Innovation in Electronic Payments — Visa Canada

Submission

July 9, 2010

The Honourable Tony Clement
Minister of Industry
235 Queen Street
Ottawa, Ontario K1A 0H5

Dear Minister Clement:

Thank you for the opportunity to participate in the discussion on how to improve Canada's digital economy. We believe Canadians will benefit greatly from a government that is focused on developing our collective strength in the digital realm. As advanced economies compete for an increased stake in the high–tech sector, it is imperative to create policies that will accelerate Canada's digital advantage.

Visa continually strives to facilitate commerce with innovative, secure and convenient electronic payments. We are a global payments technology company that connects consumers, businesses, financial institutions and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and cheques.

We have built one of the world's most advanced processing networks — VisaNet, which is capable of handling more than 10,000 transactions per second, with reliability, convenience and security, including fraud protection for consumers and guaranteed payment for merchants.

VisaNet is also the world's largest retail electronic payment network, providing processing services and payment product platforms. This includes consumer credit, debit, prepaid, and commercial payments, which are offered under the Visa, Visa Electron, Interlink and PLUS brands.

From the creation of one of the first general–purpose credit cards to the latest in mobile payments and money transfer services, Visa has been leading innovation in electronic payments for over 50 years. Our fundamental approach to innovation focuses on enhancing our current product platforms and extending the utility of our products and services to new segments and geographies. Visa innovations enable more people in more places to enjoy the benefits of electronic payments at any time, in any location, using a multitude of devices.

Visa's dedication to innovation is guided by a single rationale — to create better money. Better money means secure, convenient, accepted and rewarding electronic payments that provide greater value than cash, cheques and other competing payment products.

Around the world, cardholders can pay for things online, over the phone, and at point of sale (POS) outside their home country instead of having to find an ABM to withdraw cash. In many cases, they can pay waving their card in front of a device, instead of inserting it and using a PIN for every transaction. This helps consumers avoid line–ups and allows merchants to process transactions quicker during peak periods.

E–commerce

In terms of E–commerce, Canada has one of the highest internet penetration rates, but has one of the lowest online purchasing rates. According to Statistics Canada, 80% of Canadians use the internet to search for product information, but only 50% actually order goods and services online ¹. Essentially, Canada has a browse–to–buy ratio gap. A 2007 Neilson study comparing online activities between countries, showed that 94% of U.S. consumers shop online while only 78% of Canadians do ².

A number of reasons could explain why Canadians shop less online than many of our neighbours, such as fewer Canadian online merchants, perceived security concerns, or tax exemptions for U.S. retailers, which enable them to undercut Canadian competitors. However, Visa believes one of the biggest deterrents to shopping online is the lack of a viable debit product for online purchases. While Canadians are among the most frequent users of debit at point of sale, consumers are generally required to use credit for online purchases because the domestic debit product has very limited online acceptance in Canada and no acceptance internationally.

To illustrate the point, teenagers who wish to purchase music on iTunes are forced to use a parent's credit card, because the current debit offering is not accepted. We believe that all Canadians should have access to the online marketplace, regardless of whether they have a credit card. Currently, there are millions of Canadians who simply do not wish to have a credit card, are too young, or lack the sufficient credit rating to obtain one. With Visa Debit, Canadians will be able to book flights online, buy music on iTunes, or do cross–border online shopping with the freedom of using their own money to pay for goods.

Visa has invested heavily in building the right supports for the online channel. This includes extensive layers of security and protection to build cardholder confidence, so they are comfortable purchasing goods online. Some of these features include a Zero Liability commitment to protect cardholders from unauthorized transactions, advanced fraud detection and cardholder alerts, and chargeback protection. Consumers do not receive these same security commitments for online purchases with the current debit product in Canada.

This has led other products to emerge to fill the void. Today, with still no broad solution for Canadian debit card users to pay on–line, consumers use the completely unregulated PayPal system 10 times more often than Interac online for ecommerce purchases in Canada ³.

This high cost, unregulated payment option does not provide the security and zero liability offered to consumers by Visa.

Mobile Payments

With Visa's mobile payments innovations, you will soon be able to leave home without a wallet. In many countries, mobile phones can now be used for point–of–sale payments, remote payments, money transfers, transactions alerts, and even to redeem merchant offers. With more than three billion mobile devices in the world, mobile phones are now the most pervasive consumer technology in the global market.

Visa has led the Canadian market in implementing Chip and Pin technology, which can act as a foundation for the launch of mobile payments. Chip technology is more secure than magnetic stripe cards and is also the base platform for new innovations like mobile payments. Instead of swiping a card, consumers will simply wave their phone in front of a contactless terminal, select the preferred payment app on the screen of their phone, and receive a transaction receipt by email or text message.

While mobile payments is emerging as a payment platform around the world, new rules in the Government of Canada's Voluntary Code of Conduct for the Credit and Debit Industry in Canada ('the Code') are creating challenges for its implementation in Canada. Our understanding from the Department of Finance is that the Code precludes complementary domestic applications from different networks, and debit and credit applications, from existing on the same form factor (such as a mobile phone). The practical effect of this is that a consumer who has Visa Debit, Visa Credit and Interac payment applications would have to carry three cell phones if they wanted to initiate all of these types of payments using a mobile phone. This impractical result severely limits the usefulness and practicality of mobile payments technology, and stunts the many new uses and benefits of chip technology.

Security

Advancing new technologies such as mobile and contactless payments, and increasing online commerce requires a high level of trust from Canadian merchants and consumers. Research has highlighted that almost half of Canadians are hesitant to transact online because of identity theft and security concerns ⁴.

To address these concerns Visa needs to maintain a high level of confidence in our products, and so we continue to focus on our multiple levels of security and fraud prevention.

Visa chip cards have a microchip embedded in the card which is virtually impossible to duplicate to another chip card. In Canada, when a chip card is presented at a chip–enabled point–of–sale device, the cardholder enters a PIN rather than sign a sales receipt. Chip cards work with chip terminals to help to reduce losses due to lost or stolen cards and counterfeit fraud.

Visa's Zero Liability policy provides Visa cardholders protection against fraud if a stolen card number is used to purchase goods in–person, online, by mail or by phone.

We have also developed sophisticated statistical fraud prevention tools called neural networks. Used by Visa–issuing financial institutions, the neural networks monitor Visa transactions 24 hours a day for transactions that deviate from cardholders' normal consumption patterns and identifies anomalies in spending behaviour that alert card issuers to possible fraud.

The Verified by Visa service ensures purchases made online with a Visa card are made by the actual cardholder through the use of a personal password. Free for consumers, the Verified by Visa program has been adopted by more than 203,000 merchants and has been activated by 65 million cardholders around the world.

Another security feature offered by Visa is CVV2. Sometimes referred to as the "the three–digit code", it is the number printed on the signature panel on the back of a Visa card. The CVV2 helps to prove to the merchant that the cardholder has the card hand when ordering online or over the phone.

When shopping online, by mail or by phone, Address Verification System (AVS) helps ensure that the person making the purchase with a Visa card is the same person who receives the monthly Visa bill. By matching the address Visa card issuers have on file against the billing address shoppers provide during check–out, merchants and issuers work together to help ensure that lost or stolen Visa cards are not being used in card–not–present environments to purchase goods or services.

The Visa E–Promise assures Visa cardholders that if they have tried to resolve a dispute with an online, phone order or mail order merchant, but have been unsuccessful, that they can contact their Visa card issuer directly to initiate actions which may be available to the issuer to resolve the charge in question.

Visa seeks to address all forms of fraud and these multiple layers of security ensure that even if criminals succeed in breaching one layer, they find many more locked doors in front of them.

The payment card industry (PCI) has been working together for years on data security standards that define how we manage and protect cardholder data. PCI has developed a set of Data Security Standards (DSS) to protect account data either in transit, storage or during processing. These standards apply to any stakeholder globally who stores, processes, or transmits account information, prescribing what information can and cannot be stored.

Visa continually partners with clients and PCI stakeholders to help mitigate fraud by actively collaborating with law enforcement and other agencies; promoting security awareness through education and training and educating legislators and regulators. As a leader in secure payment technology, Visa takes security and the protection of personal information seriously. We are pleased the government has introduced important amendments to the Criminal Code and PIPEDA, and new copyright and cybercrime legislation. These pieces of legislation send a clear signal globally that Canada takes identity theft seriously and is taking steps to deter criminal activity and strengthen ecommerce.

Conclusion

Canadian consumers, merchants and companies benefit from a sophisticated and secure electronic payment system that facilitates digital transactions in Canada and around the world. However, Canadians still lag behind their international peers when it comes to innovative electronic payment products. Working with all stakeholders, we believe that governments and the private sector can create an environment that will allow our digital marketplace to flourish and work towards eliminating regulatory barriers to encourage the entry of new innovative payment products for consumer and merchants.

In addition to working with government, Visa remains committed to operating in a transparent manner, providing the most secure and efficient electronic payments system and creating new and innovative technologies that bring greater convenience for our consumers and merchants and continue to drive growth in the Canadian economy.

Tim Wilson
Head of Visa Canada

¹ Statistics Canada, Canadian Internet Use Survey, 2009

² Neilson Global Omnibus Survey, November 2007

³ Neilson Global Omnibus Survey, November 2007

⁴ Statistics Canada, Canadian Internet Use Survey, 2009