Spring 2000 Number 6

VALUE ADDED QUARTERLY

Technology an enabler of

Innovative Banking Products & Services

Trademark of The Bank of Nova Scotia.

I n n o v a t i v e

s o l u t i o n s

t o

h e l p

b u i l d

y o u r

b u s i n e s s

Vortal intelligence procurement on the Web

Get smart chip card pilot program

Profile Canadians online activities

Trends

FROM THE

Letter
Technology has been and continues to be an enabler of innovative products and services. In this edition of VAQ, you can read about some of Scotiabanks new offerings made possible by advanced applications. Our feature story is on Scotiabanks VISA Cash card a chip card with an embedded microchip that allows users to transfer monetary values from their bank account to the card that is now being used in a successful pilot program in Barrie, Ontario. With over 40% of the citys population using the card as a form of payment, theres no doubt this is one new technology that has really caught the publics imagination.

Vortal Intelligence:
Procurement in the Age of E-Commerce
hanks to the Internet, consumers can search the world for the lowest prices on everything from books and CDs to cars and vacations online and in real time. Now, big business is catching on.

publisher

price, and order. All the relevant notifications about delivery and payment can be made electronically with the proper approvals, and the transaction may be completed in minutes. The major impact of this use of technology will be to drive sustained operational improvements that will lower overall costs by reducing the number of steps in the supply chain, says Phil Griffiths, Scotiabanks Vice-President of Electronic Commerce,

Were also reporting on Positive Pay, Scotiabanks cheque reconciliation service, and how it helps customers control the incidence of cheque fraud. Plus, youll learn about Scotiabanks exciting new service offering with Microsoft, and how our combined resources are changing e-commerce north of the 49th parallel. Finally, well give you a taste of the efficiencies and cost savings that banking clubs can offer companies that are establishing international operations, in an introduction to our feature story for the next edition of VAQ. There are businesses arising daily that couldnt have existed without the Internet, and people dreaming up new ideas all the time. We intend to keep using and championing new technologies to create services which deliver value to our customers to make it straightforward for you to conduct your business, whatever it happens to be.

One of the latest trends in e-commerce is the development of specialized vertical industry portals, or vortals. Vortals, also called net marketplaces, are gathering places for an entire industry. They are serving industry groups not only as a resource for news and research, but also by supporting business-to-business services uniting buyers and sellers and enabling transactions. These online marketplaces enable businesses to more effectively monitor prices and product availability, and, in theory at least, reduce procurement costs. The net result? Forrester Research estimates that business-to-business e-commerce will grow to $1.3 trillion in 2003 from $109 billion in 1999. The Internets advantages of greater speed, lower cost and ease of use have not only improved access to all sorts of materials but have also expanded upon the benefits of e-commerces hard-wired predecessor, EDI (electronic data interchange). If, for example, a company needs an everyday item such as pencils, an employee can get on the Web, browse through online catalogues, find the lowest

GeoCommerce Inc. provides end-to-end e-commerce capabilities

GeoCommerce Inc. is an example of vortals in action. The Toronto-based company operates two sites serving two distinct but related vertical communities: MineOnline.com, developed for the worldwide mining sector, and GeophysicsOnline.com for the geophysical exploration sector.
continued on page 6

J. Drew Brown Senior Vice-President Commercial/Corporate Electronic Banking

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Cash Management

A Positive Approach
to Fraud Prevention
C
heque fraud has become an increasingly common occurrence in our society, largely due to modern technology. Technological advancements in colour copying and desktop publishing have made it easier to produce phony cheques, and criminals are taking advantage of the available technology to acquire ill-gotten gains at the expense of some of Canadas largest companies. suspicious incidents so that customers can be immediately notified and transactions can be halted. of the fraud had obtained a copy of a legitimate company cheque, made a photocopy, changed the amount on the cheque and tried to cash it. The company did not dispute transactions when the amounts in question were relatively small, says Ward. It took an incident involving a larger sum of money to make the company managers take notice, which is a typical situation for many clients. Positive Pay acts as a deterrent to cheque fraud since it largely removes the process of cheque reconciliation from human hands.
continued on page 6

Making short work of fraud at McCain Foods

While Positive Pay has been available to Scotiabanks commercial banking customers for many years, customers are usually not aware of the service until they have an experience with cheque fraud. For example, McCain Foods a Scotiabank client for the past 42 years started using Positive Pay six months ago after an incident at one of its affiliated companies. The perpetrator

Fraud occurs during routine transactions

Businesses, including financial institutions, have long been aware of the possibility of encountering fraudulent cheques during routine financial transactions. While Scotiabank has always had systems in place to counteract cheque fraud, the bank was concerned enough about the increase in this type of crime to want to do more to prevent its occurrence. Fraud affects the security of all financial institutions, and the undermining of our system eventually results in higher costs for goods and services, says Fred Ward, Manager of Enterprise Solutions for Scotiabank. It simply makes good business sense to discourage fraud through whatever security measures can be applied. Scotiabanks Positive Pay cheque reconciliation service is one way that commercial banking customers can protect themselves against exposure to fraud. Once enrolled in the service, which is billed as part of the monthly service package, customers send the bank a daily electronic file of all issued cheques. Scotiabank then reconciles each cheque transaction against the customers electronic file, and flags any

SCOTIABANKS POSITIVE PAY

CHEQUE RECONCILIATION SERVICE HELPS COMPANIES PROTECT THEMSELVES AGAINST EXPOSURE TO FRAUD.

Spring 2000, Number 6

Electronic Commerce

Ontario

Get Smart!

Barrie,

is a living laboratory in successful chip card

pilot program
Scotiabank. Having learned from the experience of other chip card pilots, we decided from the outset not to limit the card to the banks existing customer base. By offering an anonymous, reloadable card that could be available to anyone with an Interac card through a variety of distribution channels, we really opened up the market.

arrie, Ontario is a model for the rest of the world as a cashless society, judging by the enthusiastic response to Scotiabanks VISA Cash* card pilot program. Since the pilots inception in October of 1997, more than 50,000 people 48 per cent of the citys population have started using these Smart Cards as a payment method. Developed in partnership with VISA Canada, the Scotiabank VISA Cash card is not a credit card. Instead, the VISA Cash card has an embedded microchip. Users load value onto the cards microchip from loading devices that electronically transfer money from their bank account. Swiping their Interac Direct Payment card through the loading device to access their chequing or savings accounts, users simply select the account and the cash amount they wish to transfer. There are currently 100 loading devices located throughout the Barrie area. Designed to facilitate high volume, low value cash transactions, such as the ones made at fast food or convenience store outlets, the pilot program currently has 350 participating merchants. The card is an accepted payment method on Barrie public transit, as well as for many vending machines and coin-operated laundries. The success of the Barrie pilot can be attributed to Scotiabanks marketing approach, says Bryce Hutt, Senior Manager, Chip Card Programs for

with the student identification card. Georgian College has been issuing the combined VISA Cash/Student card since the fall of 1998. Although card usage was initially restricted to the Barrie campus location, campuses in Orillia and Owen Sound are now included and plans are under way to design a card for Georgian College staff. Georgian College has received visitors from as far away as Japan, the United Kingdom and Mexico who are interested in how were using the chip card technology, Neuss adds. We use students to conduct tours of the facilities, and they always point out that the benefit of the VISA Cash card system is that they can manage and control their own finances. Thats important to students, and its a benefit that credit cards cant offer.

Georgian College combines VISA Cash card with its student card
One of the reasons Barrie was selected for Scotiabanks chip card pilot program was the location of Georgian College, since young adults represent a key demographic in the marketplace and are typically early adopters of new technology. As fate would have it, administrative personnel at Georgian College were already looking at ways to improve student card access when Scotiabank approached them to participate in the pilot as a merchant. We knew the VISA Cash card would work well in our retail locations, like the bookstore, explains Cathy Neuss, Associate Registrar for Georgian College, so we distributed cards to the students and installed the loading devices. The response was so overwhelmingly positive that we asked Scotiabank to extend the cards applications to vending machines and photocopiers. Finally, it just made sense for us to combine the VISA Cash card

Barrie Transit is on a roll

Merchants are equally appreciative of the benefits of the VISA Cash card. Transactions using the card are more quickly processed offline, since the information is transferred from the chip in the card to the chip in the payment terminal. In-store loading devices dont carry cash, and dont require extensive servicing. Most important of all, the embedded microchip on the card can store other transaction information in addition to cash value which opens up the possibilities for usage applications. The City of Barrie quickly grasped the possible benefits of the technology in

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terms of providing usage tracking capabilities essential for the efficient management of its transit operations. George Kaveckas, Traffic, Transit and Parking Manager for the City of Barrie, points out that his department worked with Scotiabank to develop a transit application designed for smaller and mid-sized communities. In the first phase of the pilot, we provided electronic fare collector terminals on buses so passengers could pay with VISA Cash cards, Kaveckas explains. In the second phase, which

was rolled out in September of 1999, Barrie Transit riders are able to purchase a pass (or tokens) with their VISA Cash card, or other payment methods which are encoded within their cards microchip. We expect to realize a significant cost benefit from this system in terms of reducing our overhead and streamlining administration, since we wont have to print and issue passes. Plus, it will make electronic fare verification on buses more efficient. More significantly, Barrie Transit is now able to tailor ride plans to suit users

needs. Passes can now have a variable start date, adds Kaveckas, which means we can sell seven- or 14-day unlimited use passes, monthly passes, or ride cards which are pre-purchased in groups of 5, 10 or 20 rides. Kaveckas also singles out the benefit of future co-marketing opportunities afforded by the technology. We will look at partnering with other retailers to offer promotions, discounts or rewards for frequent riders.

Plans for the future

The Barrie chip card pilot program continues to be a living laboratory, according to Hutt. Our corporate customers have been asking for ways to include loyalty programs, and the chip technology embedded within the chip card is well-suited to facilitate these types of applications. We have begun the first trial of a multi-application card, with 18 merchants at 22 locations in Barrie participating. Hutt says that these customers such as major retailers, movie theatres and fast-food chains have a lot of flexibility in the type of loyalty program they wish to adopt. We are able to design a program to suit the merchants need, he says, whether card users accumulate points that are redeemable for merchandise or services, or some other reward system. Hutt also points out that the chip card pilot has been extended to an industrial campus program at a major Canadian auto manufacturing plant. Were trying to find new ways to provide merchants and consumers with added value. Defining Scotiabank as a leader in applications for chip card technology will help secure our market position for the future.

CATHY NEUSS, ASSOCIATE REGISTRAR FOR GEORGIAN COLLEGE.

* The Bank of Nova Scotia, authorized user of the mark.

Visa International licensed user The Bank of Nova Scotia.

Registered Trademark of Interac Inc.

Spring 2000, Number 6

Scotiabank and Microsoft to provide e-commerce solutions for businesses

S
cotiabank and Microsoft have agreed on a deal to develop a customize the solution to their present and future e-business needs. Both Microsoft and Scotiabank feel the timing for a readily available and uniquely Canadian e-commerce solution is right. Canada, with its vast geography and small marketplace, is poised for growth in electronic commerce. It is estimated that 90% of Canadian online shoppers consciously look for Canadian Web sites when shopping online, but only 38% actually conduct their transactions with a Canadian company.* * Excerpted from Preparing for E-Business, Angus Reid/Deloitte and Touche, March 1999 and Browse, bandwidth and breakfast The Canadian Face on the Web, Angus Reid, September 1999. cost-effective, full-service e-commerce solution designed especially for small- to mid-sized Canadian businesses. Potential service offerings range from Web storefront site design and Web hosting to merchant payment products and electronic marketing services through a single trusted source. Merchants will be able to go online and build a storefront, populate a catalogue with their own products and obtain an Internet merchant account from Scotiabank to process VISA transactions all at the click of a mouse. The new e-commerce solution is template-driven, but scalable for companies that want to

continued from page 2

Vortal Intelligence
In addition to providing current, useful information targeted to these sectors and a way for people to interact over the Internet using available technology, these vortals provide end-to-end e-commerce capabilities buying, selling, credit verification and transaction processing. GeoCommerce President Terry McConnell says industry associations and suppliers are enthusiastically embracing the e-commerce initiative. The front end of our e-business is up and running, McConnell says. The online catalogue at MineOnline.com currently represents hundreds of suppliers and 2.5 million products from heavy equipment to paper clips. GeoCommerce is counting on the potential for significant savings on procurement costs to build business on its vortals which could literally turn into a gold mine.

continued from page 3

A Positive Approach to Fraud Prevention

Since enrolling in the service, Troy Stone, Director of Financial Services for McCain Foods, has been highly satisfied with its results and says that more recent fraud attempts have been successfully averted. Thanks to Positive Pay, the bank has caught attempted frauds and stopped the cheques from clearing, says Stone. Our previous internal security measures were low tech by comparison performed by individuals, not systems. Positive Pay is a much more reliable verification process, and its definitely saved us money.

Maritime Life improves internal processing in addition to security

Maritime Life, another long-standing Scotiabank client, started using Positive Pay twelve months ago. Maritime Life routinely issues cheques to settle claims. After an incident involving a counterfeit cheque, the company implemented Positive Pay to enhance security measures. The impact of the system was immediately felt, says Paul Brigley, Manager of Financial Reporting for

Maritime Life. We now have more control over this aspect of our financial operation. Problems are identified quickly, within 24 hours. Its a great service, and a real cost-saver. An unexpected benefit of Positive Pay is more efficient processing of financial transactions an advantage Brigley can appreciate personally. Before we started using Positive Pay, reconciliations were done monthly now it happens daily. This has certainly contributed to a more accurate measure of the companys financial status on a day-to-day basis which makes my job a little easier.

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A profile of Canadians online Activities

It
is estimated that there are three tiers of Internet users in Canada. They are comprised of individuals with: Internet access 12.7 million users One hour/week or more of use 9.7 million users Home access 8.8 million users Canadians homes remain the location most likely to have Internet access at 20%, with work Internet access at 15%, and 17% of Canadians having access at both home and work. Home also remains the most common place for Canadians to use the Internet with 78%, versus 20% who list work as the location most commonly used for Internet access. Canadians spend an estimated 8.2 hours per week on the Internet with evening usage being prominent with one-half, followed by mornings and afternoons. Compared to sending e-mail, which 91% of online Canadians say they do frequently, and browsing the Web, which 74% say they do frequently, online financial transactions at 21% and e-commerce activities, with only 2% saying they do these frequently, are still a relative novelty. Even among existing online shoppers, only 5% say they purchase online frequently, or shop online to the same extent (19%). Experienced users represent only 26% of Internet users, but they account for 40% of all online e-commerce transactions and 38% of total e-commerce expenditures in Canada in previous years. The majority of experienced Internet users have purchased online (59%), over double the proportion of new (less than one-year) users (25%). The same holds true with online banking (45% compared to 19%). Average annual expenditures of online Canadians was $422 in the 12-month period before this study, bringing estimated e-commerce expenditures in Canada to between $1.1 billion and $1.3 billion in 1998. Among those who have ever made a purchase, a relatively small proportion have purchased only once online (18%) in the past year, and 39% have purchased four or more times. Excerpted from Preparing for E-Business, Angus Reid/Deloitte and Touche, March 1999 and Browse, bandwidth and breakfast The Canadian Face on the Web, Angus Reid, September 1999.

Spring 2000, Number 6

Next in VAQ

Banking Clubs an efficient, cost-effective method for foreign cash management

I
ncreasingly, companies that are setting up or expanding operations One of the key advantages of these alliances is that they give you direct access to the services of a local bank and its branch network. For example, Scotiabank clients doing business in Mexico can use Scotiabanks Mexican affiliate, Banco Inverlat N.A. and its 400 branches, to transfer funds, pay suppliers, manage payroll and more. Not only does this type of ready-made banking infrastructure give a company more control over its foreign cash and liquidity, it also makes it possible to set up operations in a variety of locations and makes regional expansion easier. Not surprisingly, banking clubs are becoming popular alternatives to the large global banks which cannot always offer the same flexibility and scope of service. Typically, instead of providing intermediaries, procuring cash management structures from foreign banks on behalf of their clients who have no contact with these suppliers and deal exclusively with the international banks branch office. This adds another layer of service which can result in less efficiency and drive up banking costs. In addition to eliminating the need for overlay services, banking clubs offer another important benefit. Any bank in the network can arrange services at all member banks through a single point of contact. For example, Scotiabank clients can set up foreign accounts at any of the 15 IBOS member banks through their Canadian Scotiabank branch. abroad are finding that international banking clubs are the most efficient and cost effective way to handle foreign cash management. International banking clubs are affiliated banks in different countries that provide agreed-upon services to each other, and to each others customers. Depending on the service agreement between affiliates, banking clubs can significantly streamline and control the costs of cross-border cash management. The largest club, IBOS, in which Scotiabank is the exclusive Canadian member, is based in London, England and has a membership of 15 leading banks.

VA L U E A D D E D Q U A R T E R LY
Scotiabanks VAQ is prepared by the Commercial/Corporate Electronic Banking Department of The Bank of Nova Scotia as a courtesy to business customers. While the information is from sources believed reliable, the information shall not be taken as a representation for which the Bank or any of its employees incur responsibility. Publisher: J. Drew Brown, Senior Vice-President/ Division Head, Commercial/ Corporate Electronic Banking Editor: Lisa Hartley, Manager, Marketing Communications, Commercial/Corporate Electronic Banking (416) 866-7053 Wed like to hear from you! Mailing address: Scotiabank, Commercial/ Corporate Electronic Banking, 44 King St. W., Toronto, ON M5H 1H1 E-mail cashmanagement@scotiabank.ca Fax: (416) 933-2382 Visit our Web site at http://www.scotiabank.ca/ctms Trademark of The Bank of Nova Scotia All other service and product names are trademarks or registered trademarks of their respective owners. The display of trademarks herein does not imply that a licence of any kind has been granted. Copyright The Bank of Nova Scotia 2000. All rights reserved.

direct access to foreign banking infrastructures, many international banks provide what is known as overlay services. They serve as

We will examine the different types of international banking clubs and the services they provide in more detail in the next issue of Scotiabank VAQ.

Scotiabank, C/C Electronic Banking 44 King St. W. Toronto, ON M5H 1H1

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E Printed on recycled paper