Coming late to real-time payments, Canada can learn from pioneers

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It continues to be an exciting time in payments, and we'll soon be able to add Canada to the list of countries with a modern payment ecosystem. The evolving regulatory landscape in combination with Payments Canada's recent announcement that new partners, IBM and CGI, will work with Interac to complete the project with an industry testing timeline of 2026, gives us hope that innovation is on the way for Canadian payments. Albeit a few years later than anticipated.

As the Canadian payments ecosystem moves ahead, banks face mounting pressure to navigate regulatory complexities and seize new opportunities.

Many jurisdictions have already adopted instant payment schemes and are already on their journey to implement open banking ecosystems. This is a big opportunity for Canada to focus on the lessons learned around the world. 

Seventy-nine countries have already launched an instant payment scheme, including all of the G20, with the exception of Canada. While Canada trails behind other markets, the payments ecosystem now has a second-mover advantage. It can learn from other markets and time legislative changes with the rollout of the Retail Payments Activities Act, or RPAA, Canada's consumer-driven banking framework.

The RPAA framework will be implemented just as the government also intends to amend the Canadian Payments Act to expand membership eligibility for Payments Canada. This will allow approved payment service providers who meet the necessary requirements to become members of Payments Canada and thus the ability to access the Real-Time Rail, or RTR, payments system directly.

The RTR will be application programming interface-ready and act as a platform for innovation, giving participants the ability to develop new overlay and competitive services for Canadian businesses and consumers.

The RTR scheme, and the implementation of the RPAA framework, along with the upcoming changes to the Canadian Payments Act, will enable the Canadian payments ecosystem to push ahead with innovation and drive actions supporting the alignment with global initiatives such as the G20 Roadmap.

In 2020, the G20 set quantifiable targets to enhance cross-border payments, which focused on speed, transparency, choice, access and cost for wholesale, retail and remittance segments. 

With the G20's 2027 goal date fast approaching, it's the perfect time for Canada to learn from other jurisdictions and move full steam ahead with instant payments. 

Navigating Canada's payments regulations poses multifaceted challenges for banks, ranging from compliance burdens to ensuring seamless customer experiences. The evolving regulatory landscape in Canada means new obligations will soon be imposed on payment service providers and financial institutions.

For example, the 2023 Fall Economic Statement announced the federal government's intention to introduce legislative measures to further bolster Canada's anti-money-laundering and anti-terrorist financing, or ATF, regime. 

For financial institutions, offering instant payments around the clock means that processes such as AML, balance-checking and compliance checks will need to evolve and keep in step. Instant payments have the potential to accelerate crime, and banks must be equipped with tools to stop bad payments.

Banks will need to adapt quickly to new requirements while continuing to compete and foster innovation; collaboration with trusted technology providers will be key.

Every major market that has introduced an instant payment scheme has seen a significant rise in fraud. For example, authorized push payment scams tripled from 2020 to 2021 in the U.K.

To mitigate this risk, anti-fraud solutions like Confirmation of Payee, or CoP, services have been introduced and proven successful in the U.K. and other jurisdictions.

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The Netherlands saw an 81% fall in reported fraud after SurePay introduced a CoP service. In response to CoP's success, the E.U. is now mandating that all E.U. banks must deliver a CoP service in a phased approach as part of their instant payments offering to combat fraud. 

Canada needs to prepare for this because there will likely be a rise in fraud when the RTR is introduced. The Canadian financial industry is therefore demanding a fraud solution at RTR go-live, so it's encouraging that Payments Canada also announced that the RTR will include a centralized fraud utility service, although it did not include any additional details.

In a recent letter to the Department of Finance, the Fintechs Canada Association called for the government to better manage the risk of certain types of fraud including "emerging risks" that come with real-time payment systems. Banks want tools, too, to reduce the billions lost every year.

Of course, Payments Canada needs to focus on getting RTR over the finish line, but we mustn't ignore the lessons learned from others around the world.

Open banking developments and the expansion of Payments Canada membership to new types of entities represent modernization and technological advancement in the Canadian financial services industry. Fintechs will soon have the chance to build new products and services on top of the RTR, capitalizing on emerging trends such as embedded finance and boosting competition within Canadian payments and space.

Collaboration among various stakeholders — such as financial institutions, governments, regulators, policymakers, payment technology and service providers — is vital. This will ensure we advance with the vision of future-proofing the ecosystem and its associated systems, emphasizing the importance of ensuring interoperability and standardization. 

By embracing collaboration and innovation, Canadian banks can position themselves at the forefront of the evolving payments landscape, driving growth and delivering value to customers.