation, product innovations, new
distribution channels and advances in in-
formation technology have changed the
financial landscape. As a result, govern-
ments worldwide face challenges in getting
various forms of payments to their citizens.
With paper based payment methods, the
process is more costly and burdensome es-
pecially when needing to pay out quickly
and efficiently. On the other hand, the use
of electronic forms of payments offers in-
herent advantages, including lower trans-
action costs and lower overall overhead
expenses, reduced fraud, and improved
transparency and accountability, among
others.
Payments system innovations are an
integral component of the new e-economy
and the Government of Canada is making
considerable progress in implementing
e-payments. We have noticed that over
the last ten years, electronic payments
have grown significantly at the expense
of cheques, which have decreased both
in volume and average value. The use
of debit and credit cards as a proportion
of all non-cash retail payments has
increased significantly. And for larger
payments, cheque payments are being
replaced by direct deposits and pre-
authorized debits, two types of electronic
payment products.
While there is a strong interest in
migrating from paper products to more
efficient electronic alternatives, the
migration has not been uniform across
all market segments as individuals and
businesses have different perspectives
on electronic payments. Paper cheques
continue to be used for a significant
number of transactions especially for
the government-to-business remittance
payments.
As electronic schemes have the charac-
teristics that address fundamental needs
of citizens and help reduce related trans-
action payment costs, they are likely to
play an increasing role in making pay-
ments. In the long run, Canadians will
benefit from the shift from traditional
paper-based forms to electronic payments
and, more importantly, in the reduction of
paper cheques.
The Decline in the Use of Cheques
The use of cheques has been declining since
the early-2000s. This trend in cheque usage
suggests that many organizations have been
successful in moving towards electronic
payments. Cheques are a relatively high
cost payment method because today’s
cheque processing environment requires
a complex network of processes involving
significant labour, expensive equipment
and systems, transportation, and inter-
party affiliations. Yet, cheques are still
in common use for high value payments,
small and medium sized business payments
and one-off government payments. Among
other things, the main reasons cited for
using paper cheques are:
Ø
The difficulty in transmitting ad-
ditional data with payments. Busi-
nesses, in particular, find that the ab-
sence of an electronic means to carry
additional data with payments results
in them having to resort to using
cheques. Inevitably, this means more
cumbersome manual processes;
Ø
Limited interoperability of payment
systems because of a lack of common
standards;
Ø
Existing/legacy systems limit straight
through processing. One problem
is that businesses traditionally built
reconcilement and related systems
around cheques and paperwork
flows, and, therefore, legacy systems
are generally not structured to han-
dle electronic payments;
Ø
The flexibility and convenience of
paper cheques;
Ø
Cheques are inexpensive to whose
writing them as most of the costs are
borne by the payees and financial
institutions that process them.
In Canada, there has been a continuous
growth in the demand for electronic
payment methods by citizens and
businesses and a steady drop in the use
Past
vs.
Present
#3: E-Payments in Canada
Diamond Jubilee (1952-2012)
Courtesy: Canada Post 2012
The
Present
