Canada is gradually changing almost everything about payments
Lots of countries are making big changes to their payment ecosystems, with lots of public fallout. By contrast, Canada's efforts appear much more subdued.
Payments Canada's modernization initiative is incremental, like big highway projects that take years to finish, but change a fundamental part of the country's infrastructure.
Though it may not draw as much attention as news such as India's cash recall or the U.S.'s long-expected shift to EMV, "we are doing faster payments and four or five other big things," said Gerry Gaetz, president & CEO of Payments Canada.
"Moving money fast in a more modern infrastructure is a key part of this," Gaetz said, noting it's more about anticipating future digital options rather than migrating people away from checks and paper money, which is the goal in India. "If we get this right, paper will die a natural death."
Canada is already an EMV country, and while EMV is designed to add security to plastic cards, digital technology goes beyond this, affecting merchants, consumers, legislators and other stakeholders. "The new initiative is more complex than Canada's EMV chip migration, which took about seven years to do, and has been hugely successful," Gaetz said.
Last week, Payments Canada brought on Accenture to act as a consultant to help the large and potentially unwieldy range of stakeholders work together on future proposals. Accenture has worked on payment modernization efforts in other countries, and hopes to bring that experience to bear for Payments Canada, which has more than 100 members and clears more than $50 trillion in payments per year.
The challenges are the general complexities that go with any project that includes rivals working together for a specific purpose, but also the difficulties in working with different kinds of businesses.
"How does all of this come together?" said Robert Vokes, managing director of Accenture's Financial Services practice in Canada. "It's a complex effort to wrap one's arms around."
Payments Canada's four-to-five year initiative provides upgrades that will create new ways for consumers and companies to transfer money and exchange information about payments. That includes participation by the country's government agencies, financial services companies and processors. The idea to overhaul the country's payments ecosystem has been in discussion for some time, and the earliest proposals were put out for public comment late last year.
"Payments is a network business and you need everyone to collaborate," Gaetz said. "That is one of the big changes here."
The details are in a series of whitepapers and other documents that resemble tax legislation in size and scope.
Generally there will be a new core clearing and settlement system to replace both the Larger Value Transfer system and Automated Clearing Settlement System. The new system will be designed to handle new retail and large business transactions in digital environments, relying on the ISO 20022 data standard as a base.
Payments Canada will also set rules and parameters for a real-time payment rail, considered key for mobile commerce, and will guide how batch payments such as payroll will operate as part of this new real-time rail. Additionally, payments processed through ACSS will migrate to new systems or be replaced over time.
The initiative will additionally develop a modern rule set for wholesale and retail payments.
Other markets are also attempting sweeping updates to national payment systems. The U.K., for example, is pushing faster payment rails and regulatory changes, in part to compete with European countries that are trying to lure companies after the Brexit vote. The Single European Payments Area has been pushing standardized faster payments for years, and the U.S. Federal Reserve got on board with a faster processing initiative last year in line with Nacha after years of push back from large U.S. banks.
"Several countries are aggressively pursuing cash-free zones, and you really can't do that unless you have a robust real-time payment alternative," said Thad Peterson, a senior analyst at Aite Group
Canada has been at the fore of new payment technology for years. One of the earliest contactless payments projects involved McDonald's and the country's national Interac debit system. Canada ranks high on Mastercard's index for mobile readiness, and a large part of Toronto's business culture includes outreach to financial technology developers.
Other big projects that use mobile technology to change payments, banking and transportation are already underway in Canada, such as RBC's myriad mobile deployments, Montreal's mobile-delivered incentives to manage transit volume spikes and Interac's ambitions to extend its platform internationally.
Given this mix of technology innovation and ambition, there's a pressure to speed up the movement of information that's more sensitive, according to Gaetz.
"One of the big things we want to do is enable rich data sets," he said. "So much of what happens these days across all industries is related to data and how it's moved. The payments industry is no different. Think about the invoice, and what information and function you need to execute that invoice when it's traveling as part of an e-payment."
The government support ensures consistency of a large upgrade, as opposed to the more free-market approach of the U.S., Peterson said, adding that leads to a faster payments system, but without consistency. "This will become very apparent as the Internet of Things begins to accelerate the volume of online transactions that demand real-time authentication."
The success of the Payments Canada initiative depends on ensuring all companies understand their individual success in responding to these future developments depends on successful collaboration now on speed and security, according to Vokes.
"Payments is the lubricant that keeps an economy going," said Vokes. "The new technology and consumer, corporate and regulatory demands are placing an increasing burden on the entire financial system. Having a well-functioning, data rich fast-payment system is a key enabler."
That drives the stated end game for Payments Canada, which includes real-time payments in all cases where it's helpful, expanded data information to securely accompany payments; transparent notifications to payor and payee on status, use of simple identifiers such as phone numbers to execute transactions, easier cross-border transactions, and open development that stresses access and security.