By Doug Kreviazuk, Executive Director, PayTechs of Canada
The discussion of modernizing Canada’s legal framework and introducing wholesale improvements to Canada’s payments infrastructure have been ongoing for over a decade. Now, the future of Canada’s payment infrastructure and supporting policy is at a critical crossroads. There are two options for consideration: either we move very quickly to redevelop the underlying legal and technical framework of the payments system, or we simply opine further on the matter, inviting even more delay. The luxury of time is no longer on our side, as Canada falls further behind our international counterparts in terms of payments services. A focused and priority effort must be launched immediately and the pandemic can no longer be used to park the discussion.
In the months leading up to the pandemic, the payments system and governmental officials were mired in protracted policy discussions about the role of new industry players, the need for immediate payments, consumer-initiated finance (aka, Open Banking) and enhanced data-support services. To those active in the financial services industry, it is clear that Canada’s payments, clearing and settlement infrastructure lags most other developed nations in terms of accessibility, speed, and payment finality. Today, 56 countries offer a real-time payments rail; Canada was not among this list.
Taking the lead from examples increasingly seen around the globe, Canada began to ask the difficult questions about the payments system: what should or could Canada do? What direction is best, safest, or most beneficial to the economy? Unfortunately, the pandemic brought many of these critical discussions and developments to a halt. Ironically, the pandemic has also brought to light that our current systems were not designed to accommodate the issues of today nor were they designed to be flexible or versatile to accommodate our rapidly changing preferences. Take for example two recent issues:
- The spread of COVID-19: Despite efforts by the Bank of Canada to reassure Canadians about the potential risk of virus transfer from paper, the usage of cash is on a steep decline. There is an unwillingness by consumers and merchants to handle paper currency, including cheques. The current system is unable to readily accommodate these changing demands with new and flexible electronic payment solutions.
- Government assistance: The Government of Canada’s ability to access and efficiently deliver emergency financial aid is impeded by the current system and its participants. Canadians have been advised by the Prime Minister that they should expect as much as a 10-day delay in receiving their financial assistance payments. This at a time where immediate payments are critical and practical solutions are increasingly available to people around the globe.
Compounding the problems of paper-based payments brought to light by COVID-19, the Canadian government continues to issue approximately 8% of all cheques in this country (35 of 500 million cheques annually). One would think the country’s largest issuer of paper cheques would demand better and more efficient electronic payment options.
While it is clear that change is needed, the approach for these changes still remains undecided. The Canadian banking industry has historically supported a “Made in Canada” solution, particularly for those relevant to our payments system. Conversely, the world and the financial services marketplace recognizes the value of global standards and processes. Canada cannot remain an island unto itself; payments are effectively global and are a crucial component to any form of commerce. Therefore, it is imperative that we maintain a current, world-class payments system to remain relevant. In the absence of marked progress in the redevelopment of the underlying legal and operating framework for the national payments system, the custodians of the payments system risk an economic backlash. Consumers and businesses will increasingly recognize that they are being underserved by their financial institution and payments system, compared to international counterparts.
Government regulation is an important and powerful tool when used properly to correct for market failures or outcomes that are less than desirable for the country. In today’s payments system, there is clear evidence that the current structure and operations of the payments system have produced sub-optimal outcomes, in terms of limited availability of payment products and services, dynamic price competition and delays in payment innovations seen globally. Only the government can move this yardstick and look to create a more open and competitive payments ecosystem where all Canadians can derive further benefit, but the views of all system users must be heard.
No longer should Canada passively resist change for the payments industry, while sitting at this critical crossroads. While the pandemic has largely brought many of these discussions and developments to a halt, we must not use this as an easy excuse to further delay the important and needed changes. The global alarm bells have been ringing for some time now, and it’s time to consider looking beyond a “Made in Canada” approach. We can not afford to be a bystander to the evolution of the payments industry.