Transcript of The PayPod: Episode 1 - Cost to Canadian businesses with Lauren Fleming and Jan Pilbauer

In this inaugural episode, Justin is joined by Lauren Fleming, Financial Services Advisor, Ernst & Young LLP and Jan Pilbauer, Payments Canada’s Executive Director, Modernization & CIO to discuss research that, among other insights, quantifies the cost of payments processing for businesses. Inefficiencies, from the matching of payments to invoices to the challenges of cross-border payments, cost Canadian businesses somewhere between $3 and $6.5 billion annually. The trio discusses how payments Modernization will bring a new wave of highly efficient payment options to Canadian businesses that will help lower operational costs and boost bottom line returns over time. Listen to The PayPod: Episode 1.


  • Lauren Fleming, Financial Services Advisor, Ernst & Young LLP (EY Canada)
  • Jan Pilbauer,  Payments Canada’s Executive Director, Modernization & CIO


Justin Ferrabee: For over 20 years, we've had the promise of a paperless office, of a cashless society. With all of the technology that's going on, I still have piles of paper and cash in my pocket. We have smartphones, we have smart watches, we have blockchain, artificial intelligent machine learning and quantum computing. Now we hear of a promise of friction-free payments coming to Canada. This is ambitious and I might be a little skeptical. So we're going to spend some time on this PayPod cast, exploring the friction-free payment society. 

Hi, I'm Justin Ferrabee. I'm the chief operating officer of Payments Canada and I'll be your guide to The PayPod podcast. The multi-episode series of everything to do with Canada's ambitious payments modernization mission with a special focus on the parts most relevant to the country's business community. Even though the PayPod is business to business focused, there will be a ton of applications discussed that will fill any consumer with deep anticipation. Why? Because genuinely friction-free, virtually instantaneous payments that are more secure than anything we have today is within our reach.

Joining me on this expedition is Jan Pilbauer chief information officer, head of and executive director of modernization at Payments Canada and one of my colleagues. Excellent to have you with us on The PayPod.

Jan Pilbauer: Thank you for having me. You know, I love to talk about my favorite topic, payments. Imagine the future when it's not going to take days to reconcile payments, it's going to happen within minutes. This is a great opportunity which is ahead of us, not only from the business perspective but also for all Canadians as consumers, because the way how we experience payments is going to change.

Justin Ferrabee: Also in about 10 minutes, we'll be speaking with our featured guests on this episode, Lauren [Fleming, 00:01:51] a financial services advisor from Ernst & Young. E&Y just completed a study for Payments Canada that, among other insights, quantified that the manual matching of payments to invoices, costs businesses, small, medium and large billions of dollars a year.

Okay, we're gonna start broad and then gradually get into the nitty-gritty over the course of the series. So let's first set the stage on what a payments ecosystem is in the first place and why it's due to be modernized.

All right Jan, you've heard about, and we've talked about friction-free, the promise, the prize at the end of all of this work that you're doing. Can you give us a little before and after, like how are things now working and then how will they work once you're finished doing all the work that you're doing?

Jan Pilbauer: Sure. I talked about pain points and you can call them friction, but when it comes to payments, today we have a lot of friction and we don't sometimes even see it and it can be a small thing like why the cashier is asking you are you going pay debit or credit before you use your card?

The system should recognize it and it doesn't matter. It goes to level where businesses have hard time reconciling what their customers are paying them for because simply the data is not coming through with a payment. If a customer decides to pay two invoices in a one payment, good luck because you need to chase things down and it takes time. 

All of that is friction and sometimes we don't feel it anymore, but when we introduce all the modernized systems we have planned for, a lot of this friction will be removed. So payments will be going quick data and a payment ideally will disappear because you are not paying for the sake of paying. What you are trying to do is to close a commercial transaction, or do an activity in your life and not experiencing the payment, that's what I call a friction free. That you don't know you paid, but it happened.

Justin Ferrabee: Is that like the self-driving car? I don't have my hands on the steering wheel. Is it gonna be safe? I don't put my PIN in, what if somebody takes it? What if I'm walking around and someone else takes the money from me?

Jan Pilbauer: Safety and soundness is the key guiding principle we have on our journey, it's something we ... You always have to work hard to keep up with the changing landscape when it comes to security. The society's changing, the cyber threats are everywhere. So part of the modernization is to harden and protect the way how we pay. So we expect that the level of security will continue increasing, so the clients are protected.

Justin Ferrabee: Will that also get rid of the, I get a check from somebody, I've got to take it down to the bank. I got to put it in the bank. They hold it for five days and then I've got to try and manage my cashflow for all of that, will all that go away?

Jan Pilbauer: So checks are not the most efficient payment method. However, we don't currently have proper alternative for some of the use cases. I mentioned payments are not traveling with data. So for some of the use cases, especially commercial use cases, it's still much easier to write a check, put there a note what the check is for and staple it with some information, or an invoice. 

So as we embark on modernization, the standards we call ISO 20022, which basically ensures that payments are traveling with data, we'll create an important alternative to checks. That's another friction which will be removed and we will move to a more electronic straight through processing and we will remove the friction of handling paper, or even taking a picture of a paper, making an electronic payment. All these things we have again accepted the society will go away and we will have better choices.

Justin Ferrabee: That sounds so perfectly reasonable. Why aren't we there now?

Jan Pilbauer: It's a journey. Payments have been happening for a very long time and we are not starting from a green field so there is some environment we have to consider and evolve. The other aspect is while significant portion of our society is getting digital and very comfortable with technology, we cannot cut anybody out of access to financial services in this country. 

There are still some Canadians who are not so comfortable with technology and they prefer to use something they have been using for a long time and checks and other methods are part of it. So we have to be careful how we navigate because we don't want to cut anybody out and we want to offer a broad set of choices and people can choose an instrument based on what they are trying to achieve and what they feel comfortable with.

Justin Ferrabee: Clearly you've got a vision for where we're going. It's for the greater good, in terms of all of Canadian society and all Canadians' businesses and people alike and consumers alike. Is this just you? Is it a small cadre of people who are trying to change the system or is the system ready to be changed? Is it time for this or are you just starting a process, hoping it works?

Jan Pilbauer: So we started the processes, Payments Canada a few years back, and back then it was actually a few people who had a vision and we knew what we wanted to do. We are driven as a public purpose organization, not for profit. We are driven to do the best for Canada and Canadians. So it started as a small group of people but as we embarked on something, we define a vision and we talked to users of payments, what they expect over the next coming years, it became a larger, bigger, and we got a lot of excitement. Not only from payments processors and enthusiasts, but also from governments, large financial institutions, fintech players.

So I think now it's actually a large movement. We anticipate that we are now moving into execution. There'll be actually thousands of people across the financial ecosystem working on modernization. So now it's definitely more than me, but it started as a vision of Payments Canada. That's something which is still driving us and the anchor we are using.

Justin Ferrabee: So you had the vision, you got the people around it, you got the idea, you got it out. Now there's the investment, you've got organizations getting behind it. What are you worried about in terms of it succeeding? Do you have any concerns or are we past the tipping point now and it's underway, it's just a matter of when?

Jan Pilbauer: So it's a large program which will take many years.

We intentionally structured the program in a way that we deliver something to the market every year because there is nothing worse than have a vision but people having to wait four years to actually have division materialized and have some tangible outcomes. So this year, you will see some tangible things coming to the marketplace. When it comes to batch payments, which is a payment system supporting payrolls and bill payments, today it closes at 4:30 PM Eastern Time. That's not very convenient for west coast of this country in September, October timeframe, it will change. We will be introducing another exchange time at 9:00 PM Eastern Time which which is a huge improvement and also the batch payments. You know I talked that people can take days to get their funds and reconcile them. We are actually in October putting stop to that because we will be demanding the recipients of the payment instructions to make the funds available to the end user, to the payee, within two hours.

So all these things, together with some improvements to the safety and soundness, are happening this year. Next year we will be bringing real time payments which will support multiple use cases because it's our platform for innovation. Year after, the vision is that we will have a new high value settlement system because everything to be supported by a safe and sound environment has to settle, in a system we operate the currently is the large value transfer system, it's going to be a new system called [Links 00:00:10:15]. So it's the year after.

So every year you will see something happening and based on the experience we have with with the changes which are going live this year, we are definitely past the tipping point. We have raised the money, we have secured investments for the players who need to change their systems and I see that the activities are on its way and I am very optimistic that people will start seeing a change on the market very quickly.

Justin Ferrabee: So it's a sort of a, build it and they will come, idea?

Jan Pilbauer: Build it and they will come. We don't know who the they may be, but it will be very attractive for some of the new players who are currently not able to leverage the infrastructure we currently have.

Speaker 3: Just a reminder that you're listening to The PayPod from Payments Canada, available for download by iTunes and SoundCloud with archived episodes at While you're there, register for the upcoming Payments Canada summit from May 9th to 11th at the Beanfield Center in Toronto, Ontario featuring the most complete global and domestic outlook and payments modernization payments, paytech and Fintech in Canada. Now back to the podcast.

Justin Ferrabee: Welcome back to pay pod. I'm Justin Ferrabee, your guide and joining me is Jan Pilbauer from Payments Canada. Folks, we've been exploring the re-engineering of Canada's payment infrastructure and how this will lead to friction free payments for businesses and consumers. A critical part of the effort ahead is to help businesses and governments better grasp the powerful operational, customer service and benefits that it will foster.

Lauren Fleming from E&Y just completed a study for Payments Canada on the implications of modernization on accounts and on treasury departments. According to the E&Y study, a good portion of between $3 and $6 billion annually currently invested in reconciling account receivables and payables could be eliminated. It will also trigger a new wave of service and product innovation among fintech and paytech companies. Welcome, Lauren.

Lauren Fleming: Thank you for having me, look forward to talking about the report.

Justin Ferrabee: Thank you for joining us. Jan, could you clarify the core motivation behind the research?

Jan Pilbauer: Payments modernization will require a significant investment across the payments ecosystem. We wanted to understand and quantify better some of the friction we currently have in the system to help building the business case and E&Y did a great job going through and understanding where the pain points are and how much it actually costs in this country to process payments.

Justin Ferrabee: Lauren, you've cast a critical eye on this. You're independent, you've done a rigorous study, you've done the analysis. What have you found?

Lauren Fleming: Well, it was quite interesting I think for for E&Y as we went through this survey, we spoke to organizations from varying industry sectors. We spoke to organizations from various locations across Canada, as well as different organizational sizes. It was quite fascinating how common the challenges that they were experiencing with regards to current payments processing were amongst those organizations, despite their inherent differences. So specifically, the big challenges that were identified to us were really around the slow transfer speed of payments currently, as well as particularly the lack of information that's currently traveling along with payments.

So those two core challenges really have manifested themselves in a number of business problems that these organizations are facing today and there's a couple of them that I'll highlight today that we covered in our report, but the primary one is really around the manual effort required on the organizations' and the businesses' perspectives, which really manifests itself in additional FTE.

So individuals that are required to sit in the accounting departments and actually spend hours of their day reconciling invoices to specific payments, due to the fact that the information that they need to do that activity, or to automate it, simply isn't possible today. So that was one of our key, I'd say, consistent findings across the organizations we spoke to.

Then also with respect to challenges with cross border payments was another big key one that that we heard, particularly from the larger organizations that we spoke to, that have operations across different countries around the globe really being able to transfer payments efficiently through different systems, was a key challenge for them.

Justin Ferrabee: Those are some pretty big numbers. Do you think you are being conservative or optimistic in terms of estimating those costs?

Lauren Fleming: Yeah, no, we took the approach of being conservative, so we really wanted to provide a realistic number to the market to really understand what the real opportunity could be here in terms of realizing benefits with modernization. So it is a large number. It was ... at times can be a bit of a shocking number when you say sort of $3 to $6 billion but we think it's a pretty accurate and conservative estimate.

Justin Ferrabee: Do you see realizing the benefits being expensive, or reasonable, or part of existing infrastructure? Or how hard is it to get at the inefficiencies?

Lauren Fleming: I think it's going to really depend on the organization. There's again, differences in terms of complexity of organizations. The companies that we're ... within Canada are at varying starting points in terms of the infrastructures that they currently have in place to realize the benefits. So some organizations are going to have to make larger investments than others in order to fully realize the benefits, but we think that there certainly is enough of an upside that it makes that investment probably reasonable in terms of what the benefits could be from a modernized infrastructure.

Justin Ferrabee: Would that be true for small business and big business alike? Or is it more biased one way or the next?

Lauren Fleming: Yeah, I think that's a good question. For smaller businesses, obviously the investment decisions will be a bit more significant in terms of their size of their operations and the benefits they can likely realize. For larger organizations, that might be a bit easier to justify the investment, but that said, smaller organizations could be more nimble and able to more quickly make changes and adapt to new technologies as opposed to some larger organizations. So the bigger corporates that have legacy technologies already very well embedded in legacy processes that making those changes would be more significant for them than it would be for the small, medium enterprises.

Justin Ferrabee: Earlier in our podcast, Jan was telling us about some of the innovations that could come for businesses in this case. What are some of the things you saw as potential innovations that could be realized from modernization having been through all of this analysis?

Lauren Fleming: Yeah, I think the real benefit with modernization in terms of facilitating innovation comes from the increase in collaboration. So creating a more flexible environment, or ecosystem, where new players and new entrants are able to enter into the market and provide organizations and consumers alike with new solutions in order to help, again, remove some of the friction that you were both speaking about earlier, will be a great opportunity for that.

There'll be a lot more data available again, that will be transferred along with payments. So there'll be an opportunity to apply some advanced analytics to that data and that should uncover, I'm sure, lots of opportunity for future innovations that we're not even aware of.

Justin Ferrabee: That's interesting, so it's not just the savings on the actual processing, but you're generating new insight or value in your decision making for other benefits to the business. So it's not just in the actual processing?

Lauren Fleming: No, absolutely. I think that we'll certainly uncover some new solutions, new ways to perhaps change business processes to make the end user experience, or the customer experience at the end more seamless. Then it will also perhaps present even new business solutions that we haven't even thought about today for organizations.

Justin Ferrabee: So you talked a little bit about the benefit of the back office and that it could release benefits to customers. What would be an example of a big corporation that if they were to go with the modernized environment, make the investments, do all the changes, start getting the benefits in the back office of straight through processing, then what is the benefit to their customers, or how does that cascade out of their back office and into their front office and out to their customers?

Lauren Fleming: Yeah, I think it would be interesting to draw the parallel to the conversation that yourself and Jan had earlier around who pays for the friction. So if organizations are able to eliminate some of these pretty material costs within their current infrastructures, then for one, cost savings could be passed down to customers at the end too in terms of not having to pay for that friction anymore.

Justin Ferrabee: So Lauren, you spend out quite a bit of time with corporates now. How are they viewing it? We're insiders, we have lots of views and after a while we get immersed in it. As an outsider and talking to the market that uses this, how are they seeing this modernization effort?

Lauren Fleming: I think they're excited, to be totally honest. I think there's a lot of frustration right now with organizations that are experiencing this friction and they don't know what the answer is because they're unable to make the changes that they need to, or implement solutions that they want to, given the architecture of the infrastructure that's currently in place.

Justin Ferrabee: Lauren, you spoke about corporates, large corporates, and the benefits that come to them and the innovation we're going to see there and there's obviously greater financial resource to see those benefits. We've talked also about small business and what's in it for them through all of this, and small businesses vary. They vary from a small corner store up to small to medium sized enterprise with hundreds of employees. The benefit will be different and the cost of them will be different. In many cases, the smaller ones can be left out. How will they make the investments or find the resources to try and save a little bit on payments?

Lauren Fleming: I think that's a great question. It is important to distinguish the investments and benefits for large organizations as compared to the small, medium enterprises within Canada because the situation is going to be quite different for those organizations. The level of investment, of investment required for small, medium enterprises might seem like it would be an unrealistic for them. However, the notion is that there will be other organizations and other service providers that will enter the market and be able to create a solution on their behalf, that they will be able to just adopt into their own operations, as opposed to having to necessarily invest to create new infrastructures within their organizations.

Justin Ferrabee: That's interesting, so the innovation may not be in the small business, but in the small business service providers?

Lauren Fleming: Absolutely.

Justin Ferrabee: Like Square, that they'll make simple solutions for them to take advantage of it, without having to make big investments.

Lauren Fleming: Exactly and it would be a simple real add-on to their existing operations.

Justin Ferrabee: Do you have confidence that the market responds to those kinds of things, that there's enough dynamic in the market that those will emerge?

Lauren Fleming: That's right and I think that the market is very receptive to that. We've seen other examples of similar solutions being targeted and designed for small business and if we think of Quicken for example, and being able to just add on additional solutions that organizations can purchase alongside their existing infrastructure, in order to increase operational efficiencies, is another example of that.

Justin Ferrabee: Thank you both. That's been very interesting, very intense, and a lot going on here. As we start to wrap things up, let's cast our eye to the large corporates in Canada and then we'll talk about the small business, but what would be the message that you would have for them? What do they have to do? What do they have to think about, or know now in March 2018 as modernization starts coming?

Jan Pilbauer: Think about payments and I cannot emphasize this enough, pay attention to your payments processing, understand where the inefficiencies are and what can be improved and learn. Learn about what we are bringing to the market, talk to us, talk to your bank, talk to your vendors because we are keeping the ecosystem informed what the changes are and there is a great opportunity for you if you are a large corporate client. If you are a smaller business, don't worry about it too much because we are also stimulating the marketplace that changes will come and you will be able to take advantage of it without necessarily doing too much right now.

Lauren Fleming: I would just add to that, that I think that businesses need to be aware of that this is big, it is complicated, but there are real dollars at stake here that could be saved as we go through this modernization journey.

Justin Ferrabee: Fantastic. Thank you very much. We will continue to conduct research like this E&Y report as well as many others. We will go broader and look internationally at the benefits of a modernized payment system and the use of data in payments and how it's they've been realized.

We'll go deeper in Canada depending and cutting the data and looking at use cases by size of organization, by segment or sector that they're in, manufacturing versus service, versus retail and how it might impact that. We'll get clearer business and use cases for how the modernization infrastructure will release opportunity in the ecosystem and we will help our corporate clients, small business and other sectors of our economy to be prepared and to be able to benefit from the modernization.

So as we proceed on on this journey together, we will continue to bring new insights that will help the ecosystem to get better. So I want to thank you Jan, for your insight, your enthusiasm and your comments and thank you Lauren for your independent perspective, offering a closer look into the underlying operational costs of our current system and the business benefits under a newly engineered ecosystem.

That's all the time we have for this episode, but join us next time on The PayPod when we delve into the world of payments modernization and small business. It will create a whole new world of powerful customer-focused improvements while creating equally compelling operational efficiencies. This show is available and join the conversation online using #thepaypod.