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Forging the missing link of e-business
Tuesday, March 25, 2003
For Denise Bacon, branch manager with the TD Bank in Scarborough, it started with a simple $20 payment to her sister. After that it was her brother in Taiwan, then nieces and nephews and eventually her co-workers and friends. Ms. Bacon has become a convert to e-mail money transfers.
In this case it's an Internet-based person-to-person (P2P) payment service developed by Toronto-based CertaPay Inc., which works behind the scenes of the major bank Web sites to allow people to deliver cash payments over the Internet at $1.50 a pop.
"I used it right from the get-go," she says. "The cool thing is it's immediate. I just e-mail my brother in Taiwan, for example, and presto -- the money's there."
While this might seem like a small event in the grand scheme of finance, the ability to deliver funds electronically in real time is considered by many to be the missing link that is holding up e-commerce. Indeed, some believe that acceptance of P2P will help launch business-to-business transactions on a grand scale.
Says Susan MacKeown, director emerging products for Visa Canada Association:"We've done a lot of good automation in pre-purchase, reconciliation and settlement. The piece that's broken in the middle is where [businesses] write the cheque. It's all a little archaic when you consider the speed of e-business."
Doug Kreviazuk, director of policy and research for the Canadian Payments Association in Ottawa, says that of all the payment options out there, "There is a gap in providing one-time payment for consumers on-line, and having the funds flow [immediately] from their bank account."
"As we look at the e-business continuum, there's still one thing missing: e-payment," agrees Miriam Tuerk, president, e-business solutions, with Montreal-based BCE Emergis Inc. "So far, we've just been chipping off different corners of the value proposition of paying over the Internet."
Transferring funds over the Internet is not quite the same as on-line banking, where you instruct your bank to pay your bills -- a process that is usually not completed until the next business day. Nor is it the same as pre-authorized chequing, where a company is given permission to debit a bank account on a regular basis. These are examples of two models of payment known as a credit push (instigated by the buyer) and a debit pull, where the vendor is given permission to access your bank account.
Although the same models do apply to Internet-based fund transfers the difference is, the cash transfer is immediate; funds simply move from one bank account to another in a matter of seconds.
Many industry observers say Internet-based payments could be a good thing for both consumers and business, while acknowledging some problems.
For one thing, it is a process that is considerably cheaper than most other payment options. Funds transfers over the Internet are charged at a fixed fee rather than a percentage of dollar amounts. In addition, processing costs are nil. This can provide organizations serving a large consumer base, such as government agencies, utilities and telecommunications companies, a cost-effective alternative to dealing with bill payments, licence fees, tax submissions and the like.
Lisa Shields, president of hyperWALLET Systems Inc. in Vancouver, an on-line payment service that operates through credit unions, notes: "What businesses want is a low-cost, good funds payment mechanism that works on the Internet. Government for example, wants an easy way for consumers to pay without the two-to four-per-cent credit card fees. Think about it. They would only have to pay a 35-cent-to-$1 transaction fee on a $10,000 tax bill payment."
Philippe Visintini, vice-president of banking for payroll services provider ADP Canada says that as a business that charges clients on a per-payroll basis, "We're quite keen to take advantage of it when it comes. Any transaction that has finality and is easy to execute by the paying party has value. It takes the risk out of the transaction for business."
A senior executive with a brokerage firm acknowledges that Internet payments could also play a role in the settlements side of the industry. "The market is already heading to next-day settlement on trades, and U.S. securities regulators are envisioning same-day settlement.
"This ability could potentially have significant impact."
Such systems hold potential for consumers, too. Rod Whitwham, chief operating officer of CertaPay, says "Consumers could use it to pay businesses, transfer funds to the person who cuts your lawn or delivers your paper, send money to kids at university, or collect pledges for charity events.
"It's very secure, since by using the bank's infrastructure to make the transfer, no account information is on the Internet at any time."
One of the major sticking points for the adoption of Internet-based money transfer on a wide scale -- besides the standards, authentication and securities issues that go with any Internet-based endeavour -- is the need for agreement among banks, government and businesses on the payment model and infrastructure.
"There's no real disagreement with the principles in terms of the need for authentication," says Ken Morrison, president of FutureSolve Inc., a consulting firm in Uxbridge, Ontario. "And it's not technology that's holding it back."
Many are now saying that the forces once opposed to the concept are getting in line.
"Financial institutions and the Canadian Payments Association are seriously looking at the issues surrounding rules," says Ms. Shields of hyperWallet Systems. "Banks now. . .understand that they have to get together with their competitors to adopt a solution all can use. Up to now, it's been like herding cats."
Daryl Yeo, vice-president product and marketing group for Royal Bank of Canada Toronto says that Canada is especially well positioned to adopt this technology once a consensus is reached on security, authentication and privacy issues.
"With five to six major institutions coast to coast, the banking system in Canada is efficient and effective and it is easier to get systems in place that are ubiquitous."
The jury is out on timelines for general acceptance and widespread usage of Internet-based fund transfers.
Although the person-to-person side is now gaining a toehold in this area, business-to-business has some way to go because the infrastructure and authentication needs are complex and costly.
Estimates range from one to five years for the concept to find its place in the business world -- but most acknowledge it is coming.
As Ms. Tuerk of BCE Emergis points out, even the biggest success stories can take time.
"When Interac first came it was a 15-year business case. It took nine years before it even reached a turnaround."
Sara Feldman, vice-president Communications and Marketing for Interac Association, Toronto, concedes, "When Interac began, no one ever knew it would become as big as it did.
"Will [Internet-based payments] come?
"Probably. Canadians are great adopters and great adapters.
"They also have a great deal of confidence in the financial institutions and the security system used to manage money."
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