A Revolution in Banking
ISN associate Don Anderson was on the front line when banking history was being made. He was project manager for development of the world’s first debit card in 1979, and was project manager when the card was tested in Swift Current, Saskatchewan, from 1983 to 1985. The card was piloted by Pioneer and Western Savings credit unions and Pioneer Co-operative. Pioneer installed point-of-sale terminals in 28 Pioneer Co-operative locations. The Credit Union Electronic Transfer System (CUETS) was created at the same time so cardholders could use their cards nationally, based on standards for cheque clearing defined by the newly-formed Canadian Payments Association.
INTERAC was established in 1984 as a non-profit alliance of five VISA issuing institutions – Royal Bank of Canada, Canadian Imperial Bank of Commerce, Bank of Nova Scotia, Toronto-Dominion Bank, and Caisse Centrale Desjardins du Quebec. In the next year the four largest MasterCard issuing institutions also joined – Bank of Montreal, Canada Trust, National Bank of Canada, and the Canadian Cooperative Credit Society. By June 1986, INTERAC provided ATM services for customers of any of these institutions, who were able to make withdrawals at 2,000 automated banking machines across the country.
Family Savings Credit Union in Ontario and Desjardins in Quebec launched their own debit card pilots in 1986 and 1987. The INTERAC Association piloted INTERAC Direct Payment (IDP) in the Ottawa-Hull region in 1990, and the service was rolled out nationally in 1994.
Anderson says it was clear when he was leading the two trailblazing debit card projects that INTERAC was coming. Desjardins was one of the first members of INTERAC, and credit unions in the rest of the country needed to find a way to provide the same services to their customers. With support from Norm Bromberger, CEO of Credit Union Central of Saskatchewan, and Ed Gebert, CEO of CUETS, Anderson implemented a Credit Union Gateway to act as a hub to enable these transactions. The Gateway supported 3,200 credit unions and nine provincial credit union centrals outside of Quebec, allowing them to participate in INTERAC just like the other major players.
Working with the architects of the INTERAC system, Anderson contributed to developing electronic funds transfer and point-of-sale communication standards. These were initially approved by the International Standards Organization as ISO X 9.2. They evolved further into a series of standards for communicating banking transactions from an ATM to a host computer, designated ISO 85-83. Finalized in 1985, they specified the content of electronic transactions between merchants and banks.
In 1996, the INTERAC partners created a for-profit organization called Acxsys to provide additional branded services, including e-transfers. The two organizations received regulatory approval earlier this year to merge and create Interac Corporation. More than 450,000 merchants now accept INTERAC payments. The creation and evolution of INTERAC represents nothing less than the radical transformation of an entire industry.
Instead of being forced to use identical systems to facilitate information exchange, banks and credit unions were able to keep their own systems and still communicate freely with each other. A common language allowed them to share information. Based on this experience, Don Anderson is a strong advocate for business networks underpinned by standards that enable information exchange. He now sees opportunities in other domains, including digital mapping, integrated justice, and insurance.
Applying this Model to the Insurance Industry
Anderson has consulted to the insurance Industry since 1994, when he developed a property and casualty system for Saskatchewan Government Insurance (SGI). In 2004, he developed a motor vehicle, driver licence and driver program suite of applications for the Saskatchewan Government’s Auto Fund. He recently created a system modernization strategy for SGI which includes integration with multiple broker management systems using common technology.
Anderson says the insurance industry is currently facing a number of significant challenges. Thousands of independent brokers use disparate management systems, and insurers are at different stages in modernizing their technology platforms. Technology platform vendors are working on proprietary solutions in isolation, rather than tackling industry needs collectively. The industry is a complex ecosystem of managing general agents, wholesalers, claims adjusting firms, and other players, who require access to information through the full life cycle of insurance transactions. Until now there has been little consensus on the urgency of digitization.
Brokers and insurers have been investing independently in technology. Systems lack the ability to exchange information, except where special arrangements have been made between counterparties. There is no standard industry information exchange capability. That may change now. The industry seems finally to be realizing that it makes sense to work collaboratively on this problem so the solution and investment cost can be shared.
The industry is ripe for disruption, Anderson believes. The cost of selling commercial insurance through the Canadian distribution channel is too high. Expense overheads average about 32%, split between broker commissions and the cost of running an insurance company business. Making transactions more efficient will produce cost savings while at the same time improving service to the customer.
The benefits are significant. Carriers will benefit from expanding the number of broker firms accessing and selling their products online. Brokers will be able to maintain their position as a key contact point for their clients, with wide access to comparative information on different product and policy offerings. Customers will benefit from increased ease of doing business, broader selection, a better deal, and the broker’s local knowledge. The insurance industry will benefit from clear lines of responsibility and authority for transactions, transparent customer support irrespective of location or product line, and cost minimization through centrally supported standards.
The industry is now actively exploring options. Don Anderson has been invited to attend a data exchange workshop to be held in Toronto in August 2018. Participants will discuss real-time data integration between brokers, carriers, and third-parties based on standards established by the Centre for Study of Insurance Operations.
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