AUTUMN 2012
FMI
*
IGF JOURNAL
41
1
See Canadian Payments Association’s 2011 Annual
Review available online at
/
imis15/eng/Home/eng/Default.aspx
2
Reports published by the Task Force for the
Payments System Review are available online at
/
Ø
Changing the current fee model to
having the payers assume most of
the costs of cheque writing;
Ø
Using electronic processing tech-
nology to reduce costs. One way is
to encourage remote deposit cap-
ture or by converting paper cheques
to electronic transactions. For
example, cheque imaging results in
substantial cost savings, including
the elimination of the expense and
time of moving paper through the
system, but also efficiencies such as
lower back office costs for research-
ing past payments.
Other Initiatives
While the Government of Canada contin-
ues to advance work in partnership with the
payment industry on the above mentioned
recommendations, other initiatives are
also underway to increase the utilization of
electronic payment methods, namely:
Ø
Increasing the use of acquisition cards
for low-value business expenses.
These cards are playing a greater
role in the adoption of electronic
payments to businesses. Acquisition
cards provide line item details like
those found on an itemized invoice
for purchasing transactions as well as
establish spending controls and limits
on transactions;
Ø
Introducing a prepaid card program.
These cards provide convenience,
safety and reliability but foremost,
they are a tool for efficient funds de-
livery, cost reduction, fraud control
and greater program accountability;
Ø
Phasing out cheques by April 2016.
The Minister of Public Works and
Government Services Canada and
Receiver General for Canada issued
a press release on April 11, 2012
announcing that the Government
of Canada would be phasing out
federally issued cheques in favour of
direct deposit by April 2016.
3,4
By embracing electronic payments, the
Government and businesses will reduce
their costs, streamline accounting, reduce
fraud risk and “go green.”
Emerging Products and Technologies
Technology is a key influence on payments.
Advances in technology have resulted in
numerous payment method innovations
as Canadians continue to demand more
convenience and functionality. With the
advent in better computing power, net
work connectivity and telecommunications,
numerous payment methods are emerging
such as contactless, mobile and prepaid
cards. These new payments have created
some challenges such as the security burden
required on connected, automated systems.
Nonetheless, we believe that risks may be
managed through a phased introduction
of next generation technology. Also, since
a critical component of the payment
industry’s strength is confidence in its data
security, failure to secure the systems could
be a blow for any emerging product or
technology.
There are numerous electronic payment
technologies emerging in the marketplace
with many becoming part of the main-
stream market. We believe that these new
technologies such as mobile, contactless
and prepaid cards will complement exist-
ing payment platforms rather than replace
existing ones. For example, plastic pay-
ment cards are being modified for use in
contactless payments, prepaid cards and
mobile phones.
Mobile phone payments will become an
integral part of the Canadian landscape but
we do not see it as a replacement for paper
cheques nor do we expect that they will gain
mass adoption. A potential advantage of
mobile payments is that they may provide
greater applicability than other payment
means because of the very high usage and
availability of mobile telephones. Presently,
point-of-sale transactions are one area
where mobile payments have not yet made
inroads but have the potential to affect the
payments landscape considerably.
Contactless payments using radio fre-
quency identification (RFID) will be a sig-
nificant influence on the payments market
because it is suitable for micro-payments
where security risks are low. An RFID fea-
ture is added to existing smart chip based
credit and debit card programs to create
contactless cards. Using this technology, a
citizen is able to initiate a payment through
the major credit or debit card networks by
waving a card near a payment terminal rath-
er than by swiping a card and authorizing by
either PIN or signature- thereby reducing
the amount of time and effort required to
make a purchase. We do not see this tech-
nology being applied for larger transactions
as security issues, such as authenticating the
identity of the person, will pose a problem.
of paper cheques
1
. Despite this, the lack
of standardized formats, the prospect
of incomplete information, the lack of
interoperability and the investment costs
of system changes all combine to limit the
pace at which businesses deploy systems to
electronically integrate payment, remittance
and accounting information.
The Government’s Response
Important opportunities exist to bring
about change that will ensure that the use
of electronic payments remains relevant
and delivers the most value to Canadians.
The following are partial comments and
recommendations that were submitted to
the Canadian Payments Association and
the Department of Finance’s Task Force
for the Payments System Review
2
during
consultation processes on the future of the
Canadian payments system:
Ø
The adoption of common technical,
usage, and data standards for pay-
ment services is a key prerequisite
for interoperability amongst pay-
ment systems. The adoption of ISO
20022, an international standard for
financial services messaging, is sup-
ported and will allow both struc-
tured and unstructured remittance
information to be sent with the
payment;
Ø
The need to enrich transaction data
accompanying an electronic payment
is one of the biggest impediments
faced by businesses in particular.
Businesses need to link traditional
payment information to information
about the bills being paid in order to
post and reconcile their accounts;
Ø
The need for financial service pro-
viders to develop bank cash manage-
ment systems that integrate more
effectively with accounts payable
and accounts receivable systems of
small- and medium-sized businesses
in order to allow for straight through
processing. Electronic payments that
flow from accounting systems with-
out manual intervention and post-
ings would significantly increase the
probability of switching to electronic
payments;
3
Press release is available online at http://
news.gc.ca/web/article-eng.do?mthd=tp&crtr.
page=1&nid=667819
4
More information about the Government of
Canada direct deposit initiative can be obtained at
