Along with many other countries, Canada saw a precipitous spikein the use of and reliance on digital payments in the wake of thepandemic.

And while digital payment technologies were already asignificant focus for businesses in the financial services sectorbefore the crisis, the acceleration of these systems continues toraise unique issues for both consumers and companies.

In this article, we explore this trend and how organizations canadapt their strategies and develop a risk mitigation approach toseize opportunity and stay competitive in the evolving digitalpayments ecosystem.

Consumer behavioural changes triggered by the spread ofCOVID-19, and the resulting shutdown of the physical economy, haveaccelerated pre-existing trends in Canada toward adoption ofdigital payments1. A recent Payments Canadastudy comparing consumer spending habits pre-COVID-19 found that atweek five of the pandemic, 62% of Canadians were using less cash.The study also showed a dramatic increase in the use ofe-transfers, PayPal and contactless payment apps for food deliveryservices such as Uber Eats and Instacart. A total of 42% ofCanadians said they avoided shopping anywhere that did not acceptcontactless payments2.

For business transactions, the shift to widespread use ofdigital payments is here to stay. It is estimated that, as a resultof COVID-19, by 2025, 67% of global transactions (by value) will bedone digitallya significant increase from the 57% previouslyestimated for that time period3.

While digital payment systems benefit both consumers(efficiency, consumer choice) and businesses (market penetration,access to valuable consumer data), they also come with privacy andcybersecurity risks that organizations need to be mindful of asthey refine their digital payment and risk mitigation strategies totake advantage of the ongoing shift toward a cashless society.

The move to online payments has coincided with increasedinstances of data breaches and cyber scams aimed at exploitingconsumer data to perpetuate identity theft and financial fraud.Cyber criminals are taking advantage of the pandemic as a thematiclure or subterfuge for their malicious activities4.

For instance, one notable SMS phishing campaign claimed toprovide applicants for the Canadian Emergency Response Benefit(CERB) with a link where they could access their benefits, but onlyonce they divulged personal financial details5.

Key consumer-related risks associated with digital paymentsinclude:

As they implement products and services within the digitalpayments' lifecycle, businesses must consider their risks andvulnerabilities.

Organizations also need to prepare for upcoming changes in theregulatory landscape such as the federal government's proposedintroduction of open banking in Canada (read our analysis on openbanking reforms here). Failure to comply with one'sregulatory obligations can result in consumer complaints toregulators or independently attract a regulator's attention,which in turn can result in regulatory penalties.

Qubec, as part of its privacy reform, is proposing toimpose monetary administrative penalties of up to $10,000,000, orthe amount corresponding to 2% of the organization's worldwideturnover, for a variety of contraventions, including for failure toreport a breach and processing of personal information incontravention of Qubec's private sector privacyact.

Companies that seeand seizeopportunity in thecurrent crisis to invest in proactive measures and buildrelationships of trust with their customers will fare best in thistime of rapid transformation for the digital paymentsenvironment.

Companies that invest in prevention, detection, monitoring, andongoing response to cyber threats will stand out amidst companiesthat merely try to ride out these changes without investing intheir infrastructure or relationships. This may be the time to mapyour company's data flows, test your organizationalinfrastructure, identify weaknesses that fraudsters could exploit,and triage the plan for improving those systems.

It is also the time to undergo careful diligence on any thirdparties you partner with for payment processing, ensure you havecontractual safeguards so that third parties remain accountable,and confirm that backstop measures such as cyber insurance,alternative data processors, and record keeping systems to addressthe risks associated with consumer payment incidents. It would alsobe timely to review internal cyber and privacy training plans andthe frequency of refresher communications.

The current momentum in the adoption of digital payments offersan opportunity to build on existing relationships with customersand clients through communication and education on privacy andsecurity.

Businesses at the forefront of these changes will build enhancedtrust with their customers and within the wider community, gaininga competitive advantage as they move to implement robust digitalpayment systems in their organizations.

Footnotes

1 Digital payments are a form of payment wherethe payer and payee use electronic modes to send and receive money.This can include online money transfer services like Paypal,contactless and online app-based payments, as well as digitalwallets and digital currency exchange.

2 Payments Canada's May 13, 2020 Report.

3 Bain Analysis, Figure 2.

4 The Canadian Centre for Cyber Security notedin their June 2020 Bulletin that as of 27 April 2020,they are aware of over 120,000 newly registered COVID-19 themeddomains, a large proportion of which was considered malicious orrelated to fraudulent activity.

5 See Canadian Center for Cyber Security'sJune 2020 Bulletin.

6 Even though negligent or error proneinsiders also expose organizations to cyber risks (e.g., socialengineering hacksphishing, impersonation, businesscompromise fraud etc.), these types of insider risks are easier fororganizations to address through a combination of training androbust information security systems.

7 See Interac's Report on FraudPrevention.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Capturing The Potential Of The World's Accelerating Digital Payments Ecosystem - Consumer Protection - Canada - Mondaq News Alerts