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Overview of how Canada is modernizing its core payments infrastructure

Asset Servicing Times | Feb 3, 2021

Canadas payment system modernization - Overview of how Canada is modernizing its core payments infrastructure

With an evolving payments landscape, Canada is marching ahead to modernise its core payments infrastructure with a vision to build a modern payments system that is fast, flexible, secure and promotes innovation

Developments in technology, evolving customer behaviour and new market dynamics are all catalysts for change in the payments space.  Recent research has suggested that banks are committed to investing in areas such as digitising customer journeys, introducing machine learning, and improving technological and operational resilience, and this hasn’t been swayed by the pandemic.

See:  Bank of Canada Speech: Money and Payments in the Digital Age

Real-time payments are becoming increasingly popular as they allow participants to make and receive instant payments, providing convenience, speed, and faster availability of funds.  Payments Canada recently selected Mastercard’s Vocalink as the clearing and settlement solution provider for the country’s new real-time payments system, the Real-Time Rail (RTR).


“Ultimately, Canadians are seeking choice and convenience. Technology, payments innovation, and shifts in the ways that Canadians make payments are all contributing to our developing payments landscape,” says Ryan Grundy, lead, industry relations, Payments Canada.

Experts say Canada continues to hold a strong position among institutional investors on the world stage, in keeping with the strength of its financial markets and ‘big six’ banks — the National Bank of Canada, Royal Bank, the Bank of Montreal, Canadian Imperial Bank of Commerce, Scotiabank, and Toronto Dominion Bank.

See:  Bank of Canada partners with the Bank for International Settlements to launch innovation centre

Canada’s financial sector features robust and mature markets, stability and transparency, proven infrastructure, efficient settlement mechanisms and a well evolved regulatory framework – along with a focus on controlled innovation.  In line with the consolidated nature of Canada’s financial sector, the payments landscape also focuses on the major bank-driven players.

“In Canada, we see a synthesis of domestic innovation combined with global connectivity, with local players deploying Canadian solutions where they make sense according to Canada’s financial markets and infrastructure, while also driving connectivity or access to global platforms where either scale and accessibility make them the right direction — or, particularly in the retail space, where client demands and appetite for global solutions fits,” explains Lloyd Sebastian, vice president, global financial institutions, at CIBC Mellon.

For example, Interac is a payment network jointly owned by the consortium of banks, which links the banks along with other financial institutions, retailers and others to enable more seamless electronic financial transactions.  With Canadian consumers concentrated on a small group of big six players who offer integrated Interac services, that is likely to continue to shape consumer use.

Marching ahead

In line with efficiency and convenience priorities in Canada, Payments Canada is marching ahead with its journey to modernise the country’s core payments infrastructure.  “Its vision is to build a modern payments system that is fast, flexible, secure and promotes innovation,” says Sebastian.

See:  How will Canada reinvent its payments framework for a post-pandemic digital reality?

As part of these developments, Payments Canada has selected Mastercard’s Vocalink as the clearing and settlement solution provider for the country’s new real-time payments system, the RTR. Expected to launch in 2022, RTR will support payment information travelling with payments and act as a platform for innovation, enabling the introduction of new payment products and experiences.

While RTR is operated by Payments Canada, it is underpinned by the ISO 20022 data standard, and regulated by the Bank of Canada. Canada’s new real-time payments system will consist of two components including a clearing and settlement component provided by Mastercard; and an exchange component.

As well as the upcoming launch of the RTR system in 2021, Lynx, a new high-value payments system to replace the Large Value Transfer System is set to launch this year.

“Introducing Lynx is a fundamental part of Payments Canada’s modernisation program that will transform the country’s payments ecosystem. Lynx will replace Canada’s current Large Value Payments System. The Lynx system will be a world-class, high-value payments system built in compliance with Canadian and international risk standards and will support the global ISO 20022 messaging standard,” says Payments Canada’s Grundy.

Lack of data and transparency within payment messages is a major challenge in Canada’s payment space and this creates a number of inefficiencies for businesses of all sizes.  This includes labour-intensive payments reconciliation, limited predictability of cash inflows and outflows, difficulty tracking cross-border payments, and continued reliance on manual back-end processes.

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As Lynx and RTR will be underpinned by the ISO 20022 messaging standard, they should be able to support businesses in overcoming these challenges.

“The standard enables the transfer of rich data with payments, a change that has the potential to improve automation and efficiency, reducing many pain points for Canadian businesses,” explains Grundy.

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