The push for the faster payments movement — along with collaborations around open banking — has been spurred by the pandemic that has underscored a core theme in Canada’s payments ecosystem: greater investments in faster, digital payments solutions that can support the evolving needs of Canadian business and consumers.
The faster payments conversations gained more traction in early March when Payments Canada named Interac as the exchange solution provider for Canada’s real-time payments system — or the Real-Time Rail. This solution will enable Interac to allow Payments Canada members participating in the RTR to send and receive RTR payment messages.
“Interac is a well-suited partner to support the launch and ongoing operations of Canada’s new real-time payments system. They have made significant investments in infrastructure and services and, with connectivity to almost 300 financial institutions in Canada, will be able to support the rapid adoption of real-time payments in Canada,” Tracey Black, President and CEO of Payments Canada, said in a company news release.
“The Real-Time Rail will be the foundation for faster, data-rich payments and act as a platform for innovation. Participants in the payment system will be able to connect and develop new and exciting ways for Canadians to pay for goods and services, transfer money and better compete nationally and internationally.”
The partnership will leverage Interac’s existing infrastructure in Canada’s payment ecosystem and its existing connectivity to nearly 300 financial institutions. To enable the settlement of RTR payments in real-time, the exchange solution will interface with the clearing and settlement solution being provided by Mastercard’s Vocalink.
Where Prepaid Fits into the Faster Payments Equation
In January, CPPO Executive Director Jennifer Tramontana shared her take in a Global FinTech Series article where she concluded that “partnerships, access, and speed will define fintech in 2021.” The same is true across the rest of the payments ecosystem. She wrote about how the pandemic paved the way for investments that will transforming payments infrastructure to create solutions that support the faster payments movement. This includes digital payments solutions that offer fast, economical and low-risk payment and payout tools.
Operated by Payments Canada and regulated by the Bank of Canada, the RTR will allow Canadians to initiate payments and receive irrevocable funds in seconds, anytime needed. Leveraging the ISO 20022 data standard, the system will support payment information traveling with every payment. The RTR is expected to launch in 2022.
“Working with Payments Canada to support the build of the Real-Time Rail represents a significant opportunity to enable consumers and businesses to take full advantage of digital payment solutions and foster increased innovation and efficiency,” Mark O’Connell, President & CEO of Interac, wrote in the news release. “Interac has been at the heart of Canadian payments for more than three decades and we are excited to expand this role and continue serving as a trusted connection point for Canadians when paying or moving their money and data.”
The question left on the table that’s gotten press lately is where fintechs will be left in the RTR conversations. A recent Payments Source article shared the concerns of fintechs that are uncertain about how they fit into the equation as current regulations doesn’t allow them access to the new rail. Questions about who will have access will continue to spur conversations about how the entire payments ecosystem will navigate the regulatory questions around the faster payments movement.
Boosting financial accessibility, and moving funds faster is where prepaid has remained part of the faster payments conversations. Prepaid’s cost-effective, low-regulatory burden has shown core use cases where it can enables nimble, relevant offerings to reach more consumers, faster. Prepaid, for example, has become a backbone of the banking-as-service advancements as the movement toward open banking and a faster payments movement strengthens.
Prepaid’s tech stack created an instant appeal for payment solution providers looking to move faster. Pandemic-induced challenges further propelled the need to move away from traditional analog payments to more robust virtual payment offerings. Allowing Canadians to access payments and receive funds instantly is a core component of the push for the real-time rail.
The prepaid industry has already been positioning itself to expand far beyond GPR and gift cards. The payments ecosystem is increasingly adopting prepaid as an infrastructure fueling digital banking and payments as a service. Virtual prepaid card platforms, for example, are now laying the groundwork for what the future of a digitally-driven payments ecosystem looks like. Prepaid cards, in general, have the ability to lay the groundwork for faster payments and payouts.
The adoption of a widespread real-time payments platform would supplement the push toward faster, more secure payments that are already being executed across the fintech and prepaid markets. While the RTR conversations span far beyond prepaid’s impact, prepaid is and will continue playing a role in the discussions
“Prepaid is driving market innovation with products that most financial institutions don’t offer, such as real-time pay for gig workers and expense management for SMEs,” Tramontana wrote in July 2020. This success should be embraced and accelerated through an appropriate regulatory environment so Canada can be a global leader in digital banking transformation.”
Consumers expect faster settlement periods, instant notifications and better reporting of their financial activity. Prepaid’s digital transformation aligns with where the real-time payments movement in Canada is headed. Any opportunity to help consumers gain faster access to funds, and the ability to use those funds for what they need — particularly in the COVID-19 era — will get attention from payments players.
Open-loop prepaid solutions can be used anywhere the network (American Express, Mastercard, UnionPay and Visa) is accepted, including online. Because traditional open-loop prepaid products run on the existing payment credit card network systems, this provides an added layer of security and capabilities to innovate from. There are ample opportunities for prepaid to make its mark as an innovative, inclusive payments solution that can better connect consumers, businesses and the financial services companies and institutions that serve them both.
The ability to reduce Canada’s reliance on cheques and manual processes associated with these outdated payment methods, will position prepaid to compete in the digital payments market. The prepaid market will benefit from a faster movement of funds, but prepaid offerings will also be able to support the goals of the RTR.