Canadians have consistently demanded more digital and modern payments options. So, what has changed in the face of a global pandemic? PayPod host Cyrielle Chiron is joined by Tracey Black, President and CEO of Payments Canada and David Chance, Chair of Payments Canada’s Stakeholder Advisory Council. Cyrielle and Tracey discuss the economic impact COVID-19 is having on payment trends -- from cash use to direct deposit demand and more. David shares his perspectives on changes in consumer behaviour and why merchants need to follow the trends, patterns and behaviours of consumers.
- Tracey Black, President and CEO, Payments Canada
David Chance, Vice President, Payments Strategy and Innovation at Fiserv & Chair of Payments Canada’s Stakeholder Advisory Council
Cyrielle Chiron: Canadians have been early adopters of debit peer-to-peer and contactless, largely because our banks make them accessible. With regards to automatic payments, I think we add up to experience and the payments come with. What payment options have retailer has been slow to adopt? Hi, I'm Cyrielle Chiron, your host for season two of The PayPod, which talks about all aspects of Canada's ambitious payments organization mission and explores the topic that influence payments in Canada and around the world.
I know my payments habits have shifted dramatically since my city, province, country and the world has gone into physical distancing and self-isolation. I buy almost everything online and I haven't used cash for almost two months now. I can say that this is not just my experience. As the Head of Research at Payments Canada, our COVID-19 payment trends research showed that for those Canadians who are leaving their homes to shop, 42% said they avoided shopping at places that did not accept contactless payments, and 52% tried not to exceed the contactless limit when buying something in stores. Cash and check payments have declined dramatically, having been replaced with contactless payments and other type of electronic payments. So my questions are these will COVID-19 compel retailers to adapt and adopt more quickly? How have payments and consumer spending behaviors shifted in the last few months? And what impact is COVID-19 having on Canadian payment trends?
Well, joining me today is Tracey Black, President and CEO of Payments Canada. Tracey provides the leadership to define the next change of Payments Canada's evolution, supporting the payments needs of Canadian consumers and businesses and empowering a new era of modern payments. Along with Tracey, we have David Chance, VP of Payments Strategy and Innovation at Fiserv, and the Chair of Payments Canada's Stakeholder Advisory Council. As a leading payment's innovator, David has led strategy, solutions and technology to drive payments innovation and modernization around the world. Thank you both for joining me today on the PayPod.
Tracey Black: Thank you for having us.
David Chance: Yes, thank you.
Cyrielle Chiron: Tracey, before we get into the nitty-gritty, I wanted to chat with you about your experience as the new President and CEO of Payments Canada, which started on March 1st, this year. While you're not new to Payments Canada, having led our modernization initiatives for the last few years, I'm sure what you thought your first 30 days were going to look like and how actually were are quite different. Can you briefly share with us what the month of March was like for you?
Tracey Black: Sure, Cyrielle, I'd be happy to recount that for you. It was a bit of a blur as I look back on it now. I think the month of March was crazy for everybody. And I took the helmet of Payments Canada, Jerry Gaetz passed me the baton on March the first and my first major decision as CEO was to close the office. So it was actually one of the easier things that we've had to think about in this COVID situation. And I had the opportunity to be in Europe the second week of March. And that was really eye-opening. I was in Amsterdam and the day that I arrived in Amsterdam, the Prime Minister, he said that there would be no gatherings of anybody over 100. So all of the museums closed and there was a recommendation for anybody to work from home that could to work from home. So that was eye-opening as well.
And things were starting to go pretty bananas in the UK at that point in time. So I had a bit of a lead in experience on COVID because things were moving more quickly in Europe at that time. And so when I arrived back in Canada, the first thing that we did is we shut down our Ottawa and Toronto offices and we asked for people to work from home. Unfortunately, that was relatively seamless for us at Payments Canada, because people are quite used to working remotely and we have great technology. All of our employees have tablets. So it was, I think, easier for Payments Canada to move to remote working environment than some other companies, but it was still, that's a big thing to do as a new CEO is to send everybody home.
And then I think it's really just, nobody really knows what's going to happen. It's one day at a time to a certain degree and really looking for facts and trying to figure out how to connect the facts and trying to make sure that the employees are being well looked after. That's been our priority all the way through is just the well-being of our employees. So you're right, a different focus, but I have to commend our staff at Payments Canada. Our systems have been running flawlessly. We saw the Bank of Canada inject a lot of liquidity into the economy here in Canada. And we're seeing more than double our typical volumes through our High-Value Payment System, through all our systems, actually. At the end of the day, we're settling very, very high volumes and everything is working as it should. So even though we've moved to 100% remote working, our systems are operating very, very well. So I'm really proud of Payments Canada and then the ability that we've demonstrated to rise to this COVID situation.
Cyrielle Chiron: Well, I'm very glad to hear that everything runs smoothly and the transition went very, very well. That's pretty important. David, you've been with Fiserv for almost three years and a payment's expert long, long before that. I'm sure you can really emphasize with what just Tracey just went through and just explain as a leader during a crisis. Do you have any comments before we talk about the impact of the pandemic on payments?
David Chance: Yes. I've obviously been in payments now over 30 odd years, and I've never seen such a dramatic change and an impact of an event such as the pandemic in that entire period. I think Tracey's done an incredible job. I think it's really important that, when we say thank you to those on the front line, we should also thank those in the financial services to ensure that the online operation and payments is still running as smoothly as it is. You can only imagine what would have happened if we'd had problems in the payments side of the business as well.
So, yeah, I think it's got to be remembered that when business continuity plans were put in place, they look at sort of one target area, the loss of a data center or the loss of a call center. I think what we've seen over the last few months is that we've had multiple business continuity plans having to be put in place overnight covering a huge area of the business. So, multiple data centers having impacts to staffing, multiple call centers having the same sort of impact, and then a real quick transition overnight from one payment type over to electronic payments.
Cyrielle Chiron: Yeah. No, that's pretty significant to say payments is really one thing at the center of economy. So making sure this is working pretty well is very important. So talking about payments and payments trends, you're saying that we see some shift and changes, some pretty significant changes we've been seeing in the past few months. So I'd like to start with you, Tracey, what are some of the surprises you've seen from pre-COVID versus now?
Tracey Black: Well, I think there aren't that many surprises. I think understanding that people are not really leaving their homes very frequently, you can imagine what the impacts might be on certain payment types. I think the reaction of the ecosystem to our situation has made transacting a little bit easier in some cases. You know, Cyrielle, we published a study in the middle of May that outlined some of the changes that consumers were voicing in terms of their payment behaviors. The facts around some of the behavior changes are interesting to raise. So we saw payment networks like Visa and MasterCard and American Express, they raised their contactless payment limits from $100 to $250, which allowed for larger purchases to be paid with a tap.
I think consumers, they're very aware of the spread of COVID and touching a terminal is something that they would prefer not to do if they don't have to. And so there was a real focus and awareness by consumers on tapping for payment. So we heard that come through loud and clear in our study. I think also significant reduction in the use of cash. And so, on our own proprietary systems, we saw pretty significant increases in cash withdrawals, not just the number of transactions, but also the value of those transactions. We also year over year, if we compare our April data, we see pretty significant declines of almost 40% in the number of non-government checks that passed through our systems.
So given that people aren't transacting face-to-face, those cash and check in particular are two common payment methods for people who are able to see each other. But when you're stuck in your house, I think the commensurate increase that we're hearing about in the media about the e-Transfer payments, it's not surprising that digital payments have really increased in frequency and paper-based payments have declined. So I wouldn't say that that's unexpected. I think the magnitude of those changes is a little bit greater than what we had anticipated, but I think there's also an opportunity for some of this payment behavior to stick going forward.
Cyrielle Chiron: Yeah. That's a good point. David, I'd like to see, I'd actually have your view on here as well. And maybe if there's anything to add, but also maybe if you can see if you see those same behavior in the UK, because you travel a lot and I know you're based in the UK. So is there anything that you can add on that?
David Chance: Yes, I agree with Tracey. I think it was the rapid decline in cash usage, which was very surprising. We have a lower limit on contactless payments in Europe, it's around, it was at the beginning of March around 30 pounds, 30 euros that was increased to 45 pounds in the middle of March. I think what I've seen is a quick transition from cash to mobile wallets, Apple Pay being an example because there isn't a limit on a Apple Pay transaction. So as people were sort of waiting to pay in the grocery shops, in the supermarkets, contactless payments wasn't an option because you were seeing people traveling or only allowed to travel in once a week at most. And therefore with such a low limit people rapidly moving to Apple and Google Pay. And I think that was to do with the limit itself.
I think we also see a movement in the account-to-account space. We're very lucky in Europe, the UK to have instant payments account to account. And I think that's helped where people are self-isolating and unable to leave their home. They can contact relatives, friends who can do the essential shopping for them, and then leave those items on the doorstep. But actually are able to make payments directly into to them. Obviously, card payments wouldn't work in that way. And access to cash is very difficult if you're self-isolating. And I think we've seen a lot of the businesses who have managed to stay afloat using transferring into instant payments because they are minutely managing their cash flows. And so being able to manage on a, almost an hour by hour basis, I think most corporates are now starting to look at that as a valid use of instant payment.
Cyrielle Chiron: So that's actually a very great point. And that was pretty interesting because we've been seeing in our research from 2019, that's called the Annual Method and Trends report, that in Canada, we see the usage of contactless and there is an appetite for innovation and many contactless payment via mobile phone, but it's still very low among Canadians consumer. And all of that is mainly driven by could be the lack of interest or security concerns, or really the lack of need, and I want to just express like this pandemic in the UK, we accelerate this innovation. So do you think that after the pandemic, that could be something that would accelerate further, that's it could be kind of an era for innovation?
David Chance: Yeah, so I definitely think so. I think we're now seeing the use of contactless, the use of mobile and not just within a small age group either. I think we've sort of forced that usage right across the board. And I think it is something that we'll see increasing and at a faster rate than we've seen before. I think there's still some factors that cause friction and I think that's what we need to drive through. Again, having a card connected to a mobile is just the same as using a contactless card itself. I think we'll see more innovation and more take up as we see account-to-account transfers, being able to pay directly from my account either to another person, to a business, to a merchant.
And I think we'll see some very interesting innovation. You know, one of the downsides of contactless cards is that it's very difficult to manage your funds. You know, just tapping, you're not seeing money disappearing. If you have cash in your wallet, you see that how quickly you're spending that. So I think we'll see innovation that sort of manages the cash side and the cash management. So when I tap my mobile it'll come out with my current balance, I'll see it being whittled away. I'll be able to have sort of sub-wallets that I can put money into. As I walked through shopping arcades, we will get messages saying, don't go in and buy that coffee because you're saving up for this. So I think there's a friction there, but I think we are setting the scene for that level of adoption of the sort of the mobile and wearable type implementations.
I also think we'll see a merging of the physical and the virtual space. We're now living in an area in a time where contact is prohibited in most places or frowned upon. And so I think we'll see a rapid merging of the physical pause checkout experience with the virtual pause checkout experience so that we're not standing in lines, we're having our basket automatically updated as we sort of move around a store. That we will be making those payments automatically as we leave. So I think we will see that merging of physical and virtual checkout experience.
Cyrielle Chiron: I like you mentioned setting the scene, that the pandemic is setting the scene for innovation or the innovation you're talking about. I'd like to have your thoughts, Tracey, because we know that Payments Canada is into this modernization journey. So do you really see on how this could accelerate everything?
Tracey Black: I agree with a lot of what David mentioned. I think that this COVID situation has made people quite receptive to change whether they like it or not. And the way that we pay we've had to change as we have to stand in line to pay for things, six feet apart. There's a real desire, I think for change, not only though with consumers, but also with retailers. So I think that we will see innovation coming out of this COVID situation. I agree with David's comments about lineups. I think anybody that's spent any time in payments realizes that there are a lot of innovations that consumers may want, but are difficult for retailers to implement. And I think we are in a unique point in time where both retailers and consumers are interested to see change in the payment experience.
So that convergence of the physical point of sale and the virtual point of sale, I would agree, we saw some activities from some retailers in the past, so that the payments experience was really sort of a magical thing that happened as you walk through the store. I think retailers now are probably quite motivated not to have people stand in line unless absolutely necessary at point of sale. And so I think that it's very likely that we'll see a period of investment by retailers to invest in technology capabilities that reduces or even eliminates the need to line up to pay.
And that's going to be something that we're all much more receptive to coming out of this situation. From a modernization perspective, once we have a real-time payment capability in Canada, a number of the experiences that David described will be possible. To actually pay right directly from the account to have feedback on your balance as you put things into your basket, some of these things will be supported by a Real-Time Rail in Canada. I think we'll also see some demand from retailers for the real-time availability of funds for purchases at point of sale.
So these use cases are all under discussion. We're watching other countries that have implemented real-time payments. And I'm really curious, I'm curious to see if there is increased demand and expectation, both from consumers and from retailers. And if we get away from the retail environment also for corporate entities to be paid in real time and to have new types of payment experiences.
Cyrielle Chiron: Great. So I can see everything like cash will be an underused resource. Technically, we're kind of seeing your class as it continues, but this time, next year, we're going to see a lot of significant changes in the way Canadians are paying and behaving. So we were talking a lot about innovations and mainly, digital payments. And we talk about cash declining, and this is something we've been seeing over time. Do you not feel like some people who are maybe from another generation or live in more remote areas and don't necessarily have access to all this innovations will feel a little bit excluded? So if you could start having your thoughts with you, David, and maybe we follow up with Tracey.
David Chance: Yeah. I think COVID-19 has been more of a nudge that we in the industry have actually been waiting for in the transition from cash to electronic payments. They will see, continue to see a rapid growth in the volume of non-cash payment. However, cash does have some great benefits in terms of ubiquity and ease of use. But I think what COVID-19 has shown is that that ubiquity can be rapidly removed and fails. And the ability to use cash can easily become more difficult, both from a fear of contamination, but also a need to leave isolation to actually use the cash itself. But I do think we're entering a difficult period of transition, whether it'll be a real fear of using cash over an extended period, and that will have an impact on those who are not included in the electronic payment. And we really need to focus on inclusion of how do we transition those who currently have not been able to use electronic payments into a world where the focus will be on paying electronically and paying contactlessly.
I think we have to seriously focus on providing inclusion into the electronic payment space. And that's not just at the point of the payment. I think there's a whole raft of things around that that will remove that friction. We've seen the use of retail and small merchant as an acceptor of cash and turning those into electronic payments on behalf of the consumer. I think we need to extend that, we need to look at the use of, how can we use things like the request to pay, the open banking APIs, instant payments as a whole ecosystem to drive the availability of electronic payments to those who currently are not involved and included in the mechanism who rely on cash.
But I think we've got a very short period. We used to talk about how can we do this over the years. I think we've got an issue with the virus that is going to stay with us for at least the next 12, 18 months. And I don't think there will be a sort of a pick up of cash over that period. There will be a drive to reduce cash usage even further. And we do need to focus on those to ensure that we do get inclusion.
Cyrielle Chiron: That's a very good point. Tracey, do you have anything to build on that usage of cash and how you see this evolving in Canada?
Tracey Black: This is a difficult problem to solve for, and we're fortunate in Canada that we don't have very many who were unbanked, but there are some, and there are many who are under-banked. And so we have to make sure that as we move forward, that we have solutions so that no one is left without a solution. So I think we just have to be mindful of this. And it's one of those difficult aspects that we have to make sure we sell for.
Cyrielle Chiron: Yeah. No, great point. You mentioned, the two of you mentioned about investments and saying that this situation make to see a lot of innovations and a lot of investments in your solutions to help the economy with in payments among consumers and businesses, and mainly retailers. I'd like to go back into the investments, and can all retailers spent so much investment in order to make sure that they build resilience during such situation. So I'd like to start with you Tracey, and have your thoughts on that.
Tracey Black: Well, I think from a Payments Canada perspective, our focus is on the core infrastructure that supports the clearing and settlement of payments in Canada. And we have a significant modernization initiative that's been ongoing for some time and we're looking forward to the launch of our new High-Value Payment System next year in 2021. And our modernization efforts have largely been driven by the need to make sure that our systems remain safe, secure, and resilient. If you think about Payments Canada as the center of the circle, as you move out from the center, there are different layers of payments infrastructure.
And so we're providing improved infrastructure at the heart of the payment system and aiming to deliver high levels of resiliency. And it's our hope that as we look further out into the ecosystem, that additional investments are made to ensure that we have resiliency throughout the payment's ecosystem. It would be up to each individual retailer to take a look at their situation and to determine how to best invest, to ensure that their customer payment experience was as frictionless and resilient as they would like it to be.
Cyrielle Chiron: Right. So, yeah, that's a very good point. And actually talking about retailers, David, I'd like to see your point of view on that because you're dealing with retailers a lot. How do you help them going through that to accept payments and change from cash to now digital?
David Chance: Yeah. So Fiserv, we obviously support a great number of merchant retailers across the world. And I think there is a transition that a lot of the larger retailers will do as the medium and small retailers have done and actually outsource payments and payment processing to the likes of Fiserv to actually take advantage of the investment that service providers can actually provide across huge swirls of their retail base. So I think it's more a case of how companies such as ours work closely with our merchant group's Payments Canada, to offer those additional services. Payment is one part of the jigsaw puzzle that being able to have multiple payment types provides resiliency, but each of these payment types comes at a cost.
We talk about cash as though it doesn't cost a retail or a merchant anything at all to take cash. It's probably the second most expensive payment instrument, second only to checks for actually processing and managing. Cards, obviously there's a cost to using a card in terms of fees and interchange. And account-to-account transfers is another option, which is probably the cheapest of the group. So it's really how do organizations look at their business and decide payments may be an integral part to it, but it's not where I specialize and I can actually outsource that to a specialist who can provide the investment and the innovation needed as we can take advantage of the modernization work.
Cyrielle Chiron: Yeah. Great. I think that's a good point. We talk a lot about consumers and retailers, so like kind of B2C or C2C and a lot of innovations in that. So I'd like to talk about B2B and really companies paying each other. So in consumer world, the peer-to-peer is pretty well-served, especially in Canada with E-Transfer is pretty electronic. But in the business space for corporate, so they really rely on check a lot. Like how do you see that moving, if you see something moving to digital in there?
Tracey Black: This is something that has been identified for quite some time. When Payments Canada undertook its visioning exercise back in 2016, there was a pretty strong message coming from corporate stakeholders in Canada, that they were looking for a payment option that would allow them to more effectively pay each other with transparency, with information about the payment, with the real-time movement of funds. These are all value-added attributes of real-time payments that I think the B2B space is really looking for. And so, as we think about how we're seeing changes in payments behavior, primarily at the consumer level, we've seen a pretty dramatic decline in checks in the last couple of months in this COVID situation. I think there's an opportunity for us to understand what kind of drivers we should be focusing on from the B2B space and how can we help to reduce the number of checks that businesses write to each other.
In our CPMT study, we have observed that 80% of the checks that are written in Canada are B2B checks, they're commercial checks. And we have an opportunity with the introduction of a real-time capability in Canada to dramatically reduce the number of checks that are written. So I think we should learn what we can as we go through the next months and, hopefully not too much longer than that, but as we observed payment behaviors in COVID, and we start to see increasing comfort with digitization of previously paper payments. So, the movement of check payments into more digital payments, I think it would be really helpful for us to keep our eyes open as an ecosystem in Canada and understand when we launch our Real-Time Rail here, how do we assist with the digitization of B2B paper payments as effectively and efficiently as we can.
Cyrielle Chiron: Great. And I think, David, you've mentioned account-to-account in the UK taking up is because you see that as well in the B2B space?
David Chance: Yeah. So a lot of the original use cases for instant payments in the UK were based around business-to-business transactions with a completely new business lines being developed and business models based on that. I think there is two things that we have to take onboard in terms of check usage. It's very simple to staple a check to the invoice to send it back and so that the receiver actually understands what that checks for and how to reconcile that. So I think rather than sort of account-to-account transactions being the driver, I think it's a lot around the information that we're able to send backwards and forwards. So we need message formats like ISO 20022 that allow a lot more information to travel along with the payment and therefore help to reduce costs of account receivables, payables, being able to automate a lot of the exception processing around it.
I think that more than anything will drive the reduction in check usage, it's the information that gets passed along. Adding the ability to have more conversational messages. So the request to pay, type messages, the notification of payment receipt, those sort of messages, I think also drives adoption of electronic B2B payments rather than use of checks. So what we've seen certainly in Europe is a quick move of businesses towards instant payments. And not because they're instant, but because they're using that very rich data set to support them. And we've seen the same in the US as well with the Clearinghouse. It's the data and the ability to have a conversation, which is really driving adoption rather than the fact that it's instant.
Cyrielle Chiron: That's great. So I'd like to have your final thoughts, fast-forward 12 months this time next year, just in a few words, what do you think would be the biggest change? We talked about a lot of things, a lot of innovation, what do you think would be the biggest change in payments because of what Canadians and everyone around the globe have experienced in light of COVID-19? So I'd like to start with you, David.
David Chance: You know, and if we're only looking sort of 12, 18 months into the future, I think we will be a society that uses contactless mobile payments predominantly. We won't see the uptick in cash usage. I think we'll see that flowing down. I think we'll see a lot of innovation around the instant, the account-to-account type payments. There'll be a lot of fintechs generating sort of mobile wallet, cash management around the mobile wallet. And I think we will be at that start of the journey, which will be very quick, but we will be still at the start of that journey of taking on extended data sets, mobile electronic payments, the conversation, the digitization of the entire transaction itself from the request all the way through to the notification that payment has been made. And I think we'll see a lot of new businesses coming along that we just wouldn't have expected because these are enabling technologies. We've seen that in the UK, we've seen that in Europe, we've seen that now in the US where this has been a framework on which innovation's built.
Cyrielle Chiron: Great. What about you, Tracey? What do you think would be the biggest change in payments in Canada or globally?
Tracey Black: I agree with everything that David has described around the retail situation. I think we're already seeing a lift in contactless payments, and I would also agree that digitization is going to be the focus and that's beyond retail. So if you think more broadly than the point of sale and consider transactions that people may do at a bank branch, for example, I think there's been a real focus at the bank branch level to try and solve for transaction types that require consumers to show up in person. And my expectation would be that any bank that's had to put a work around in place to solve a problem for a customer to try and save them a trip to the branch, the digitization of those types of payments experiences is going to be at the forefront for our retail banks in Canada.
And so I would expect that we would see this digitization that David described, extending beyond the point of sale, and that it's going to be really, probably not necessary for Canadians to go into a bank branch for much, if anything, at all in the future. We've seen banks bend their processes and we've seen it outside of payments as well. You know, like digital signatures now are okay for a lot of things that they weren't okay for before. And that simplifies a lot of process at a bank where a wet signature previously has been a requirement. I think we're learning as we go through COVID that actually a digital signature is probably okay in most, if not all situations. So I would expect that we would see digitization with a capital D showing up and changing the banking and transaction experience for all kinds of payments, not just retail payments.
Cyrielle Chiron: I love the comment digitization with a capital D. That's great point. Well, that's all the time we have for this episode. Tracey and David, thank you for joining me today and sharing your wisdom.
Tracey Black: Thank you for having us.
David Chance: Thank you. It's been a pleasure
Cyrielle Chiron: Payments Canada's vision is for a modern payment system that is fast, flexible, and secure, promotes innovation and strengthens Canada's competitive position. Payments Canada conducts research to understand what Canadians seek in their payments experience and why. Will this global pandemic dramatically change the trends we have seen? We won't know for a while, but you've heard from these two experts on what they think. Tracey and David, thank you for joining me today and sharing your wisdom. That's all the time we have for this episode. Join me next time as we dwell deeper into Canada payments ecosystem. I'm Cyrielle Chiron, thanks for tuning in.