Interac, Bambora bring Canada's debit network to the online world
Canadian debit card scheme Interac is partnering with international payment service provider Bambora to allow Canadians to use Interac Debit for online shopping worldwide. The partnership is intended to help Interac regain market share from Visa and Mastercard Canada’s credit cards in the e-commerce space.
Interac has a policy of collaborating with payments service providers and fintechs to widen usage of its platform. One recent example is an alliance with Canada’s nanopay to add cross-border capabilities to Interac e-Transfer, Interac’s Canadian P2P and B2B transfer service.
“Canadians are good at shopping online in the U.S.,” said Nader Henin, director for digital payments at Interac. “They can get the goods shipped to a receiving address in the U.S., pick them up at the weekend and bring them to Canada.”
Sweden’s Bambora, which acquired Canadian e-payments processor Beanstream in 2015, was itself acquired by Ingenico in July 2017. The former Beanstream, now rebranded as Bambora, is based in Victoria, British Columbia, and acts as Bambora’s North American hub. As of May 2017, Bambora reported having 25 percent of the Canadian online payments market.
As 50-60 percent of transactions in Canadian brick-and-mortar stores involve debit cards, Interac and Bambora see an opportunity to pull back Canadian domestic e-commerce transactions from credit cards to Interac debit and make it possible for Canadians to shop online in the U.S. with Interac cards, said Tristan Kenning, principal product manager at Bambora North America.
According to Interac, Canadians conducted over 5.7 billion Interac debit card transactions in 2017, not including ATM transactions, and there were 28.8 million active Interac debit cards in issue last year.
And 53 percent of Canadian online shoppers had made at least one cross-border purchase in the previous year the U.S., Europe or the Pacific Rim, according to a 2016 survey by Canada Post. The survey of 5,000 Canadian online shoppers in March 2016 also found that 83 percent of respondents had shopped in the U.S. in the previous year.
Interac's online legacy
Historically, Interac debit cards could only be used at the physical point of sale, as they require PIN entry. So Interac introduced the Interac Online service in 2005 to enable Canadians to make online purchases direct from their bank accounts.
However, despite some Canadian merchants embedding Interac Online in their online checkouts, the service never got massive consumer adoption, because using a credit card is easier and as only three of the big five Canadian banks, RBC, Scotiabank and TD, support Interac Online.
Online shoppers have to click on the Interac Online link in the merchant’s checkout page, where they are redirected to log into their online bank account to set up a payment and then return to the checkout page.
According to Payments Canada’s 2017 Canadian Payments Methods and Trends report, in 2016 credit cards accounted for 92 percent of the volume and value of e-commerce transactions in Canada.
The remainder were attributed to Interac Online debits, prepaid, and e-wallet funds (PayPal, retailer apps, etc.), the payments association said. It estimated that Interac Online accounted for 3 percent and prepaid/e-wallets for 5 percent of Canadian e-commerce transactions in 2016.
Different channels, different rails
In 2010, Canadian banks began to issue Interac debit cards co-badged with Visa Debit or Mastercard Debit branding. For POS transactions within Canada, according to the Canadian government’s Code of Conduct for the Credit and Debit Card Industry in Canada, domestic debit transactions have to go through the Interac rails. But Canadian debit cardholders can use Visa or Mastercard debit for online payments both domestically and cross-border.
The Code of Conduct says that competing services from different payment networks cannot be offered on the same debit card. So, if a Canadian debit card is co-badged with Interac and another payment network, it must use the other payment network — Visa or Mastercard for example — for online and telephone payments, and cannot be used for Interac Online.
For NFC transactions at the point of sale, Interac offers Interac Flash contactless debit cards to Canadian financial institutions, which can also be loaded into mobile wallets. The Code of Conduct states that co-badged debit cards must be represented as separate payment apps in mobile wallets.
In the case of a mobile wallet such as Apple Pay or Google Pay, it would be up to a debit card issuer to decide whether a mobile commerce debit transaction took place over Interac or another payment network, Interac spokewoman Rachel Kellogg said.
The road ahead
“Our partnership with Bambora will enable Canadian Interac cardholders to shop using their smartphones on merchant websites and to make in-app payments,” said Henin. “We’re collaborating with Bambora because Canada is one of the world’s most highly penetrated markets for smartphones. According to eMarketer, Canada has 87 percent smartphone penetration compared to 69-70 percent in the U.S. Moneris, the Canadian payments processor, predicts that 90 percent of Canadian purchases will be digital by 2030.”
The alliance between Interac and Bambora will benefit the SME merchants which already use Bambora by allowing them to leverage Interac’s debit card installed base, Henin said. Additionally, international merchants will gain access to Interac’s Canadian debit network, while expanding their digital footprint in Canada.
Interac is partnering with third-party mobile wallet providers, starting with Apple Pay, to enable Interac debit cards to be used in mobile wallets for online purchases — Interac Debit Online — as well as for point of sale payments.
“While Bambora will continue to support Interac Online, we’ll also support Interac’s new product Interac Debit Online, which will be enabled by consumers and merchants in a different way to Interac Online,” said Bambora’s Kenning. “Interac Debit Online will offer the same user experience as using an Interac card in a mobile wallet at a NFC-enabled POS card reader.”
A consumer wanting to use an Interac card for mobile purchases would load the Interac card into their Apple Pay or Google Pay wallet. “We’ll bring Interac Debit into the Checkout and Custom Checkout platforms and make it the same from a technical viewpoint so that, if an e-merchant already supports mobile wallets and credit cards, there are no changes required for Interac Debit,” Kenning said.
Initially consumers will need to add their Interac cards to third-party mobile wallets, and Interac plans in the next phase to enable e-merchants to provision Interac cards onto their sites without needing to go through third-party wallets, according to Kenning.
Bambora and Interac will offer Interac Debit Online both in Canada and cross-border, but will roll out the solution for U.S. merchants first, said Kenning.
“I expect it will be possible for a merchant such as Amazon which offers card-on-file payments to support Interac Debit Online,” he said. “Interac could deploy its Interac token provisioning service to enable consumers to store their Interac cards on file with a merchant such as Amazon and then select Interac for payment at checkout. The technology to support that is now in place in the Canadian market using Interac’s token provisioning service, and would work both in Canada and cross-border.”
Interac’s tokenization technology is already deployed in Apple Pay and in Mobile Pay, the Canadian credit unions’ mobile payment service, which is embedded in credit union mobile banking apps. Tokenization substitutes a consumer’s financial information with a secure token, which consists of a unique, randomly generated sequence of numbers. This token, which is meaningless to unauthorized parties, can be used only on the consumer’s mobile device.
“Interac’s model is guaranteed funds and no chargebacks,” said Kenning. “This is good for merchants as it reduces fraud, so their cost base is lower than for credit cards.”
In the physical point-of-sale and e-commerce areas, Interac debit card merchant acceptance fees are lower than acquirers’ fees for credit cards. Interac says on its website that there is an acquirer service fee including switching costs of C$0.025 per Interac Debit in-app and in-browser payment plus an interchange fee of 60 basis points capped at a transaction value of C$300. Above this transaction value, there is a flat fee of C$1.80.
Although consumers have a zero liability guarantee with Interac and can still do chargebacks if their debit card suffers fraud, the liability for fraud with Interac Online lies with the debit card issuer rather than the merchant acquirer.
“Once the bank has authorized the debit transaction, the merchant gets and retains the funds,” said Henin. “We’re leveraging the good funds model Interac developed for the Canadian debit market and taking it cross-border.”