Who Needs Regulation?

http://www.telpay.ca
FOR IMMEDIATE RELEASE: TelPay Inc Phone: 1-204-957-2800 Fax: 1-204-947-2591 web: http://www.telpay.ca September 16, 2011

Who Needs Regulation?

The Canadian Payments Association is an example of misguided control of the payment system. The following is provided from the perspective of a company that has provided electronic bill payment services to Canadians for over 25 years. The writer was also the founder of Comcheq Payroll Services, a company that also competed directly with the banks. Neither business has been subject to any regulation other than what exists in common law. How Well Will the Self Governing Organizations Work? The Canadian Payments Association is an example of a Self Governing Organization (SGO). I spent the past three years as a representative of the Payment Services Industry Association of Canada (PSIAC) on the Canadian Payments Association Bill Payment Task Force. It was set up at least in part as a response to the Commons Finance Committee inquiry into the slowness of processing electronic bill payments on the part of the banks. Three years of work has accomplished next to nothing as far as billers and bill payers are concerned. It focused on securing the position of the banks retention of float, the timing of movement of funds and on imposing on billers the responsibility for satisfying the complaints of bill payers. The possibility of obtaining additional fees from billers was considered and changes to the CPA Act were recommended for this and other purposes. Any changes to the bank systems to overcome weaknesses in their systems or needed improvements such as more information with the payments were immediately dismissed because they would require costly system changes or loss of float on the part of the banks. Representation by interests other than the banks was very limited and contributed little. I did produce a dissenting report which was ignored. No reason for dismissing the points I raised were given. It is in this context that I suggest you ensure that the banks not be allowed to take control of any part of the Payment System Review process. Nor should any regulatory process be put in place that will allow the banks to control electronic bill payment processing. For a list of issues that that have not been dealt with in the interests of the public by the CPA, please visit http://www.telpay.ca/media/payment-industry-news.html (select Comments on Operation of the CPA). Obviously others with different perspectives may have other issues with the CPA. The banks want light legislation so they can apply their heavy hands through a Self Governing Organization which they will inevitably control and which is exactly what the Canadian Payments Association has become. Are the Financial Institutions Essential to the Process? There may be an assumption that the banks are essential to the bill payment process. In fact, it is the bill payers and the billers that should drive the process. As an End-User Requirements Worksheet provided to our working group illustrates, only one of the sixteen steps required to produce and pay a bill involves the banking system. All the others require the knowledge of how accounts payable and accounts receivable systems function in their own particular situation.

The Better Way to Pay.

Who Needs Regulation?

http://www.telpay.ca
Telpay itself is further proof that you need not be a bank to provide bill payment services. Bill processing is an accounting function, not a banking function. In fact, Telpay already provides the requirements being discussed by the Task Force as well as other needs that have not yet been identified. I repeat no regulations were required for us to do so. It is natural that the banks are very interested in what is going on with the Payment System Review. Their revenue sources from cheque clearing charges and float would be severely threatened if this Review were to recommend a system of maximum efficiency. Such a system would include non-bank service providers who would serve business at a much lower cost than the banks want maintained. As we were told in early sessions, there is an opportunity to reduce costs throughout the Canadian economy with the proper payment technology in place. If the savings are to benefit the general public, the reduction has to come out of someones pocket. In this case it will be the banks, post office and cheque printers. The banks will be keen to see that they are not among the losers. They currently receive $1.00 and more for each payment processed. The private payment service providers rate is 50 and time and real competition will likely bring that down. To match that would cost the banks $250,000,000 per year. So what should a bill payer and biller expect? 1. You should expect to be credited with the funds the same day the customer is debited. Since you are dealing with electronic transactions that can be processed in seconds that should be possible. Full straight through processing (STP) is not a practical answer but posting the credits to the biller accounts BEFORE the end of the overnight processing rather than shortly after is. At present a paper cheque is processed faster than an electronic bill payment. 2. Currently there is a cut off time for bill payments of 6:00 pm ET. That is 3:00 pm PT. With electronic transactions it should be possible to cut off much later and still get the debits and credits posted before the end of day cut off (which occurs long after midnight). 3. With the service industry structured as it is today, you should ensure that there is more than one payment consolidator and you should be allowed to determine who yours will be. That is the only way there be an incentive for both system innovation and price competition. Only then will you be able to go to the consolidator that meets your needs. The current lead bank situation of CPA Rule H6 is meant to give you one choice your bank and you are expected to accept that. In reality your bank is part of a consortium that has to provide the same service to all users a service defined by the banks, not the people that have to deal with the input and output. At present Telpay is the only alternative with a service that meets the needs of virtually all bill payers and billers. It has resisted for years the efforts made to force it to submit its payments through the consortium. If it is deemed there should be only one bill payment consolidator, it must be freely accessible by all bill payers and bill payment service providers. The oversight of a single consolidator is difficult to define so freedom to form more than one seems preferable. Public private partnership may be a viable solution so long as it is open to all service providers who collect payments from bill payers and is flexible enough to meet both bill payer and biller needs. In this situation all payment service providers can compete to meet bill payer needs but the billers get their funds and payment information from one source. Who controls that organization and how they generate income to cover their costs would be key issues to resolve.

The Better Way to Pay.

Who Needs Regulation?

http://www.telpay.ca
Control, or even influence, should not rest with the payment system providers, whether financial institutions or others. In our Memo 2 An Offer You Shouldnt Refuse, I outlined the manner in which Telpay could make its consolidation process available to all Payment Service Providers. When presented to the Task Force Consultant his response was You mean our (the Task Force) work is done, he was exactly right. But that does not suit the drivers of the process the financial institutions. No other response has been received. There has been the suggestion that the Federal Government will develop a similar system that will be made available to the banks. 4. You should expect the payment service providers to adapt to your needs, not the other way around. At present the proposal is that all payments must conform to a single standard. That could mean hundreds of thousands of accounting systems would have to be changed with an enormous cost to businesses. For the payment service provider to adapt to the bill payers system is far more efficient. 5. All other matters relating to bill payment are matters between the biller and bill payer and they can be solved between them as they always have in the past. Payment Service Providers in competition with one another will provide those solutions. That requires more flexibility than has been or is likely to be provided by any regulated situation. In the Electronic Bill Payment area, regulation has not been needed, is not needed and will not serve the interests of the public only the interests of the financial institutions. There is the necessity of freedom if the stated goals of the Task Force user access, efficiency, transparency and choice, fairness and accountability are to be achieved. Thank you for your interest in this memo series. If you wish to respond in any way you may contact psr@ telpay.ca. Submitted by: W.H. Loewen, CM, FCA Chairman Telpay Incorporated

The Better Way to Pay.

Who Needs Regulation?

http://www.telpay.ca
FOOTNOTE: The publication The Way We Pay and the submissions by the Canadian Bankers Association (CBA) and the Canadian Payments Association are strong on rhetoric, self congratulation and fine principles but what of all that is real? The CBA says All payment system users, both individual and business, are best served by a competitive payment market where a number of participants compete for business on a level playing field. There will never be a level playing field where banks, acting in concert, control the payment system, have direct access to customer accounts and regularly try to put a spoke in the wheels of their real competitors. Ask a stock broker or, if you can find one, a trust company. The only way for smaller competitors to level the field is through innovation, service and price. That is what Comcheq did and Telpay does. That is what the banks try to shield themselves from by creating SGOs. The CPA, on the other hand, out and out miss informs. They say, The CPA was instrumental in driving the transition from cheques and paper in the 80s to electronic payments in the 90s. That is simply not true. It was Telpay that started electronic bill payment 1985 and had to dodge spokes from the CPA and certain banks to stay in operation. In 1989 we entered into an agreement with CIBC to operate our full system from an installation in London ON. The trial project was so successful that by 1995 we were processing 250,000 payments a month for them. At that point they took our biller file and some of our technology in house and operated it directly themselves. Very soon the other banks had the same systems; again with our biller list. That is how electronic bill payments evolved in Canada. The CPA had nothing to do with it except to periodically try to disrupt what we were doing. They gained a brisk letter form the Department of Finance in one instance for their trouble. Read all memos: http://paymentsystemreview.ca/index.php/participate/submissions/

The Better Way to Pay.