MEMORANDUM

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TO: FROM: DATE: SUBJECT:

McKinsey& Company W.H. Loewen, CM, FCA May 16, 2011 A Fifth Scenario

The Viewpoint Learning report ends by suggesting there may be other scenarios to those examined in the December 2010 Scenarios Roundtable. Here is one other such scenario. A Fifth Scenario Part way through the work of the Canadian Task Force for Payments System Review it was realized that there was a Canadian Payment Service Provider (PSP) that was providing exactly the kind of B2B system that the billers on the Task Force were looking for. In fact, it was providing some capabilities they had not yet envisaged. Telpay had been reluctant to participate by providing information to the Task Force because of past experience working with financial institutions who later took Telpay's intellectual property and used it for themselves. As the work of the Task Force proceeded there was increasing interest shown by the banks which further concerned Telpay. Eventually, Telpay decided to present its capabilities to the billers participating in the Task Force. It also presented a scenario that suggested the billers should form a biller consolidation service that they would control. It was to be open to all PSP's (banks, Telpay and others) to submit payment files for consolidation and distribution to the recipients of the funds and payment details. It was to be run on a non-profit basis with direction provided by the billers. Direction was given by the Department of Finance to the Canadian Payments Association (CPA) to provide for same day movement of funds from payer to payee with a cut-off time for payers of midnight ET. Payee transactions were posted after midnight based on files provided by the consolidator. CPA Rule E2 was implemented so that PSP's could provide assured funds. The consolidation process that Telpay had been using for years to service financial institutions, individuals and businesses was made available to the billers on favourable terms along with the staff required to operate it. Billers paid the cost of the operation with a per transaction fee that was much lower than fees they were already paying the banks. The CPA was relieved of trying to develop rules to deal with the accounting requirements of businesses. The billers understood those requirements and could provide suitable direction to the consolidation operation. While the consolidation process could handle the needs of billers, the PSP's systems had to be able to deliver the information needed. Telpay's years of dealing with B2B and B2G payments left it in good shape to provide that information. Banks had ignored those requests by billers and bill payers and had to decide to upgrade their systems or simply continue dealing only with customers wishing to pay billers with simpler requirements. Before long other PSP's emerged who provided the competition sought by business. Billers agreed to provide their bank account numbers on their bills, finally realizing that those numbers had always been available to the public on their cheque forms. This speeded the conversion to electronic payments. The banks were required to include a proper check digit as part of their bank accounts making the use of this information much more reliable.
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