A Decade In The Making, Here Comes Interac 2.0

For Interac, it’s been a long process to get from point A to point B, a long gestation period that has finally and formally borne fruit.

News came earlier this month that the Canadian payments processor had reorganized, creating a single company from two separate enterprises – Interac Association, which had jurisdiction over debits, and Acxsys, with ties to tech-focused payment offerings, such as push payments and real-time transactions.

The standalone company is to be called Interac (of course), and sports a new fee structure, meant to help foster new payments initiatives through the next 10 years.

In a wide-ranging interview with PYMNTS’ Karen Webster, Interac CEO Mark O’Connell detailed a start-and-stop path to the current iteration, an endeavor that first began a decade ago, and which had the same goal in sight even back then – to merge those aforementioned far-flung units into a single company.

The process made it as far as Canada’s Competition Bureau (a few times) and then to an agreement that stalled amid shareholder dissent. “We had the competition bureau,” said O’Connell, “but you still have 46 companies, including the major FIs in the country, the major acquirers, the processors, ISOs” – all of which had to come to unanimous agreement.

And now, as of February, the new structure includes a board comprised of eight members from those shareholders – among them the largest banks in Canada, and another four independent directors.

Underpinning all of this is the concept of reaping the benefits of what O’Connell termed “a new funding model, a new governance model, a merged single entity with one brand and one set of products.”

Now, with the walls collapsed between Interac and Acxsys, so to speak, profits from one product line can be used to build efforts in another product line.

Noting that Interac processed more than five and a half billion debit transactions annually, for example, “for the first time we can actually use those revenues to generate research and development funds that can be used for whatever the organization needs to do,” he told Webster. That includes a lab arm of the organization that can be better funded in terms of looking at things like AI and blockchain (and is any article on payments – anywhere – complete without a mention of blockchain?).

The fees are capped at half a cent per transaction (which equates to roughly $27.5 million annually) for payments processors, merchants and issuers, and come on top of fees levied that cover costs (that latter fee structure will be in place through the next 10 years, though a consent order sunsetting those charges expires in two and a half years).

“The shareholders … and the and FIs decided to go further,” said O’Connell of the fee extension, “as a commitment to the market that this is about a healthy payment system, an innovative Interac for new services.”

And, as he noted, Interac has a pact in place with Payments Canada to help design a faster payments system, “reusing as much as possible our real-time push payment system infrastructure,” with an eye on ISO capability and APIs. Opportunities also exist with e-Transfer, an online and mobile banking solution that allows users to send and request money to be sent directly from account to account.

“We as Canadians are too polite in terms of our innovations in marketing them,” O’Connell joked to Webster, “but the e-Transfer, email money transfer has been around for 15 years now, and is three times the size of Venmo, despite the Canadian market being one-tenth the size of the United States. We are integrated into 99.8 percent of every bank account in the country, and over these years have been integrated directly and deeply through the e-Transfer exchange and overlay. And as you know, P2P and the use cases of push payments are one of the bastions of payments these days.”

Against that backdrop, the company late last year launched money request and auto deposit features on e-Transfer, for 75 percent of the entire country on the same day, with new use cases for SMBs.

“You really have a new and viral element to our real-time system for retail customers, but really starting to move into the small- and medium-sized B2B space. It’s a true ‘check killer,’” he said.

O’Connell offered Interac’s bulk disbursement as an example of this functionality. Writ large, an insurance company can send out benefits checks electronically to millions of Canadians in real time. Interac is seeking to broaden the embrace by small businesses. Picture the gardener who, with the click of a button, can instantly get paid for the past six lawn cuttings, directly into his or her account.

O’Connell also told Webster that there would be continued investment into Interac Online’s mobile efforts. Historically, it’s been more of a “3-D Secure type deal, where you’re using your bank login … and authenticating the payments.” But the mobile and token service provider technologies open up in-app possibilities for Interac, especially in eCommerce, as Apple Pay, Samsung Pay and banks’ digital wallets are all supported in Canada.

As for authentication, Interac has been in the ID and authentication space for 35 years, but PIN has been the access point into the banking relationship, as O’Connell explained. More recently, Interac has PSP and secure EMV credential management systems in place.

“We are deeply embedded into all the internal systems of all the FIs through e-Transfer, so we have the ability to very quickly verify accounts. We are trusted by the government, we handle FI credentials … we have a homogenous market,” said O’Connell.

With the new structure in place, there may have been a moment or two for champagne, he joked to Webster.

“We took a second to celebrate before the real work begins now,” he said.