Canada, Too, Looks To Make Its Payments System Faster And More Efficient

Payments Canada, operator of three major payment systems in that country, issued a five-point plan Thursday to put Canada on a path toward faster and more efficient electronic payments. The plan has many similarities with efforts by Canada’s southern neighbor to modernize payments, but also some differences, according to a researcher familiar with both nations’ payments systems.

“Payment-system modernization is about making sure we are competitive as a nation in a global economy,” Gerry Gaetz, president and chief executive of Ottawa, Ontario-based Payments Canada, said in a news release. “There are many things changing at a global level in payments—regulation, technology, new players, and opportunities for more payments data. We must make sure our payments infrastructure and standards are up to date.”

The more detailed document issued Thursday, called the “Industry Roadmap & High-Level Plan,” follows up on Payments Canada’s issuance in April of what it called a “vision” for modernizing Canadian payments. The document calls for:

• A new core processing and settlement system to replace the existing Large Value Transfer System (LVTS) and the Automated Clearing Settlement System (ACSS), both operated by Payments Canada. The new system will be based on ISO 20022, an international standard for payments messaging;

• Creation of a “real-time payment rail” to facilitate faster payments. As operator, Payments Canada will set the rules for real-time payments but use a service provider for the underlying technology;

• Enhancements to the batch Automated Funds Transfer (AFT) payment stream with ISO 20022 capabilities and more clearing exchange windows;

• Changes to the ACSS system to meet new regulatory requirements, and

• Modernization of rules for wholesale and real-time payments.

Formerly known as the Canadian Payments Association, Payments Canada is taking comments on the Industry Roadmap until Jan. 20.

The Canadian plan has parallels to the Payment System Improvement project being overseen by the Federal Reserve in the U.S. Both plans talk about faster clearing, efficiency, and better security, says Nancy Atkinson, a senior analyst at Boston-based Aite Group LLC who has studied payments in both the U.S. and Canada. “It is not surprising that the overall drivers of the Canadian payments modernization are remarkably similar to the drivers of the U.S. modernization as well,” Atkinson tells Digital Transactions News. “It’s clear that everyone has come to the same basic conclusions.”

Thirty nations already have implemented some form of faster payments, says Atkinson. “One of the reasons both the U.S. and Canada have been lagging is that check processing in both countries is pretty good,” she says.

And in the U.S., the Fed has positioned itself as the facilitator and leader in a collaborative effort by banks, processors, tech providers, and others on improving the payment system. The central bank, however, has shunned issuing mandates, notes Atkinson.

Payments Canada, however, could play a more direct role because of the authority it has been granted by Canada’s Parliament. Some in the U.S. payments industry wish the Fed had similar authority. “I think they [Payments Canada] do have a broader jurisdiction and an opportunity to create a very efficient payments-clearing system,” says Atkinson. “By starting to do that, they are developing what I thought the Fed should do.”

One possible outcome of the Canadian effort is greater integration of payment card transactions into other payment-settlement systems. “Theoretically, it is possible [that the new system could] process those high-value, real-time payments and those low-value batch payments on the same platform,” says Atkinson. “That could incorporate cards as well.”