Canada needs modern payment legislation to drive safe innovation

Digitization continues to change our lives—how we communicate, shop, work, and play. Canada’s payment landscape is no exception. Continued payment innovation in Canada, similar to the rest of the world, has been critical to accelerating our digitalization journey. This, in turn, provides more choice, enhanced value, and more secure and faster payment options for both businesses and consumers. A key component of digitization is competition. Competition fuels innovation and innovation drives progress. However, innovation in payments means nothing if it does not meet the safety and security expectations of Canadian consumers and businesses. One of the most important issues in Canada’s payment landscape is the need to broaden access to Payments Canada’s systems. This means providing more flexible, risk-based access options to a more diverse group of payment providers, including credit unions and regulated payment service providers. A key focus of Canada’s payment modernization journey is to support broader access to drive innovation. Examples of the potential benefits of broader access to Canadians can be described in relation to the Real-Time Rail, the new national real-time payment system that will allow Canadians to initiate payments and receive irrevocable funds in seconds. Small business owners could better manage their cash flow due to increased payment processing speed and predictability. They could also make urgent payments to suppliers without worrying about low transaction limits or the need for wire transfers. Consumers could be able to make real-time bill payments, avoiding late fees and disruptions in services. They could also receive more information when payments are made to their account. For governments, real-time payments could allow them to distribute emergency funds in a matter of seconds, directly into citizens’ bank accounts. And for many payment industry players, access to Canada’s payment systems, and the value they can deliver to their customers as a result of access, cannot happen soon enough. But it must be done right. Lisa Sattler is the senior adviser, public policy, at Payments Canada. Photograph courtesy of Payments Canada The Retail Payments Activities Act (RPAA), included in the 2021 federal budget, lays an important foundation for Canada's journey towards broader access and modern payments. The RPAA will expand federal oversight of non-financial institution payment service providers, putting in place a safe and sound regulatory framework. This framework will include oversight of those payment service providers who wish to become Payments Canada members and potentially participate in our systems. RPAA was a key step to broader access, but in order to welcome new members and participants at Payments Canada, legislative action by the federal government is required. Changes to the Canadian Payments Act could extend our membership to include eligible credit unions and payment service providers. As we modernize our systems, we have seen an increase in new participants. We have on-boarded a new participant on Canada’s high-value payment system, Lynx (the first in almost eight years), a new participant on our retail batch system, the Automated Clearing Settlement System (for the first time since the system was introduced in 1984), and last month, a non-traditional institution announced they had received approval from the Bank of Canada for a Real-Time Rail settlement account. However, expanding membership and continuing to improve access in a meaningful, risk-based way requires legislative action by the federal government. Canada is the ninth-largest country in the world, with national payment systems that supported 20.6 billion transactions valued at $135-trillion in 2021. Our financial sector has proven its strength over the years, including in response to the 2008 financial crisis, and successfully managing the financial impact of the pandemic. There is no doubt that regulatory rigour has played a critical role in Canada’s financial stability and resilience in navigating these financial storms over the last decade. Our nation’s prudent and robust regulations, supervision, and the governance within our financial and banking industry are often described as key components that provide economic stability and resilience in the global financial system. Looking to the future, no one can dispute that financial stability, resilience, and security must remain at the core of our financial systems. As the payment landscape evolves, driven by shifting consumer and business needs and global competitive pressures—and enabled by new technologies—it's also important that the relevant regulations and oversight evolve in parallel to ensure that competition can flourish, and that financial innovation happens within—and not outside—the regulated financial system. New technologies will no doubt continue to disrupt the financial services and banking landscape, and the concept of traditional financial services will continue to shift around the globe. We can expect the pace of innovation to continue to transform payments around the world—but policies and regulations need to keep pace.Payments Canada will continue to push for legislative reforms that support broader access, while continuing to build and operate payment systems that are safe, secure, and flexible. We are asking the federal government to make amendments to the Canadian Payments Act as part of Budget 2023, in order to meet the changing needs of Canadians, as well as the high standards of safety and security they have come to expect. Lisa Sattler is the senior adviser, public policy, at Payments Canada. The Hill Times

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Canada needs modern payment legislation to drive safe innovation

What’s necessary are legislative reforms that support broader access, while continuing to build and operate payment systems that are safe, secure, and flexible.

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