Listen to the extended interview:
- The purpose of open banking applications should be to put consumers and businesses at the centre of determining how financial data is used.
- Fintechs have the ability to create newer consumer experiences and innovate more than traditional financial institutions can.
- There is a need for a platform that enables NFTs to be bought and sold securely, allowing creators to grow their potential customer base.
The payments ecosystem must be willing to pursue new partnerships as opposed to staying in the traditional realm of partnerships. Traditional institutions can benefit from partnerships with fintechs by harnessing their niche approach while supplying them with broader infrastructure to grow their applications.
How would you describe the current state of Canada’s financial services sector and its ability to innovate and compete globally?
Canada’s financial systems are recognized as one of the strongest in the world. We have been a leader in many payment innovations for the past number of decades in terms of chip payments, EMV (Europay, Mastercard, and Visa), contactless payments and increasingly, digital and e-commerce payments.
But, we are seeing a shift. We are at a transformational point in the financial services and technology sector and that shift is being driven by changing consumer and business demands, fueled by technology and of course, more recently, COVID-19.
The foundation of this transformation is due to two things: one, we are living in an on-demand society and so both consumers and businesses want faster payments and faster services overall. Secondly, there is an increasing demand for choice. Both consumers and businesses want to be able to choose how and when they get paid.
“Canada’s Real-Time Rail system will help both consumers and businesses meet their needs of more choice and on-demand payments.”
Underlying a lot of the transformation we are seeing in the digital space but also with respect to faster payments is the Real-Time Rail (RTR) that is being built for Canada. It is a national payments system to enable faster data-rich payments 24-7 and 365 days a year. Canada’s Real-Time Rail system will help both consumers and businesses meet their needs of more choice and on-demand payments. Mastercard is very pleased to be partnering with Payments Canada to build an important part of that infrastructure.
How would you define open banking and characterize its importance for the future of Canada’s financial ecosystem?
You are right to ask about the definition of open banking because it is relatively broad depending on who you ask.
Open banking is a technology-enabled process where both consumers and businesses have a choice in sharing financial data with authorized and secured third parties in a secure manner.
Open banking creates opportunities for new use cases and partnerships that put consumers and businesses at the centre of determining how financial data is used and empowering both of them with control.
Think about all of the paperwork that is involved in proving your eligibility for credit, whether that is for a card, mortgage or loan. Think about all the documents you need to gather from various sources to present to whoever is giving you that credit tool, which is historically a bank.
Now imagine if you could provide all of that information, such as your recent financial history, at a click of a button. That is an example of what open banking brings from a consumer perspective: convenience, choice, more customized financial services and a more holistic view of competitive pricing.
How would you describe innovation within the fintech ecosystem in Canada? What trends will have the biggest impact on fintech’s future in Canada?
Fintechs are playing a really important role in helping challenge who traditionally executed consumer and business payments. Fintechs have two very interesting perspectives. They do not have the legacy that many financial institutions have and because of that, fintechs can create consumer experiences and innovative interaction models that may be harder for some traditional financial institutions to create. The opposite side of that is they do not necessarily have the depth in security and trust that financial institutions would historically have.
“There is a great opportunity for fintech and financial institutions to work together and combine a strong legacy of trust with innovative consumer experiences”
There is a great opportunity for fintech and financial institutions to work together and combine a strong legacy of trust with innovative consumer experiences. When these two parts come together, they can build better opportunities for consumers and Canadian society.
What is really interesting about fintechs is that they play in narrow but well-defined aspects of the payments ecosystem. Whether that is around open banking, artificial intelligence (AI) or identity solutions, they have the ability to focus on a niche. When we take the niche approach of fintechs and pair that with broad infrastructure, we will see really strong and helpful innovation happen.
Collaboration between traditional financial institutions and fintechs is important because their core skills are fundamentally different.
Connection, as opposed to competition, is how we are going to see consumers and businesses being put at the centre of the value equation. When we put them at the centre, we can work together differently.
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What are the biggest factors shaping crypto and decentralized finance in Canada? What is Canada’s ability to innovate and lead within that space?
Mastercard is definitely expanding the adoption of Web3, a new iteration of the internet based on blockchain. We are bringing our payment network into Web3 and NFTs. We also need to clarify another buzzword in the industry: NFTs are unique digital assets. They can be seen as a form of cryptocurrency linked to the blockchain that represents ownership of real-world items.
As NFT adoption increases, the process of buying and selling NFTs needs to be easier and safer, and that is our sweet spot. When there is a platform that enables cryptocurrency to be bought and sold securely, customers have less uncertainty and creators can grow their potential customer base. When NFTs can be purchased safely and securely, customers can buy whatever NFTs they want in the marketplace of their choice and there will be no need to buy crypto first.
“36% of Canadian consumers agree that NFTs and digital assets could be good investments.”
We just did some research and our New Payments Index shows that 36% of Canadian consumers agree that NFTs and digital assets could be good investments. An important point to take note of is that they think there is potential, but not that the investment is good right now.
So why are they not good investments today? They are not perceived as not good investments today because there is a level of knowledge that still needs to be built, a level of comfort around how to transact that is not there yet and a lack of a sense of safety and security. We want to get to a place where buyers have a secure place to transact and can do so in a way that ensures their money and goods will get to and from where they want them to be. We need to find ways to make the buying and selling of digital goods as easy, seamless and comfortable as how it is when we buy physical goods today. That is the transformation that is happening globally and Canada certainly needs to be part of that process as well.
What is the intersection between cybersecurity, AI and the Internet of Things in terms of financial services and payments? What innovations should we prioritize in this space?
Cybersecurity is becoming the new lens all companies and increasingly, consumers, look through for payments. What do I mean by that? Today, people are mindful of how we share our personal and financial data with strangers and other entities. We protect our passwords, phones and computers, but increasingly, we are seeing more devices in the realm of the Internet of Things. A lot of people are not aware of how connected to the internet these devices are. IoT Analytics says that there are more than 12 billion actively connected IoT devices in 2021 and predicts that there will be more than 27 billion by 2025.
As these numbers keep increasing, security and identification solutions become paramount to how these devices interact and what are they doing with the data that they are harnessing. This is true when it comes to payment transactions as well. Over the next few years, we will see wireless communications, artificial intelligence, robotics and digital technologies coming together and this could make it not only possible but, in some cases, preferable, for some of these internet-connected devices to initiate payments without any human intervention.
That is a good thing because it makes things easier in our daily lives, but it does mean that we should be thinking about these machine-to-machine payments that are different from traditional consumer-to-business payments. We need to think about user journeys and data exchanges as they need to be just as reliable and secure. This means we need to be aware of where our data is and how it is being used and we also need to perhaps challenge companies on what their data principles are with respect to building new products and new solutions. There is also the question of how we dispose of data once we are done with it.
One of the things Mastercard is cognisant of is building technologies that we are very confident in. We realize that there is strength in public-private partnerships in this particular space. That is why we have partnered with Toronto Metropolitan University, the University of New Brunswick and organizations that are strong in the academic side of cybersecurity research.
We have just opened our Global Intelligence Centre for Cybersecurity in Vancouver, which is all about building global cybersecurity solutions that leverage Canadian talent.
Who has to do what to ensure that Canada continues to innovate and become a global leader in the future financial services space?
I would actually address the entire payments ecosystem including the players within traditional and new systems as well as the government. As we see technology and innovation advancing, roles and capabilities will change. To make sure we are building solutions that are best for Canada, the payments ecosystem must be willing to pursue new partnerships as opposed to staying in the traditional realm of partnerships. There needs to be an openness to making sure that we are very clear when we are talking about cybersecurity. Businesses must understand that foundational elements around cybersecurity that are non-competitive are needed. At the end of the day, we are all in this to do one thing for the benefit of Canadian consumers and businesses so they can thrive.
We need to move faster in a way that recognizes the changing ecosystem so that when we build new policies, we include more diverse voices that are now active in the ecosystem.