Canada's Digital Economy: Creating a Shared Vision in a Fragmented World
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April 20, 2022 Canada's Digital Economy: Creating a Shared Vision in a Fragmented World
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20 Apr 2022
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April 2022
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April 20, 2022

The Empire Club of Canada Presents

Canada’s Digital Economy Creating a Shared Vision in a Fragmented World

Chairman: Kelly Jackson, President, The Empire Club of Canada; Vice-President, External Affairs & Professional Learning, Humber College

Distinguished Guest Speakers
Mark O'Connell, President & CEO, Interac Corp.
Anthony Ostler, President & CEO, Canadian Bankers Association

Introduction
It is a great honour for me to be here at the Empire Club of Canada today, which is arguably the most famous and historically relevant speaker’s podium to have ever existed in Canada. It has offered its podium to such international luminaries as Winston Churchill, Ronald Reagan, Audrey Hepburn, the Dalai Lama, Indira Gandhi, and closer to home, from Pierre Trudeau to Justin Trudeau. Literally generations of our great nation's leaders, alongside with those of the world's top international diplomats, heads of state, and business and thought leaders.

It is a real honour and distinct privilege to be invited to speak to the Empire Club of Canada, which has been welcoming international diplomats, leaders in business, and in science, and in politics. When they stand at that podium, they speak not only to the entire country, but they can speak to the entire world.

Welcome Address by Kelly Jackson, President, The Empire Club of Canada
Good afternoon fellow directors, past presidents, members, and guests. Welcome to the 118th season of the Empire Club of Canada. My name is Kelly Jackson. I am the President of the Board of Directors of the Empire Club of Canada, and Vice-President, External Affairs and Professional Learning at Humber College. I'm your host for today's event on Canada’s Digital Economy.

I'd like to begin this afternoon with an acknowledgement that I'm hosting this event within the Traditional and Treaty Lands of the Mississaugas of the Credit, and the homelands of the Anishinaabe, the Haudenosaunee, and the Wyandot Peoples. In acknowledging Traditional Territories, I do so from a place of understanding the privilege my ancestors and I have had in this country, since they first arrived here in the 1830’s. As farmers in Southwestern Ontario, I imagine they felt a very deep connection to the land, and yet likely did not recognize how that connection was built on the displacement of others. Delivering a land acknowledgement, for me, it's always an important opportunity to reflect on our human connection, and responsibility to care for the land; and to recognize that to do so, we must always respect each other, and acknowledge our histories. We encourage everyone tuning in today to learn more about the Traditional Territory on which you work and live.

The Empire Club of Canada is a non-profit organization, so I now want to take a moment and recognize our sponsors. They generously support the Club, and they make these events possible, and complimentary, for our supporters to attend. Thank you to today's lead event sponsor, the Canadian Bankers Association, and to our supporting sponsors, Osler, Hoskin and Harcourt LLP, and Wealthsimple. A thank you as well to our season sponsors, Bruce Power, Canadian Bankers Association, LiUNA, and Waste Connections of Canada.

I want to remind everybody who's participating today, that this is an interactive event. So, if you're attending live, I encourage you to engage by taking advantage of the question box that you can find below your on-screen video player. We've got some time later for audience questions. If you require technical assistance, please start a conversation with our team, using the chat button which you can see on the right-hand side of your screen. We also invite you to share your thoughts on social media, using the hashtags displayed on-screen throughout the event. To those watching on-demand later, and to those tuning in on the podcast, welcome.

It's now my pleasure to call this virtual meeting to order. I'm delighted to welcome Mark O'Connell. He is joining us at the Empire Club of Canada's virtual stage for the first time. Mark is President and CEO of Interac Corp, and you can read his full bio by scrolling down below in your screen. Canada has some of the highest levels of digital connectivity, access, and usage in the world. The pandemic has brought a new focus toward digital economy and the tools that support it, taking most of us from thinking about things like digital payment as simply a matter of convenience, or the creation of digital IDs as an idea far off in the future, to all of a sudden, things that are every day and right upon us. Given Interac’s role and working with the private and public sector to ensure both the security and efficacy of key digital products and services, I'm really looking forward to hearing Mark's insights today on how we create a shared vision for the country's digital economy, and how we tackle challenges that are caused by unpredictable global economic environment, and growing public mistrust and institutions. With that, I would like to formally welcome Mark and hand the mic over to him. Mark, welcome.

Mark O'Connell, President & CEO, Interac Corp.
Thank you very much, Kelly. Good afternoon, everyone. I would like to give a sincere thank you to the Empire Club, it's an honour, for extending this invitation to speak with you today. With just the first quarter of the year only behind us, we've all collectively witnessed significant precedent-setting disruptions at home and around the world, that, when coupled with the ongoing pandemic, have certainly fostered significant ongoing uncertainty and instability. This is manifesting in shifting consumer behaviour, as Kelly just mentioned, and societal ideologies changing. Viewpoints are increasingly polarized trust in institutions is eroding. And as a country, we are facing up to our collective responsibility to address long-standing inequities in our culture.

Now, all of that said, there is reason to be optimistic. Canada is coming out of the pandemic in better shape than we might have expected, and with enormous potential to capitalize on the growth of the digital economy. Unemployment is now at record low levels, and we have, as Kelly said, an advanced economy, with some of the highest levels of digital connectivity, access, and usage in the world. Now, we're at an important turning point, and amidst this strife, there are foundational opportunities right on our doorstep to capitalize upon. As we emerge from the pandemic and take on new challenges, all of us here, whether we are in the private sector, or in government, need to look for new ways to create truly lasting economic and social value. The challenge for us now, though, is how best to do that? How can we both identify and create opportunities for our organizations, for our employees, and for all Canadians. In our view at Interac, the answer lies in an apparent paradox: we must collectively have the courage to preserve and replicate certain hallmarks of our past successes as an advanced hybrid digital economy, while immediately embracing a digital-first, data-driven Canadian economy. This is the recipe for innovation and competition that will inclusively benefit Canadians and Canadian businesses for years to come. An ecosystem for digital payments and digital identification, built on shared services and common standards, but infused with free market participation, and that Canadian hallmark of balanced regulation, will empower new Canadian businesses, and will catalyze the growing digital economy. And when that happens, we will all reap the rewards of higher productivity, and a much more prosperous economy, and even perhaps more importantly, one in which everyone can participate. But to achieve this result, we first need to create the right conditions, because without a consistent, trusted, and standards-based ecosystem for our digital economy, the market will continue to fracture. And that will only serve to stifle innovation, weaken trust in institutions, and put Canada behind in areas where we can, and should, lead the world. Building an ecosystem that works starts with correcting a perception that bugs me all the time, that Canada is far behind or doesn't have the tools in place to bring new ideas to life. That is simply inaccurate, and anyone who tells you this either has a self-interested angle, or maybe is manifesting that age-old Canadian insecurity gene that pops up among us now and then—but more on that later.

If we truly examine our history in many technology-led sectors, you will find that Canada succeeds and leads when we collaborate at platform levels, and then enable the market to create new competitive solutions accessing those platforms. This is our secret sauce, and Interac is a case in point here; we were actually built upon this very idea. I'll tell you a story; in the early ‘80s financial institutions, or FI’s, were frantically deploying ABMs across the street from one another, in a race to see who could claim the largest ABM network. Then the idea dawned that this was a poor use of scarce capital, this was not an area conducive to real competitive differentiation, and each FI’s customers would really benefit from the convenience of accessing all ABMS under a common connected network called Interac. Access rules, in partnership with regulators, and a business model, was then established, giving birth to what's called the white label ABM industry. The result was a burgeoning industry for years, and this low-cost, co-operative platform, empowered Canadians to be the highest per capita users of ABM technology in the world.

So, this came about, and my point is, even though this became the today's low-cost Interac point-of-sale debit network—which is another story—Canada led the world in the provision of this electronic payment technology, through the astute co-operation of the nation's banks, credit unions, merchant acquirers, merchants, those white label ABM processes I spoke about, and a healthy relationship with regulators, such as the Department of Finance and the Bank of Canada, who diligently stayed current on enabling rules and regulations that ensured the principles of safety, soundness, and most importantly, access. It is essentially in invest once in a common platform which enables scale economies, and then compete on top of that platform in whatever respective businesses that platform participants are in. Now, Interac is hardly the only example of this model of success, but I believe this hallmark of industry collaboration, astute usage of capital, and, particularly in a country of our size and GDP, and at a time when global big tech firms dwarf even our largest institutions, capital usage should be at the forefront, as well as moderate regulatory oversight, and this is the Canadian recipe for success.

Now, in all honesty, I must say when any of these characteristics I just mentioned lag, so, if industry participants actively issue co-opetition, or access rules and regulations lag market needs, or mistrust arises between the private and the public sector, fueled by the polarized and exaggerated villainizations of each of them, or egregious economics or attempted, this recipe loses its power. And I must say over the past decade, I have witnessed some of these unfortunate trends occurring on all sides of the market. However, this does not indicate market failure, or call for the radical abandonment of the co-operative market-based model we know can propel Canada forward in the digital-first world. Over-regulation, or excessive government provision of market services, is not the answer; neither, obviously, is unfettered free market dynamics. I believe, an updated version of our not-too-distant past successes in digital payments, is still the model fit for purpose for Canada. Base infrastructure, such as the new national real-time clearing and settlement system, and a real-time exchange, should be provided centrally to enable choice. But the role of government beyond that is moderate oversight of competitive market providers, and to focus on staying current with modern access rules and regulations to spur innovation. It's not about attempting to provide more and more complex operational services in Ottawa; it's about enabling an industry of platforms and customer solutions that allow for widespread participation across payments and digital transactions alike. It's not about limiting consumer choice or industry competition; it's about creating the right conditions that will make more competition and choices possible.

Now, we don't have to go very far back in history to see proof that the proper application of Canada's regulatory standards, and our homogenous market concentration, has served us well. Canadians were protected from the worst of the global financial crisis in 2008 and was the least effected G7 country. But on the flip side, Canada's more conservative approach to regulation, has also led to a reputation for being home to stifled innovation and competition—a reputation I believe that can sometimes unfairly bleed into the financial and the payment tech space. Put simply, many people seem to believe we're still in the dark ages, especially compared to what's happening south of the border, and that is simply not true. You can walk into an average grocery store still, in the US today, and see people paying for their groceries by personal check. When was the last time you saw that happen here? Canada is leagues ahead of that, and we have been for a long time. And it wasn't just ABMS that I spoke about. Canadians have long been the highest per capital, per capita point-of-sale debit users in the entire world. We were leaders in the widespread provision of secure chip and pin card technology and early adopters of contactless payments. And last but not least, did you know that the real-time email money transfer was invented and patented right here in the Canadian market? We're big users of Interac e-Transfer, for bill payments and all manner of peer-to-peer payments. We are soon about to hit the 1 billion transactions per year mark on the service and exponential growth over recent years. That has resulted in e-Transfer being designated a prominent payment system by the Bank of Canada.

To put this into context, there are many countries around the world with real-time settlement systems in place that do not have near the same traction that Interac e-Transfer has had for years now. Until recently, Interac e-Transfer was the most used p2p payment system in the world, despite Canada having 1/10 of the population of the United States. So, we've hardly been a country of luddites when it comes to digital payments. Before the pandemic even started, cash use was already in steady decline, dropping 40% between 2013 and 2018. Then COVID put the adoption of online commerce and digital technologies on the fast track. The proof is in the numbers from 2020, that show digital payments skyrocketing, electronic payments represented close to 80% of all payment transactions in Canada now, and online payment transfers also grew by close to 50% in 2020 alone, and e-commerce, and content contactless payments, were also on the rise, all while cash and check payments continue to decline.

Now, as I mentioned earlier, further modernizing the payment experience will include the current upgrading of our backbone infrastructure. For our part, Interac is working with Payments Canada, to help build the real-time rail, or the RTR, leveraging the technology and existing connections inherent in the Interac e-Transfer service that millions of Canadians and businesses already use every day. And as we think about making digital payments seamless, this applies to the business world too. And I must say, this is an area where Canada has not led, and significant improvement is required to move away from legacy invoicing check systems to enhanced digital payments. It's why we recently introduced Interac e-Transfer for business, which again builds upon the widespread adoption and ubiquity of the Interac e-Transfer service, with a goal to help businesses streamline their paper-based accounting processes, so they can maximize working capital, and reduce operational inefficiencies and costs. This infrastructure is in market now and ready to scale, so just as Interac debit eliminated that check in our grocery lines, and Interac e-Transfer significantly reduced person-to-person checks, we aim to curtail checks and wires in the business-to-business space. So, the problem is not that we lacked modern payments platforms, or innovation to commercialize, the market can deliver ubiquitous solutions. We have done it, as have Visa, MasterCard, and Canadian FinTechs, such as Shopify and others. A more salient issue has been the need to update the regulatory frameworks and access rules, to keep pace with our capabilities and our market needs. Current rules dictate that only financial institutions can access payments infrastructure, and partnership, therefore, with accredited financial institutions, is an imperative for FinTechs, and others. Interac is compelled to operate within this risk framework, which previously served Canada well, however, expanded access rules are on the horizon, with the new retail payments oversight framework, and the Retail Payment Activities Act. At Interac, we applaud this innovation, and the key role of government, to enable more widespread access to our network platforms, for FinTechs, and other payment provider providers.

So, these are also the ecosystem lessons we must apply when we look at regulation and access rules with open banking, for example. So, let's tackle data sharing, the basis for open banking. In this ecosystem, consumers and businesses can authorize third-party providers to access their financial transaction data, using secure online channels. This has enormous potential, for financial organizations, including banks and FinTech start-ups, and for consumers. With open banking, organizations can turn customers financial data with their explicit consent—very important—into more innovative offerings, that offer added value and flexibility. Yet the adoption of new processes and ways of working, certainly isn't without risk. Canadians expect to be able to derive value from their data safely, and respecting privacy and their control. A security breach with respect to this data can have lasting ramifications for consumers and organizations, so we need to be very prudent when increasing access or making data dynamic.

The good news is that Canada's open banking journey is on this path, and we're feeling excited about it that Interac. That's in large part because of our confidence in Canada's highly qualified new open banking lead, and in the appetite that we're seeing for accelerating open banking opportunities. We can not only catch up here, but we can lead the world in this area as well. If, as we look to stimulate innovation with new policies and regulations, the pendulum though swings too far in the other direction, we're only going to create risks, fracture, heterogeneous systems don't work, they simply can't create a sufficiently large network effect to provide true value. To create the right conditions for us to truly compete, we first require a common view and set of capabilities, that organizations such as Interac and my competitors, and organizations not even created yet, can provide in this market. In short, we need to collaborate where it makes the most sense, specifically on the standards that provide the highest levels of security, accessibility and inclusivity. Then we can compete upon common platforms.

So, as I hope I've conveyed—despite some often, I think, unfair perceptions—Canada is ahead of the game in our digital economy. All of this was possible, because Canada was forward-looking, and set the conditions for market players to innovate and thrive. And now it's time to do it again, and one of the most exciting opportunities for Canada to lead is through digital identification. This is one particular area where we have a chance to deliver real economic and social value, if we get going, and get it right. As I've noted, Canadians are already big adopters of digital payments, but they also want to be able to complete their digital transactions, and access other services as seamlessly as possible, and digital ID will be a major part of how that happens. Trusted digital ID will be the foundation for secure, convenient and inclusive participation in the digital economy. It will underpin not only how Canadians make payments, but also how they access government services and conduct business, both online and in person, moving forward. Government will be able to equip Canadians with more convenient ways to access services, all securely and efficiently from anywhere anytime. And businesses, meanwhile, will be able to serve the public in brand new ways, from expanded e-services to enhanced and frictionless e commerce, all while benefiting from the reduced cost—and this is huge—of fraud through identity theft, etc. in today's plastic card and password world. Imagine being able to sell a house or secure a mortgage without ever having to leave your home. That's possible with trusted digital ID In capabilities. Our research shows that more than half of Canadians, despite not really knowing what it is, they're interested in using digital ID over physical ID, to access services. Yet within our current systems, the barriers to accessing those services, including government services, is just too high. And the pandemic put this into particularly harsh light, as Canadians needed to access government services at home, and often in emergency scenarios.

So, in a world where we know interactions are increasingly online, we need a way for all Canadians to verify our identities quickly, and with a high degree of confidence. And this is true for all Canadians. Every Canadian should benefit, no matter the province or territory where they live, their socio-economic status, or their education level. This is simply an opportunity we can't afford to miss. It's actually about our economic growth. Digital ID services have the potential to add $15 billion, or 1% of our total GDP, to Canada's economy, according to DIACC. It will also be transformative for our small and medium-sized businesses, adding $4.5 billion of value to that part of our economy.

So, how is this all going to work? Well, for digital identity to fully provide its benefit to society, it needs to be underpinned by foundational government identity documents, such as passports and driver's licences, fully encrypted. Industry’s role will be to assist in the creation of common standards, and exchange platforms, that allow for digital credentials to be exchanged and used widely by all Canadians. Right now, federal and provincial governments are making decisions about digital ID, representing the needs and views of Canadians. Respecting those needs is important, but will also need co-operation and interconnectedness to reap the true benefits of digital ID. We recently learned important lessons from the national experience with vaccine verifications, for example. We have disconnected regional systems that are not only inefficient, but they create barriers we've all experienced. This can't happen with digital ID. It's why access, inclusion, and security and privacy, are all the core elements of Interac’s digital ID vision. We're already working on embedding the highest level of security into digital ID, including through our acquisitions over the past couple of years; these included SecureKey’s Canadian Products, including its verified.me authentication network, and 2Keys, a Canadian company with deep expertise in secure identity verification. So, backed by this added expertise, and frankly, decades of experience in building the common infrastructure Canadians used for payments today, we now have the capabilities to enable a national digital ID trust network, that can allow disparate ID systems to work in conjunction with each other. It will integrate not only with our own service offerings, but those of other businesses, and government. We're doing this because we know a cohesive solution that is made in Canada, by organizations that intrinsically understand our unique needs in this market, will ultimately be best. We will need a system that safeguards data domestically, and is inclusive and accessible, all while providing interoperability for others to build competitive new services.

And this is another area where Canada's not standing still. Public and private sector stakeholders are already working together and making strides through the Digital ID and Authentication Council of Canada, or DIACC, the CEI-CIO Strategy Council, and more. But we need to keep building on this work while being conscious of the successes we have achieved in areas like payments, that now can be applied to digital ID, because I tell you, the flip side is a situation in which global “big tech” firms are responsible for authentication of Canadians, and the exchange of their foundational data. This poses numerous challenges, not the least of which is our loss of control how the services are provided, how Canadians’ data is being used, and where it is stored. It's something I know many people, both in government and in the public, will have concerns about. So, if, or optimistically, when, we get this right, the rewards will be big. I am not being hyperbolic here, when I say that we view digital ID as the operating system of Canada's next digital-first economy. Trusted, capable platforms, and common policies and standards to safely identify and authenticate citizens, will mean firms across all industries can create value for Canadians.

There are two major benefits here, as I've mentioned, improved security and more accessible, scalable innovation and inclusion. First, security. Like many of you, we at Interac believe in the value of great customer experiences, but they absolutely must be built on the foundation of security and trust. Security is a key consideration for Canadians to adopt digital ID; it's a table stake. We found that close to 7 in 10 Canadians say that they're open to digital ID, if it means their identity data is better protected than it is today, and it will be. And Canadians are more open to a digital ID ecosystem that prioritizes security actually over convenience —it’s an interesting data point we found. It's here that a cohesive, again, thoughtfully designed system for digital wallet and credential management capabilities will be so powerful. Built-in security measures through a common framework will reduce those risks I talked about, from unregulated participants, who may operate with lower security, and data protection standards. This is especially crucial right now, as I said, when trust in our institutions is in a precarious position. Providing deep security and confidence in privacy protections is essential to winning back that trust, and maintaining it for the future.

Second, with a shared vision and ecosystem for digital payments and identification, Canada's private and public institutions will be able to deliver new, and much better, products and services and experiences. We'll be able to create the economies of scale we need here in Canada to foster greater innovation. A common ecosystem, built for interoperability, lowers the barrier to entry for innovators, including small businesses. They will be able to build digital products and services upon an existing set of capabilities, reducing the development costs considerably. Shared trusted digital capabilities, mean organizations of all sizes, large and small, and across industries, can create experiences that simply wouldn't be possible otherwise. What this comes down to is empowering the network effect. You know the old story of the fax machine, one other fax machine has limited value, you add a second fax machine to that, exponential value, and so forth. The more users, the more effective the system. A fractured network, on the other hand, will have low utility, higher risk and higher costs.

For Canada to unlock the benefits of the digital economy going forward, we need to acknowledge, as I said, what's already worked well, and be inspired to do it again. I want to call on everyone listening today to not disregard how far Canada has come in our digital economy. Instead, use what we've learned to guide how we take on our next chapter. Delivering trustworthy, secure, and frictionless digital payment and identification services, will take collaboration between the private and the public sectors. It will also take co-operation within those sectors as well—I harken back to how Interac was born. If we are to capture this golden opportunity for Canadian competitive advantage, provinces and federal departments must have the foresight to see the big picture value of ubiquity, and common standards in our trust network, versus regional or departmental fragmentation, due to “not invented here syndrome.” And finally, my call to action is we must act with more urgency. Delay is tantamount to ceding Canadians identity exchange to the walled gardens of foreign tech companies. So, as I hope I've conveyed today, that mindset, it's already in our nature and DNA as a country, and we've seen it work. Let's lead the world again. Thank you very much. I'll pass it over to Kelly.

QUESTION & ANSWER

Kelly Jackson
Thanks, Mark. Wow, that was a real call to action, I love it. You know, really getting us thinking about not just the possibility, but really, how we can build on our unique strengths in our track record. And I think as you said, sometimes there's a Canadian tendency, as we all know, to sort of play down of our accomplishments, right, or to not see ourselves as leaders. So, that's really interesting to sort of take us back, and take us on a bit of that technological journey in this space. I just want to remind the audience that if you have questions for Mark, please feel free to submit them, you should be able to see on your screen there an opportunity to put in questions, and I'll be looking for those, and happy to bring them into the conversation. To kick us off for a bit of a Q&A session. Mark, I've got a few questions, so I'm going to take the moderator’s, I guess, the pride of place here of the moderator, to ask the first couple. So, playing off this idea of the Canadian, you know, this unique set of experiences, expertise, and qualities that we have in this digital economic space, and what we've done in the past, you know, you talked about collaboration, right? And so, you know, I'm just wondering if you can speak maybe a little bit more to sort of, what are those unique things that you see in the Canadian context that we really can build on here, if we want to put that stake in the ground, and continue to be leaders, but also who's doing this really well out there? You know, for our audience to get to get a sense of like, well who's leading the way right now, internationally, when it comes to things like digital ID, for example, or other types of, maybe contactless payment, or business-to-business e-Transfer? I think it will be interesting to understand, you know, sort of where are people sitting when you look at that international economic landscape?

Mark O'Connell
Sure, thanks, Kelly. Yeah, I think I mentioned a number of times my soapbox about, when you're a country of our size, in an increasingly capital-intensive world, and clearly digital-first, not hybrid digital economy, digital-first is here. I always talk about what, you know, we're known for, Canadians, the partnering together, seeing the big picture, and realizing we need to invest smartly in platforms, and co-operate there, and then compete like hell on top of them, is more of imperative. I was talking to a large bank the other day, and was telling them about how, did you know Square paid for their multibillion-dollar purchase of a payments company the other day overnight, with their stock price appreciation. Imagine that, you know, the cost of capital that these major US-based, and some global firms, are having. We have to be smart, and use that Canadian recipe for success, which requires trust, and trust in each other.

I tell the story about the, you know, the group of farmers in a territory that knows, when they see the big picture, that if they all let their fields go fallow for one season, they're going to reap the benefits for ten years. But all it takes is one of those farmers to say, “hey, in this year's harvest, if I break out of this, and I just, you know, plant my fields that overlap with others, I'll get one year of tremendous returns, at the expense of the entirety.” And I'm not saying that—I'm a free market capitalist, I'm not talking about, you know, co-operation to that degree—but I am saying, invest once in things that are foundational, with companies that have capability to do that, that understand this marketplace. And there are, as we know, the co-operative was the start of Visa and MasterCard, and co-opetition is happening among many Neobanks and FinTechs. These all can fit that model, but I think what I'm seeing is, unfortunately, is co-operation is hindered when there's mistrust, or ideologies that polarize, that come in that say, “big banks bad, big tech, good; FinTech good, you know, credit unions,” but no, they all have something to contribute. They have always contributed there. We're all innovators and capital infusers into our economy. We have to dispel with these kinds of polarizations, and realize it's only together we can beat the world like we did in ATMs, and debit, in person-to-person payments. These are not small things in digital economy, and we literally led the world.

So, I do see—it's funny, you were mentioning internationally—there is a number of countries who are now trying to create co-operatives, like Interac, that have a governance structure, that have, like we do, a combination of independence and industry representation. They lost their Interacs long ago, and they're quickly trying to create these. If you look at the UK, look at Brazil, you look at in Australia, here we have it. And this golden goose, like let's not asphyxiate it because the pendulum swings so far in terms of, we need to tear down some of the bad, and overregulate. I think we can do it together, and there are countries—now it's interesting, in terms of digital ID you mentioned—it's amazing how, if there's no trust, and you spin up a digital ID system, very low usage, you see in some countries. In others, you get the polarized difference, and that's that element of trust and capability. If you have common standards, and a trust in a brand, and together with the government, adding to that trust, Canada's proven we can take advantage of the fact that we're so homogenous as a market, we could actually lead the world in this operating system of the digital-first economy.

Kelly Jackson
I'm glad you added as a market—because I was like, I think that's the first time I've ever heard of Canada described as homogenous.

Mark O'Connell
No, I just I don't cast aspersions. I used to work in the United States, I understand the difficulty when you have 10,000 banks, you have, like, it is very tough to create interoperable standards based. We don't, and we should use that competitive advantage, along with our ability to put things aside, and co-operate at the right levels. This is our secret sauce.

Kelly Jackson
I want to ask you a couple of questions about trust, In your remarks, trust came up a lot, right? Even when you talked about digital ID, you said it has to be a trusted digital ID. And what you were just talking about there, about that trust isn't there, then you know, you spin it up, but is there adoption rates on the level that you want to see? And then how efficacious would the system be? You know, I think recently it's been interesting in Canada, this topic of digital ID, and sort of trust and privacy concerns, seem to be very much in the news. You know, here in Ontario, we heard the news about a petition by one of the provincial parties, basically saying that there should be no digital ID system created. Saskatchewan recently sort of pulling back on their plans to implement something, citing privacy concerns, and the need to consult and understand, I guess, what the nature of those concerns are more wildly from the public. So, from your perspective, what can we do to build that trust? And Interac itself, I think is a very trusted brand, and very recognizable brand, it's on—that little symbol is on everybody's debit card. So, what role can Interac actually play here in potential, I guess, fostering or building some trust, or helping to support this public dialogue around digital ID?

Mark O'Connell
That is, we’ve been following that very closely, and the people that have those opinions come by them honestly, I completely understand. Because of, you hear all the time in the news, you know, this place was hacked and digital, you know, we all know that there's those opportunities. We need to educate Canadians, and the market, and politicians, on what actually digital ID is. And I think that's the first problem—because I believe it's a bit of a red herring—but we need to make sure that we educate that, because a proper digital ID system is actually more secure, and protects your privacy, than our current methods of plastic cards that say, this is my driver's licence, but I can get it replicated down on the street for 10 bucks. And by the way, whenever I go to the liquor store—when I used to be asked, I'm certainly not asked with this grey hair—but you're asked to prove your age of majority, and you have to give that person a piece of plastic that has your address, your driver's licence number, all things that don't pertain to whether you are of age, or not, to buy. Digital ID will actually put the control in the consumers hands, and only share what is needed for the use case in front of the Canadian consumer; this is actually protecting privacy. At Interac, our digital ID platform and model is triple-blind; it is not a honeypot of all Canadians’ foundational data. This is another misnomer that people think about digital ID, it’s, they're a single place now we're all of my passport—no, this is about the secure exchange of encrypted, and tokenized data, from where it sits at the Canadian passport office, still safely within the coffers of each of the government, you know, issuing departments. But it's about exchanging and putting the control in the customers hands about what they want to do with their data. That is way more control than we have today, and you know, as we all try to remember 15 different passwords, and we know that the two-factor authentication, this is not going to be, this is why we have this level of fraud. But if I can prove who I am, by sharing what I need to, and is verified and handled by trusted common platforms, then actually a business or a government has more certainty that you are who you are, than standing in front of them with what could be a couple of pieces of fake ID. So, if we need to educate on what digital ID is. I heard of there was a someone running for office on the Conservative side, I heard just had a blanket response that, ‘I'm against digital ID.’ Well, I think they're actually thinking, ‘well, it's a vaccine passport, so I'm against that.’ But that isn't what digital ID is. Can it be used to better and seamlessly deliver things like that? Yes. But I think our first task is to make sure, and I think many in the government and private sector do understand this, but we need to do a better job in educating Canadians. And then you're right, if you can put a brand behind it, that is trusted, government departmental brand, or, you know, Interac with, your right, five years running, we're the most trusted brand in financial services, I'm very proud to say, even beating my bank, some of my bank shareholders. You know, that's very important in many countries don't have that established trust.

Kelly Jackson
Thanks, Mark. We've got probably, I don't know, maybe five, six minutes to get through some audience questions. So, maybe we'll do a bit of a rapid-fire here, and we'll try to fit in that as many as we can. So, the first is, what is the role of CBDC? In your view?

Mark O'Connell
I think that is not an if, but a when. I think, just like I said, about open banking, and we just talked about digital ID, this needs to be prudently rolled out, and the conditions set very, very carefully. But I think it also adds to inclusivity, I think, and micropayments and things that do require some modernization. Again, I think it's important that capable market firms partner with government on some federation of those things. You want to preserve the elements of digital currency of course, but it can't be a complete cowboy, you know, anonymous untethered system. So, we are studying very carefully, right now, actually, within our innovation group, how can we help Canada lead in that new payment type? Because it is coming, and it has a lot of utility when done right.

Kelly Jackson
I'm just I'm looking down, that's because I'm looking at the questions here that are coming in. The next one is, given most of Interac solution as pertains to debit transactions, how do you see current affairs or developments impacting the future of the number of debit transactions?

Mark O'Connell
So, current developments affecting the future of debit transactions?

Kelly Jackson
Yeah, I guess maybe is there a potential for like a downward trend, or in terms of debit transactions, or do you see that going upwards?

Mark O'Connell
We are seeing them going upward. Certainly, the preponderance of those are in contactless, so Interac Flash when you're tapping either your card or your mobile phone, and that is growing very healthy. Traditional, dip your card in with your pin, you know, that has plateaued. So, I think that Canadians always want to stay in control of their money. We are the highest per capita uses debit for a reason, we have, we have that prudent side of ourselves, not wanting to throw everything on to liability payments, like credit cards, so, I think there's always going to be a healthy place for that. However, I would say we just talked about CBCD’s, you look at the advent of payments is in push real-time payments, which is Interac e-Transfer, so if you think about that, I can either request from you, “hey, Kelly, if you lost the Toronto Maple Leafs bet last night, click here, you fire me money, or I can just push it to you,” and it goes straight from account to account in real-time. That has been called “cardmageddon.” It means that, at some point, the infrastructure that is around card-based payments, terminals at the point-of-sale, all of the friction inherent in the number of players that are in that payment type, that is going to erode over the next decade, and you're going to be seeing more streamlined, push real-time payments, both for, you know, merchants’ interactions, in addition to paying the small business at the farmers market, you're going to, in addition to giving your kid beer money, when he's all the way across at UBC and needs emergency money. That, I think, you are going to see—and we've planned for it—kind of erode some of the traditional card-based payments, both credit and debit.

Kelly Jackson
Yeah, it's funny, as you as you're talking about those, I was having a recollection of an experience about a year ago, where I was in my neighbourhood. I went to pick up some dinner I'd ordered, and I went in, and I realized I didn't have my bank card with me, and the person working there said “okay, well just e-Transfer me the money. because it's an automatic, so they can tell right away if you've done it.”

Mark O'Connell
Exactly.

Kelly Jackson
I've never had that happen before, but I, you know, you can see how that shift could really start to happen. Okay, next question. What will retail consumers see as the key difference between e-Transfers and RTR?

Mark O'Connell
You know, it's an interesting question, because they're embedded. So, we have offered and provided a some of the core technology, and processing, and conductivity, so there's, obviously, they're one in the same. And our E Transfer Network transactions will flow through the real-time clearing and settlement system, and that same exchange. I would say that, the way I look at it is, there's going to be, you know, certain businesses, and businesses like banks that provide their customer, or Neobanks or FinTechs that provide their customers transfer capability and access to real-time payments, are going to have a choice. There's—I look at it, you know, the RTR is a base, single credit transfer system, kind of, you know, and it has base functionality to move money in real-time. Other providers, Interac, have a plethora of value-added services, you know, 16 years of machine learning and AI on fraud management, other use cases, and capabilities built upon that, pay for a party, pay multiple, you know, there's all kinds of things that you know, constituents will want, maybe above just plugging into the to the base infrastructure. And that will be provided by Interac and by others. You know, today you can choose, you know, there's Pay Pal, but it's a closed loop system. Interac, you have open access to every single bank account in the country and literally, I think, one of the best fraud records in the world. Those are the types of value-adds you're going to be looking at, as people shop to say, “okay, so where do I want to take advantage and prop and process my transactions?”

Kelly Jackson
Thanks, Mark, we're gonna try to just squeeze in one last question here. This is from Norman Zuko. He wants to know if there's a mechanism that would bring all the various players together across the industries, and the stakeholders. He said, there are specific sort of, I guess, industry groups or associations like Payments Canada, but is there anything across groups of stakeholders that could, I guess, act as a mechanism or a forum for this collaboration and discussion?

Mark O'Connell
Yeah, as he mentioned, it's true that, you know, both the government and the private sector, there's the CIO Council, is setting up those forums with that exact mandate. And it's inclusive, like the CIO forum is across any industry, just looking at technical standards, making sure we have the expertise at the table. And you know, then there are organizations, Interac itself has a governance model that has that capability. If you think about Interac, in our payment’s world, our original foundational world, what is Interac, but it's a bridge, it's a nexus point between the smallest credit unions, to the largest banks, to ABM providers on one side, to merchants on the other. And sometimes those two sides aren't always in love with each other, depending on, you know, payment costs, and all of the things that come into come into that. And now we've added the government as a constituency, and we're overseen by the Bank of Canada, I mentioned e-Transfer is a prominent payment system. Interac is that triangular nexus point, where our very model is to allow—we have 40 shareholders—allow that conversation and standards to happen, without fearing competitive, you know, issues and so forth. So, we view ourselves as one of those places. And I can tell you, our DNA, as I mentioned, we've had to live under certain regulations in terms of who can access our systems, because it served Canada well in the older, non real-time systems, to have those regulations. We are actually, you know, looking forward to having, you know, more access. We're completely open as we have been, and we want to have that discourse with all sectors of the Canadian economy. And it's a great question, because it's absolutely necessary, if we're going to set these conditions right, to make sure that we have interoperability for all.

Kelly Jackson
Thank you so much, and thanks to our audience members for submitting your questions today. Mark, that was a very, I think, first of all insightful set of remarks, and I really appreciated the opportunity to get to do a bit of a Q&A session with you, to dig into some of these themes and topics a little bit more. Now, I would like to welcome Anthony Ostler. He is the President and CEO of the Canadian Bankers Association. He is going to deliver some appreciation remarks. Anthony, over to you.

Note of Appreciation by Anthony Ostler, President & CEO, Canadian Bankers Association
Thanks, Kelly. Good afternoon, everyone. Mark’s thoughtful remarks today made it clear that consumer preferences are rapidly evolving, as powerful new technologies change the way people in businesses pay for goods and services in a digital world. Now, more than ever, Canadians across demographic groups, value convenient, and dependable access to digital payments of banking technology. As we confirmed through the CBA’s recent “How Canadians Bank” survey, 8 in 10 Canadians are using digital channels to conduct most of their banking. The use of mobile apps is on the ascent, and 75% of Canadians intend to keep the digital banking habits developed during the pandemic. I encourage you to visit CBA website for the full research of our benchmark study. Canada's banks, and their trusted partner Interac, are continuing their long-standing focus on developing new innovations that make digital transactions and authentication more flexible, secure, consistent, and accessible for all customers. On behalf of the CBA and our member banks, thank you to Mark, and his team, for pushing the boundaries of what's possible in digital payments. Thank you.

Concluding Remarks by Kelly Jackson
Thank you, Anthony, and thank you again to the Canadian Bankers Association and all of our sponsors for supporting today's events. Thank you again to Mark, and everybody who joined us today to tune in live, or those who will be participating later on-demand. Our next event will take place on May 4th, at noon Eastern Time. I invite you to join us for a virtual panel discussion that will be focused on, “The Urgent Need to Improve Healthcare Delivery Within Ontario's Remote Indigenous Communities.” This is a need that we all know has existed for a long time, and certainly, we are going to hear about the ongoing impacts of the pandemic, in terms of delivery from a great panel of experts. More details, and complimentary registration are available at empireclubofcanada.com. As a club of record, all Empire Club of Canada events are available to watch and listen to on-demand on our website. The recording of today's event will be available shortly, and everybody who's registered will receive an email with the link. Please feel free to forward it and share the conversation with your colleagues, family and friends. Thank you again for joining us today. I wish you a great afternoon. Take care and stay safe.

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Canada's Digital Economy: Creating a Shared Vision in a Fragmented World


April 20, 2022 Canada's Digital Economy: Creating a Shared Vision in a Fragmented World