Thank you Mr. Chair. I am very pleased to be here today representing the Canadian Bankers
Association and our 59 members, which includes domestic banks, foreign bank subsidiaries and
foreign bank branches operating in Canada. The CBA values the opportunity to contribute to
public policy discussions on important issues affecting Canadians, and to assist the Committee on
its study of the use of digital currency in Canada.
The CBA was invited here today by the Committee to share our knowledge on recent developments
in the area of digital currency and trends in electronic payments. We have been listening with great
interest to the hearings held to date and the Committee has heard extensively from various
witnesses on the basics of digital currency.
At the outset, I should note that banks in Canada have not formally endorsed any forms of digital
currency, though this is obviously an area that the CBA and banks are monitoring closely to see
how they are evolving given the central role of banks in the payments system. Ultimately, we want
to ensure that consumers and their funds are well protected and that any transaction is safe and
secure. This is very important to Canadians in fact, our public opinion research has found that 76
per cent of Canadians trust banks to protect their personal information and transactions. We need
to maintain this confidence among Canadians across the payments system.
It is through this lens that I will focus my remarks and offer the banking industry’s perspective on
innovation in digital payments and how the stability and enormous benefits of the current payments
system may provide some perspectives for the Committee to consider as it continues its study on
the issue of digital currency.
Innovations in Payments
Banks are strongly supportive of creating new ways for consumers and merchants to engage in ecommerce
and participate in transactions that are efficient, secure and convenient. In fact, banks
are often at the forefront of new payments technologies. Since 2010, for example, banks have
been involved in rolling out NFC technology to facilitate contactless credit card and debit card
transactions at point-of-sale. This same technology can enable payments using mobile wallets,
letting consumers store credit card and banking information on their smartphone device, and pay
for purchases with the swipe of their device. With recent data showing that more than half of
Canadians own a smartphone, mobile wallets and mobile payments present an opportunity for
Canadians to have access to additional payment choices that are efficient, secure and convenient.
To facilitate the adoption of mobile payments in Canada for the benefit of consumers and
businesses, Canada’s banks and credit unions have worked together to develop the Canadian NFC
Mobile Payments Reference Model – which is a set of agreed upon principles for mobile payments.
And several mobile wallets have been launched by banks using this model. The model is built with
a focus around security and around the use of existing technologies such as contactless payment
terminals. This will provide merchants with a seamless opportunity to take advantage of these
technologies by using systems already in place for debit and credit card acceptance.
The payments ecosystem involves the coordination of many parties to function effectively. It is our
objective that providing early clarity on the design of systems that enable mobile payments will help
build efficiencies into the future deployment of those systems in Canada. Furthermore, customers
are benefitting from the mobile payments experience but doing it safely and securely.
Shadow payments system
While innovation in payments should be encouraged, it should only take place with sufficient
safeguards to ensure the safety of consumers and the stability of the current payments system.
When a consumer deposits money at a bank, the funds are held in a regulated financial institution
and the consumer benefits from the rights, privileges, and protections associated with dealing with
a reputable, regulated institution. This includes depositor protection, clear disclosure of consumer
rights and responsibilities, compensation for losses in the event of fraud, and a trusted dispute
settlement system. Banks also perform the role of a trusted third party when payments are made
using a bank account or a bank-issued credit card, verifying the availability of funds and
guaranteeing the safety and security of transactions.
In contrast, there are risks of using digital currencies that we must mindful of.
- First, consumers are subject to all of the risks that go along with changing one currency for
another such as exchange rate risk and liquidity risk.
- Second, there is the risk that the service provider they have selected to hold their virtual
currency will lack resiliency to remain solvent or lack sufficient security standards to protect
the digital currency held in trust.
The losses experienced by consumers recently in high-profile BitCoin exchange failures
demonstrate the risks to consumers of dealing with payments services and payments systems that
do not offer these protections to their customers.
As this Committee knows, rapid growth and innovation in digital payments has resulted in a much
more fractured payments market with new entrants and competitors offering novel payment
solutions that are attractive to consumers. As I have just noted, the emergence of unregulated
entities presents a variety of risks to Canadian consumers and to the security of the payments
system, particularly in the context of consumer protection, consumer disclosure, data protection and
The banking industry has undertaken some analysis of these issues with a view to understanding
their impacts and what is needed to address them, thereby encouraging debate and discussion. As
a result, we have come to the view that there is a strong case for implementing regulatory
measures for the shadow payments system that would achieve three main objectives:
- Consumers are properly informed about the payment service being offered;
- Payment service providers are held to prudential / operational standards and thresholds to
minimize the likelihood of a service provider causing harm to consumers and others in the
- Consumers have access to some form of recourse should there be a failure to deliver the
payment services as agreed.
The banking industry is proud to be an integral part of the evolution of Canada’s strong payments
system. Banks support an open, competitive and innovative digital payments system that promotes
consumer confidence and focuses on the safety and soundness of the broader payments system.
I look forward to your questions.