The payment ecosystem in Canada (and around the world) is evolving – and consumers want faster payments and access to funds, and enhanced security. Businesses, on the other hand, want richer payment data and operating environments that enable efficiencies, like end-to-end, straight-through processing. In today’s landscape, payment modernisation is a springboard to continued innovation and competition for Canada’s financial ecosystem, and at a macro-level, modern payments will help strengthen Canada’s domestic and global competitive position by offering faster and more efficient, secure, and diverse payment options.
2021 represented a significant year in advancing modern payments to better serve Canadians. In partnership with our member financial institutions and regulators, Payments Canada launched Lynx, Canada’s modernised high-value payment system, replacing the Large Value Transfer System (LVTS), which had served as Canada’s high-value payment system for more than two decades.
Simultaneously, there was continued progress to advance the Real-Time Rail (RTR), the new payment system that will allow Canadians to initiate payments and receive irrevocable funds in seconds. The RTR is currently in pre-integration test phase, readying for launch in mid-2023.
Real-time payments will evolve the way we transact and conduct business. Canada is one of over 50 countries that has implemented – or is in the process of implementing – a new real-time payment capability.
Currently, Canada’s payment systems are not clearing and settling in real time, and they also require end users to expend effort on reconciliation as they lack expanded data fields. After a business receives a payment, they have to match up the funds that have been deposited into their account with the information that goes along with it. This has been a long-standing pain point, particularly for medium to large-size businesses – and the RTR is a completely new payment system that is expected to bring significant value and benefits to financial institutions, businesses, and consumers.
A key attribute of the RTR is that it is ISO 20022 enabled. ISO 20022 is an international standard that enables efficient payments clearing and settlement among financial institutions globally via a common set of messages that institutions agree to use in a consistent way. ISO 20022 will bring significant benefits to both businesses and consumers, through richer, more diverse, and granular data that can be carried in financial payment messages – both within Canada and across borders. This means, for example, that it will be easier for consumers to understand their charges, such as credit card charges – and faster for businesses to be able to reconcile payments with invoices.
More broadly, the launch of the RTR will benefit Canadians in many ways. For example, consumers will be able to pay rent to a landlord immediately – and in turn, landlords won’t need to wait for a cheque to clear or for the money to be available for use in their account. With a higher limit than current offerings, the RTR will also make it possible to make a down payment on a property in one click instead of having to physically visit a bank to pick up a paper bank draft. In the case of an emergency, Canadians will be able to receive money in seconds from their insurer to cover damages – which is such an important benefit in a time of need.
Additionally, the RTR will enable more efficient and convenient payment options for employees. For example, employers can pay contractors in full as soon as work is complete. And with around 10% of Canadians working within the Canadian gig workforce, immediate payment is of growing importance. Real-time payments will also enable payroll on demand, benefiting businesses and employees with increased flexibility and convenience.
Fundamentally, the RTR is a complex, multi-layered initiative, which encompasses the broader payment ecosystem in Canada. It’s like a 5,000-piece jigsaw puzzle, where you must have all the pieces in place to build the full picture.
The real-time movement and settlement of funds from one account to another will be a new capability for Canada, as will the capability to include richer data along with each payment by leveraging the ISO 20022 financial messaging standard. The RTR requires much broader industry infrastructure to support implementation. Beyond the technology, the legal framework must be designed, built, and implemented from the ground up, from necessary by-laws, rules, standards, and best practices that need to be established and in place.
In 2021, Interac was onboarded as the exchange solution provider. Unlike other countries, Canada has the advantage of an in-market solution with Interac e-Transfer, that has an existing infrastructure in the payment ecosystem connecting nearly 300 financial institutions and over 95% of retail bank accounts. The exchange solution will interface with the clearing and settlement solution, provided by Mastercard’s Vocalink. Our newest partner, Tata Consultancy Services (TCS), will help plan and orchestrate activities with industry stakeholders relating to the integration of the components of the RTR and the deployment of the new system.
The RTR will use API technology and act as a platform for innovation, with the ability to support overlay and competitive services. It will allow for the development of new products and services by third-party providers that will give Canadians new and faster ways to pay and transfer money. Innovation will be supported not only by technology, but also by the rules that govern the use of the RTR system – which, as an example, will require that all participating financial institutions have the ability to receive real-time payments.
Broader access is a key driver in the modernisation of Canada’s payment systems — and is fundamental to the success of the RTR as it will support more competition in the payment industry. In 2021, Canada made significant steps toward broader access with the inclusion of the Retail Payments Activities Act (RPAA) in the 2021 federal budget. While this was a key step, further amendments to the Canadian Payments Act by the government to broaden access to our systems represent an important requirement. Although amendments to the Canadian Payments Act were not included in the 2022 federal budget, we are confident that the government is committed to – and appreciates – the importance of modern payments.
The RTR is a complex build of technology, evolved infrastructure, and supporting legislative and regulatory shifts. It’s essential Canada takes the time to do this right and to ensure Canada’s first Real-Time Rail payment system launches in conjunction with the necessary by-laws, rules, and policies to deliver safe, secure, and efficient service at launch to best serve Canadian consumers and businesses.
In preparation for its launch, developers and businesses can explore a preview of RTR’s capabilities through Payments Canada’s Developer Portal. This sandbox environment allows developers and businesses to explore and develop against API functionality using test data.
John Cowan is the Chief Technology and Operations Officer at Payments Canada. As a member of the executive team, John leads the operation of the organisation’s key technology, operations, and security priorities.
Payments Canada is a public purpose organisation that owns and operates Canada’s payment clearing and settlement infrastructure, including associated systems (Lynx and the Automated Clearing Settlement System or ACSS), by-laws, rules, and standards. In 2021, Payments Canada’s systems cleared and settled over CAD 135 trillion—more than CAD 539 billion every business day. Payments Canada is working closely with the payment ecosystem to modernise the country’s payment systems to ensure it remains globally competitive.
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