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Behind the Delays and Push to Modernize Canada’s Banking and Payment System

OpEd Analysis | Aug 23, 2023

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In a recent op-ed piece from The Globe and Mail, authors David Dodge and Bob Fay shed light on Canada's outdated banking and payments system.

Highlighting the inefficiencies and delays faced by consumers, they emphasize the urgent need for modernization. Drawing comparisons with other nations that have successfully implemented real-time payment systems, the article underscores the potential benefits for both consumers and businesses in Canada. Amidst the backdrop of high transaction fees and a rapidly evolving digital economy, the authors call for a comprehensive overhaul of the country's financial infrastructure.

Current System Limitations

  • In Canada, daily transactions such as moving money between accounts or paying bills online can cause extensive delays due to the involvement of multiple parties and platforms.
  • Transactions like paying for coffee with a debit or credit card seem quick, but they rely on outdated financial infrastructure. This results in credit-card processing fees that may be passed on to consumers.

Need for Modernization

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  • Canada's delay in implementing a modern, national real-time payments system is costly for consumers.
  • A modern system would allow immediate exchange, clearing, and settlement of payments. It would also be more secure, available 24/7, and have lower usage costs.
  • Such a system would also allow for more information to be shared with the payment, which could drive competition and innovations in the Canadian economy.

Government Has Known for a Over a Decade

  • A report from 2011 warned that Canada needed a modern digital payments system to engage in the digital economy of the 21st century. Despite this, Canada is still lagging behind.
  • Payments Canada's Real-Time RAIL payments system faced significant delays, risking it being outdated by the time it's implemented.
  • Other countries, like Brazil, India, and the US, have already implemented new real-time payments systems.

Canada's Delay is Attributed to a Lack of Political Will, Regulatory Challenges, and Incumbent Interests

  • Canadians and small businesses face high fees, some of the highest in the world, every time they make a payment.
  • Canada has the opportunity and talent to build a modern payments system. This requires a comprehensive vision, updated policies, and investments in cybersecurity and network resilience.

Takeways from the Article Comments

There is no shortage of comments on the piece.  Summarized below are some key takeaways this far, which provides a more diverse range of perspectives:

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  • The mention of COBOL applications highlights the challenge of modernizing legacy systems. These older legacy technologies can be a bottleneck for innovation and efficiency.
  • The skepticism towards big banks "playing nice" is a concern shared by many. Financial institutions have a vested interest in maintaining their market share and may not be quick to adopt systems that could disrupt their revenue streams.
  • The point about businesses benefiting more than consumers from reduced fees is valid. There's no guarantee that businesses will pass on the savings to consumers, as illustrated by the "bag and cup fee" example in Vancouver.
  • The issue of hidden fees and lack of transparency is a significant consumer protection concern. It's something that regulatory bodies need to address.
  • The delay in processing payments, especially during weekends and holidays, is another area that needs improvement. Real-time processing should be a standard feature of a modern payment system.
  • The need for real-time compliance with anti-money laundering (AML) and counter-terrorism financing (CTF) regulations is crucial. Delays in such compliance checks can have serious consequences, as you mentioned with purchasing a house.
  • Lastly, consumer awareness and advocacy can play a significant role in pushing for these changes. The more people voice their concerns and demand better services, the more likely institutions are to listen.

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The overarching theme is that while technological solutions exist to modernize payment systems and make them more efficient and consumer-friendly, there are various hurdles—be it legacy systems, vested interests, or regulatory challenges—that need to be overcome.

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