Mastercard Canada: how we can accelerate the digital economy
Light bulbs of creativity are flashing around the world as countries get more creative and determined to remove cash from circulation and move to a digital economy. At the same time, those flashes of digital illumination are shining a light on the danger Canada faces of being left behind. While Canada has traditionally been a leader, recent movements by global counterparts are showcasing newer strategies to remove cash and encourage digital payments.
Late last year India, the second largest country in the world, eliminated the 500 and 1,000 rupee notes with the aim of cracking down on the shadow economy. It was a massive undertaking by government. The immediate cash crunch that followed – crashing ATMs, long lines and pockets of violence – exposed just how large a project the country took on. But of the 15.4 trillion rupees outstanding, 15 trillion have now been banked – dealing a major blow to the underground economy.
Prime Minister Narendra Modi has committed to a nation much less reliant on cash by introducing creative ways to influence consumer behavior: subsidizing digital payments, offering product discounts and waiving taxes on certain low-value transactions when payments are made online. This creativity is being heralded by influential advocates like Bill Gates who called Modi’s demonetization effort the path of the future, predicting that India could become one of the most digitized economies in the world.
The conversation continued last month at the World Economic Forum, with Joseph Stiglitz, the Nobel Prize-winning economist, telling those in Davos that phasing out currency and moving towards a digital economy would, over the long term, have “benefits that outweigh the cost.”
Those benefits are many: a faster-paced and more transparent economy, fewer human accounting errors inside small businesses, recurring e-donations to charities, and an attractive tourism market that allows visitors from abroad to easily move around our country.
Canada had been a shining example in recent years. Pennies were pulled from circulation in 2013 and cheques were eliminated earlier in 2016 at the federal level, including social benefits and employment insurance. But we have not maintained a leader’s pace and scope. The federal government plays a crucial role in removing cash and cheques to generate the widespread change that influences consumer behavior. Compared to more forward-thinking nations like Sweden and South Korea, we’re falling behind.
The Swedish government has long encouraged digital commerce. An early adopter in the 1960s of digital payments for wages, government now sees about 20 per cent fewer notes in circulation due to the adoption of digital currencies. Swish, a peer-to-peer payment app built by collaborating (and competing!) Swedish banks, is largely responsible for the comfort felt by both consumers and merchants. And rather than wring hands over the booming shared economy and what it may do to traditional business, the Swedes encourage companies like Uber and Airbnb to operate in the country. Government smartly sees that cashless companies proliferating via the shared economy encourage all – from small to big business – to catch up to innovation demanded by consumers.
South Korea boasts one of the highest global percentages of consumers who choose to purchase with electronic payments, according to their government. Creative pilot projects like returning cash on prepaid cards are being introduced by banks, and rewards programs are increasingly competitive, offering Koreans options to save while they spend.
The same creativity in removing cash is not being applied in Canada, evidenced in the slowing of our progress: the conversion rate from cash to electronic forms has plateaued at five per cent per year since 2011, according to Payments Canada.
One way Canada could more easily join world leaders in the digital economy is through growth of contactless payments. Currently 36 percent of transactions are tapped in Canada, but if this rate accelerated it would move consumers further away from relying on cash or even cards, and would further socialize mobile payments. A shift like this requires a more concerted push to change behavior on a mass scale, such as through urban transit. When the UK introduced contactless payment with debit, credit and prepaid at Transport for London (TfL), contactless usage increased across the UK retail sector. In November 2016, 25 percent of all transactions were tapped, marking an increase of 184 per cent year-on-year.
Moving boldly to a cashless society is not without challenges, as we saw in India. Much of India’s issues stem from the country’s developing status and manual processes – not such an issue in Canada. We are fortunate to be one of the most developed nations in the world, with a strong infrastructure and a citizenry that is almost wholly banked and connected to the internet. Projects the size of India’s would surely be smoother.
I often say that Mastercard’s competitors are not the credit or debit networks but rather the bills and coins in circulation. When I look to where Canada is headed, I look to Sweden, a country almost entirely cashless, as a model. I have no doubt we can get there too. When everyday transactions go digital, businesses profit and the average day for Canadians is safer and more efficient. Canada’s future is a digital economy that is connected from coast to coast. We’ll be better for it.
Brian Lang is the President of Mastercard Canada
Six issues at the top of tax and finance leaders’ agenda
New Deloitte research reveals that tax leaders are under increasing pressure to add strategic value as companies accelerate business model transformation, from undergoing digital transformations to rethinking their supply chains or investing in green initiatives.
According to Phil Mills, Deloitte Global Tax & Legal Leader, to “truly deliver value to the business, the tax function needs to rethink its resourcing model and transform its technology infrastructure to create capacity and control costs”.
And the good news, according to Mills, is that tax and business leaders have more options at their disposal to achieve this.
Reflecting the insights of global tax and finance executives at global companies, Deloitte’s Tax Operations in Focus study reveals the six issues at the top of tax and finance leaders’ agenda.
Trend 1: Businesses seek more strategic counsel from tax
Companies are being pushed to develop new digital products and distribution channels and accelerate sustainable transformation and this is taking them into uncharted tax territory. Tax leaders say their teams must have the resources and skills to give deeper advisory support on digital business models (65%), supply chain restructuring (49%) and sustainability (48%) over the next two years. This means redrawing the boundaries of what tax professionals focus on, and accelerating adoption of advanced technologies and lower-cost resourcing models to meet compliance requirements and free up time.
According to Joanne Walker, Group Tax Director, BT Group PLC, "There’s still a heavy compliance load today, but the vision for the future would be that much of that falls away, and tax people become subject matter experts who help program the machine, ensure quality control, and redirect their time to advisory activity.”
Trend 2: Tipping point for resourcing models
Business partnering demands in the tax department are on the rise, but 93% of tax leaders say their department’s budget is remaining flat or falling. To ensure that the tax function can redefine itself as a strategic function at the pace that is required, leaders are choosing to move increasing amounts of compliance and reporting to a combination of shared service centers, finance departments, and outsourcing providers that have invested in best-in-class technology.
Trend 3: Digital tax administration is moving faster than expected
in addition to the rising focus of the corporate tax department partnering with their business counterparts, transformative changes to the way companies share tax information with revenue authorities is also creating an imperative to modernize operations at a faster pace. Nine in 10 (92%) respondents say that shifting revenue authority demands on digital tax administration will have a moderate or high impact on tax operations and resources over the next five years—and several heads of tax said the trend is moving faster than expected.
"It’s really stepped up in the last couple of years," says Anna Elphick, VP Tax, Unilever. "Tax authorities don't just want a faster turnaround for compliance but access into a company’s systems. It's not unreasonable to think that in a much shorter time than we expect, compliance will be about companies reviewing a return that's been drafted by the tax authorities."
Trend 4: Data simplification and lower-cost resourcing are top priorities
Tax leaders said that simplifying data management (53%) and moving to lower-cost resourcing models (51%) must be prioritized if tax is to become more proactive at delivering strategic insights to the business. Many tax teams are ensuring that they have a seat at the table as ERP systems are overhauled, which is paying dividends: 56% of those that have introduced NextGen ERP systems are now highly effective at supporting the business with scenario-modeling insights. Only 35% of those with moderate to low use of NextGen ERP systems said the same.
At Stryker, “we automated the source P&L process for transfer pricing which took a huge burden off of the divisions," says David Furgason, Vice President Tax. "Then we created a transfer price database to deposit and retrieve data so we have limited impact on the divisions. We are moving to a single ERP platform which will help us make take the next step with robotics.”
Trend 5: Skillsets are shifting
Embedding a new data infrastructure and redesigning processes are critical for the future tax vision. Tax leaders are aligned — data skills (45%) and technology process experience (43%) are ‘must have’ skills in a tax department of the future, but more traditional tax specialist knowledge also remains key (40%). The trick to success will be in tax leaders facilitating the way these professionals, with their different backgrounds, can work together collectively to unlock lasting value.
Take Infineon Technologies, which formed a VAT technology and governance group "that has the right knowledge about how to change the system to ensure it generates the right reports", according to Matthias Schubert, Global Head of Tax. "Involving them early was key as we took a greenfield approach, so we could think about what the optimal processes would look like and how more intelligent systems could make an impact
Trend 6: 2020 brought productivity improvements
Improved productivity (50%) and accelerating shifts to remote working (48%) were cited as the biggest operational benefits to emerge from COVID-19-driven disruption. But, as 78% of leaders now plan to embed either hybrid or fully remote models in the tax function long term, 34% say maintaining productivity benefits is a top concern. And, as leaders think about building their talent pipeline and strengthening advisory skill sets, 47% say they must prioritize new approaches to talent recognition and career development over the next two years, while 36% say new processes for involving tax in business strategy decisions must be established.