Financial data connectivity and other innovations are already powering a growing number of new banking experiences almost everywhere in the world. But this isn’t the whole story. The payments sector is undergoing major changes and disruptions as new technologies and data tools become widespread.
We sat down with Mark O’Connell, CEO of Interac — the backbone of Canada’s debit payments system. Mark recently scored a big win: a change in Interac’s corporate structure gives the company more freedom and resources to meet the evolving needs of the market in the digital era. We discussed how he is currently modernizing Interac — and, in doing so, making in impact on Canada’s payments system.
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No time? No worries! Read our 4 key takeaways from the conversation
- The future of payments is frictionless transfers — but it won’t happen on its own
Mark makes the argument that modernizing Canada’s payments system isn’t the job of a single institution. He presents it as a multi-layer effort that combines a real-time settlement system and a real-time rail to power new and innovative customer experiences.
- History defines you, but sometimes you can break free
While Interac has evolved from the initial project of unifying banks’ ATM networks, it has been set up to play a very central yet specific role to the way Canada’s debit payments system operates. Mark’s ten-year journey to reshape Interac shows that leaders can implement their vision both within a given context and by changing that context altogether.
- With great powers come great responsibilities (towards your mission)
Mark emphasises Interac’s role as an ecosystem player. As Interac must work in collaboration with an extensive list of stakeholders that aren’t always in agreement, this is a position of both power and constraint. Developing new products and features requires taking in good ideas while remaining focused on Interac’s mission.
- Resilience can come from unexpected places
Historically, Interac was allowed to charge only a single cent per transaction. It’s not hard to imagine how that hindered its growth. But as we see payments being commodified and price dropping, having a product that’s already priced so low is actually a competitive advantage.
Below is an edited transcript of our conversation.
Torn apart and reunited at last: Interac’s origin story
Adam: Today we’re sitting down with Mark O’Connell, who’s the CEO of Interac, to have a discussion about some of the changes that are gonna be happening in the payments landscape.
Mark has been at the helm of Interac for about a third of the life of the company. And has helped them steer through a number of really interesting changes that touches the lives of millions of Canadians.
Thank you for joining us. Really glad to have you here. For starters, I thought it’d be interesting to try and give a little bit of background on Interac and put it in the context of what do you guys actually do, and what does this mean for real-life Canadians?
Mark: The history, it shows you what the DNA of Interac is. So, if you think about it, it’s started as an ATM network. What was happening is banks were building ATMs 8 feet from each other, and building and building and it was ridiculous. And Canadians at that time, you had to find your bank’s ATM.
And so they thought, “Okay, what if we networked this together, embedded Interac into all of the accounts and then Canadians will be able to use other bank ATMs?”
“Interac was born out of that cooperative shared services model.”
Interac was born out of that cooperative shared services model. So once you had that, they said, “Wait. Well, why don’t we bring this to the point of sale?” And it was funny back then a lot of people thought, “Well, who the heck wants to pay for something immediately? ” because credit was the thing that was on all the terminals then back in the day. I can tell you today Interac Debit is north of 5 billion transactions, and ATM would be around 200 million.
Merchants, of course, love Interac at the point of sale because you know, not many people understand this, but we charge a cent per transaction.
Adam: A cent? That’s crazy.
Mark: Canada has the lowest cost debt environment anywhere in the world, because again, of that scale and that cooperation. So, it’s very much in our DNA.
We then bought a fintech company back when that term wasn’t used very much, called CertaPay which is where e-Transfer was born, which is the current kind of sexy juggernaut of Interac right now.
We just restructured the company a year ago in February. Because in the middle of that trajectory, I was just talking about a consent order was put on to Interac.
“When I came in 12 years ago, it was totally landlocked.”
This was in the mid-90s, and Interac became an association. It ended up being good for the propagation of the service, but it isn’t even a company. It was a loose association of then, I don’t know, forty some members, and a separate company was created the day that the association was made called Access Corporation.
And that was where all the e-commerce, all of the new innovative things were going to be done. When I came in to be CEO, I had every CEO’s dream. Right? You’ve got to bloody board of directors. One of the boards every decision has to be unanimous. So, you can imagine. It took like three board meetings to change the color of the bloody carpet.
Adam: What did you pick in the end?
Mark: Mauve! No, ochre. I’m astounded what we were able to accomplish even with that, but it was not conducive to where we are today.
Adam: Do you have like a shared budget at all between the two of them? Are you allowed to use any of the success from one side and bring it over on to the other side?
Mark: That was the core problem. So when I came in 12 years ago, it was totally landlocked. You could use proceeds from the association only to shine the buggy whip. So you could make your card network better and better, but you couldn’t put a $1 towards, say mobile payments.
With great powers… well, you know the rest
Adam: Have you found that there’s a major shift in, either the quality or quantity of new ideas that are coming out of your people now that you are able to make a decision like that to actually, say, “Okay, we’re gonna move forward in a new direction? This is the direction we now have the ability to do it.”
Mark: Absolutely. Not many people understand we have 6 billion transactions and we manage some of the most pervasive payment experiences in Canadians’ daily lives but we have only just over 300 employees.
We expect our employees to have and come up with ideas, and those ideas can be immediately impactful. And I think about the Interac Flash launched a number of years ago now, but everyone who was on that team now watches approaching 3 billion transactions per year as something they architected, or you may have been the lawyer for, doing the rules or the Op regs. So great things can germinate from this, what is basically a medium size fintech.
We also get amazing ideas from the outside in. So all the digital labs and digital factories at our shareholders, we have 42 shareholders. And it’s not just the big banks, it’s all the credit unions, payments processors, some merchants, and they’re also bringing ideas to us.
Adam: There’s always a balance between building what you need to satisfy your shareholder or stakeholder base, and building what you want as part of your vision going forward.
I assume now it’s still easier than it was before. But even now, when you have this stakeholder base of banks and all these players, how do you take their opinion in but still keep in mind your own mission to drive forward something?
Mark: A lot of people always think, oh, the banks are a cabal. They’re always in agreement, and they’re forwarding whatever agenda. It’s absolutely not true. A lot of the times they have very different views on direction. So they’re not a homogenous group. Often we do things that are for the good of the ecosystem. They may have actually been anathema to a few of our actual board institutions’ directions, but it was right for the whole.
But that’s pretty much 80% of my job you just nailed right there in that question. And it’s about, how do we take our own great ideas about the future course that should be charted here, but then also the differing views? and that’s what I think we’ve been very good at.
And sometimes it does dilute but we usually come to a great middle ground. Canada is great at this. It’s one of the things I’m most proud of this country, you can come with divergent views and often without litigious or brinksmanship, you come to a common ground on what we should do. And we’ve often been able to find that.
B2B payments for the 21st century (finally)
Adam: Is there something right now in your business that you or your team is really excited about? About kind of a direction that you’re going or part of the market that you think is just so hot and so interesting that you guys want to dive towards?
Mark: The electronification of commercial payments. Whereas Canada is ahead of most of the world in the retail side of payments, in the commercial world, it’s checks, paper is everywhere. Or when you need an immediate payment or an emergency payment, it’s a really expensive wire. I mean, this is to me, you know, this is embarrassing. There’s an impact of how well cooperatively we have electronified the point of sale and and the merchants have been a great part in partnering to do that. But in the commercial side of things, Canada is behind.
“E-transfer, while most people have only experienced that as a person-to-person — you and I splitting a bill or paying each other for a bet — that system is a real-time push payment system.”
So, we are very excited because we’re positioned very well for this. E-Transfer, while most people have only experienced that as a person-to-person — you and I splitting a bill or paying each other for a bet — that system is a real-time push payment system.
And, now that you can request money, think about it, I’m asking you for money. Maybe I’m saying because my beloved Canadiens beat your Leafs last night and I want money. But if I’m a landscaper, I can say this is for the last six Sundays of cuts. Please click here and the payment goes immediately. All kinds of use cases now open up.
Adam: So where’s the blocker or the challenge in getting to that point right now?
Mark: It is on the blocking and tackling. It always is in payments. It’s the, everyone getting on to standards, operating regs.
Everyone understanding here’s how the fraud is going to be mitigated because we’re gonna be increasing the amount allowed per transfer. And all the things that come with that. Making sure your ecosystem is able and ready to use the scheme, that takes time.
Adam: I liken this to the open banking environment where there are tons of moving parts there. You have regulatory bodies, you have consumer advocacy bodies, you have all these pieces.
Do you think this is the kind of thing in this kind of B2B payments world where it requires mass agreement on the standards and everything else in all of the different areas or is this an area that’s ripe for kind of an entrepreneurial set of companies to come in and just start tipping things over the edge?
Mark: The core of our strategy is to partner up with the fintechs and the innovative companies that are springing up all over the place with new completely revamped customer experiences. Use cases and overlays that we frankly you know, welcome.
What we’re about is embedding. So that even with all of that innovation happening, and it will continue to happen, at the base of this type of payment, is an account. An account to account transfer. For all of those innovators to embed into new business models and new UX, you need that standard of, how do I shoot money from supplier account to buyer account? And so, both things need to happen concurrently.
We need to establish the standards so all FIs, anyone who’s an account holder is understanding how this money is going in and out and how it’s being settled and how you know, what the fraud rules are around it. You can’t get away from that blocking and tackling.
But you’re right. I think this is going to be just like e-commerce and the Ubers of the world that are changing the way payment even feels. It’s gonna be the same in B2B.
Open banking with confidence
Adam: The kind of analogy that I put that towards the open banking environment I think is interesting too. They’re both like these massive government undertaking. They both have huge consumer benefit. There’s a massive ecosystem with partners that are involved in this. What elements around the open banking conversation do you find interesting?
Mark: And so, you know, our raison d’etre is to enable Canadians to transact digitally with confidence. But then we get into, who are we? Interac is an information exchange. If you get down to it, payments is money but it’s ones and zeros.
So what we’re doing is reaching out to, through our innovation labs in the Dev center and our sales force reach out to the Fintech community that services this space. How do we get that connection so that we can fuel that type of innovation?
And what we are is we’ve connected into every single bank account, whether it’s the smallest credit union to the largest bank in the country, both in the debit world and in the e-Transfer world. And we’re about the trusted exchange of information. We’re a layer so that happens to be good funds payments now, but you think about open banking and what’s that about. It starts with foundations of data liquidity and eliminating some of the issues with data sharing.
So, we’re this layer of exchange plus the ability to adjudicate. If you think about credential management, you think about digital ID, which are some of the foundations of true competition in a good open banking environment, that would be something. Federated operations regs — you know, fraud is always an issue.
Adam: All of the building blocks that are below the surface of the core original use case, but they’re so key to actually making it work properly, right.
So let’s assume the house gets built, the foundation is nice, and you’re in an environment however many years in the future where something like this is live. How does this affect payments if an open banking environment comes, what’s different in how money moves?
Mark: It will be frictionless. The point of sale is going away. And this is where open banking comes in. It’s payment modernization, and the element of push payments account to account coming together with open banking which needs better authentication. And there’s digital ID and these types of things come in. Once you have that in addition to the attributes we all have in our mobile phones payments is going to become absolutely seamless.
The price is right (when it’s 1 cent)
Adam: And how do you think that will affect price competition? Because I mean, one of the things that I find is interesting is, payments is a business where there’s been massive pressure on prices for a while. And especially when you can get to the point of commoditizing payments, and you have a bunch of partners who can come into this, it’s gonna drive the price down.
So do you see price as being a viable area to compete on, or is it just gonna inevitably drop down to a certain point, and then competition is gonna have to take place on a completely different ballpark?
Mark: I think we’re seeing that. For things like in payments and interchange, all around the world, it’s a race to zero, which is great for Interac because we’ve never been really involved in interchange from only one of our products. And as the 1 cent people who are all about not profit maximization, but just about getting to you know, as I said, 1 cent per debit transaction, we feel we can do very well in that utility, because that’s kind of part of our DNA.
But the other half of Interac and the other half of our mission and mandate is innovative schemes and solutions on top of that, and that’s where you’re, I think, astute. If you don’t start to add value and get into data, value-added data services you are going to have to compete. We are fine with being the platform level. We do want to be the pipe. But we wanna make sure we also have the e-Transfer user experience and the other value-added services on top of it.
And that’s our challenge. That’s just like the Telcos are looking around and going, “Oh my God, we’re being turned into dumb pipes by, you know, by the mobile devices and this and that, you know, and how do we get out of that commodity type?” We’re grappling with the same thing, and we have to make sure our strategy has both embedded in it.
The payments 3-layer cake recipe
Adam: Last question I want to jump on is to help me better understand payments modernization. So we’ve got a guy who’s the head of payments here who’s awesome, and he knows all this stuff inside and out. But can you try and dumb down what payments modernization actually means to a real Canadian who pays for things?
Bottom layer: real-time settlement
Mark: Absolutely. So payment modernization starts if you think of it as a stack, a layer cake. And the bottom layer is settlement. And very important, because that’s when everybody’s money actually moves in between the banks and everyone settles up at the end of the poker game of every day.
So today that happens next day, and sometimes even you know…so you’ve got overnight where everyone’s netting everything and okay, great, and then everybody passes it. Around the world and, now Canada is following this trend, technology and other things are ripe for instant.
So, why don’t we have real-time settlement or near real-time settlement? If you think about 2008 it’s much safer if everybody’s position is actually reflected as it is in the moment. Not some netted thing and, “Oh, you lost the card game, you owe me,” and “Oops, I’ve gone down overnight and I don’t have it for you.”
There’s a systemic risk element to getting real-time settlement at the bottom and getting into the 21st century there. So that’s the plumbing part of it that is payments modernization. That is a massive project.
It’s not just the switch in the middle, it’s all of the millions and millions of dollars and changes that are gonna have to happen in each of those institutions in order to plug into that and make sure all their processes’ plug into that.
Middle layer: real-time rail for immediate payments
Mark: And then on top of that, you have the actual day-to-day — e-Transfer is an example — how do I plug into something that can get money from account A to account B?
And it would be great if I could do that without having to know account B. I don’t wanna know their checking number or anything, I just wanna have a proxy and be able to just shoot money. And that’s what’s called the real-time rail.
And our position has been that hey, unlike other countries which had to build from scratch or buy from some other global public company provider, Interac invented a push payment system that’s real-time.
And why don’t we renovate and build upon this great Canadian system that’s being enjoyed by 22 million Canadians every month, and allow that? So, you put rules around that to ensure access so that people can plug into that and now have a means to move money account to account.
Top layer: new customer experiences
Mark: So that’s the second layer. And then what that enables is the third layer. I’ve said it a couple of times the word overlay is the word being used, but it really means application or use case or a customer experience.
And so, all of the Wealthsimples and the Mogos and the KOHOs, these innovative companies that are wanting to do things differently, whether it’d be in financial services or whether it’s the next Uber that wants to not have to store card credentials. Because Uber’s great, but you’ve tethered it to a credit card. It’s still the old model and it’s it’s sitting there somewhere. Remember we’ve had the Winners and the Target breaches, and suddenly you’re scrambling for a new credit card. There’s fraud all over the place.
So this is saying that a real-time rail can enable these new overlays and fintechs to participate faster and more directly. That, you can today — we have lots of indirect participants. But this will make it even easier. So that’s the three layers that I would say, and all of that is called payments modernization.
Adam: Cool. It’s an exciting future.
Mark: It is.
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