The shackles are off the Interac debit network in Canada — if you can say that about a payments network that has advanced debit, person-to-person, mobile and business payments for several decades.
Research and development capabilities at Interac got a boost last month when Interac Corp. was created out of the merging of Interac Association and Acxys Corp. It brought together a payments network handling nearly 5.7 billion debit transactions annually with a complementary company specializing in payments development, management and consultation.
The merger also lifted some restrictive business model caveats that leaned more toward a cost-recovery model than one in which revenue generated from most any sector could be funneled back into technology and product development.
"The reason behind the merger is agility and innovation funding," said Interac CEO Mark O'Connell, who admitted he was pleased to no longer be the CEO of two companies with separate governing boards. "While we've had a very robust innovation agenda, it was becoming increasingly difficult to fulfill our very aggressive innovation pipeline in the previous model, both from governance and funding."
Because of the ease in which Canada converted to EMV chip cards six years ago with Interac having the technology available since 2008, and the quick spread of other Interac technologies, the debit network almost operated as if it were an extension of the Canadian government. But it is not.
Interac Association was established in 1984 as a cooperative venture among Canada's top banks, creating a single shared network for Canadians to access cash at ATMs throughout the country. Ten years later, Interac Debit debuted as the first national debit card for use at the point-of-sale.
Two years later, in 1996, the banks involved in the Interac network created Acxsys Corp. to better develop business partnerships and extend Interac services.
Under the companies' new arrangement as Interac Corp., O'Connell sees the company advancing technology more quickly and efficiently, while opening paths to more international partnerships.
"We didn't have an organic means of funding innovation from within," O'Connell added. "In the past, a consent order dictated you couldn't use revenues for any R&D efforts; you could only use it to operate services."
It meant that technology advancements came only through capital infusion from shareholders and sponsors. That was a formula that worked in the past, but competition in the Canadian debit market figures to heat up, and Interac — which has a 98% penetration in Canada's debit transaction market — now has positioned itself to better respond to any challenges aiming for a piece of its audience.
"Interac is a real payments innovation story in North America because it immediately provided a defensive play against American brands regarding debit cards in Canada, and it has been really effective," said Brian Riley, director of card services for Mercator Advisory Group.
But in the past two years, Mastercard and Visa have been eyeing the Canadian debit market, Riley said. "This merger for Interac is really appropriate for it to stay relevant, because now they can't just be the cheapest payment option, they have to be the fastest and best option."
The merger bodes well for Interac's already-successful e-Transfer P-to-P offering, one that will move forward with a new Request Money function — making it a true push-pull faster payments and mobile money service.
As such, Interac has earned an important place at Payments Canada's discussion table regarding a faster payments initiative in the country. Interac's e-Transfer had 16.7 million registered users and 241 million transactions in 2017. The system handled $92.2 billion in P-to-P transactions, a 44% increase over 2016.
"We are also investing in new use cases that can build on the faster payments initiative," O'Connell said. "Just in the way Interac eradicated the retail check more than a decade ago, the e-Transfer will really want to kill the check overall for small and large businesses as there will be an ability to pay each other digitally in real-time fashion."
It also hasn't hurt Interac's cause that it is regarded as well advanced in fraud protection, utilizing an information-sharing model or consortium among the network's sponsoring banks and shareholders. Interac is consistently deploying best practices and upgrading fraud detection through artificial intelligence and real-time analytics.
Interac's token service has played a key role in the network's ability to support all of the major mobile wallets from technology providers or financial institutions, and become a player in in-app payments.
The merger positions Interac to further strengthen its relationships with China UnionPay in China, and the Pulse and Nice ATM networks in the U.S.
"One constraint of our former model: It was written in that the Interac side of our business was confined to the Canadian marketplace and plastic cards only," O'Connell said.
The restructured Interac has no proscribed international markets, allowing the company to advance with a strategy of "pay anywhere and in any way," O'Connell added.
Interac's strategy has some self-imposed limitations. Though the company can extend its reach beyond Canada, it has no desire to stretch itself too thin.
"The important distinction here is that we are not wanting to create another Visa, and it is not to open international offices," O'Connell said. "But being more internationally operable is an area we absolutely will focus on."