Below is a Q&A between Alex Vronces, our executive director, and Anne Butler, Payments Canada’s chief external relations and legal officer. The discussion ranges from what’s changing about payments policy to the latest news on when the real-time rail is going to go live.
Alex: The Retail Payments Activities Act, or RPAA, made it into the federal budget. The RPAA is what was being called Retail Payments Oversight Framework. Different names for the same thing. What does the RPAA mean for Canadians and businesses?
Anne: We have seen a dramatic surge in digital and online transactions over the last few years, and the ongoing pandemic has magnified the need for Canadian businesses and consumers to be able to access funds quickly. The rate of innovation in the Canadian payments ecosystem is advancing at an unprecedented rate to meet these needs, but payments regulation has struggled to keep pace. The implementation of RPAA is a very welcome and important step towards building a modern payments regulatory framework that enables the level of convenience that Canadians want, with the both safety they have come to expect and rely upon.
We know that Canadians are embracing new payment options offered by non-financial institution payment service providers (PSPs), taking advantage of the convenience and speed they provide. But by using these providers, consumers’ payments and funds may be more at risk. This is because PSPs are not subject to consistent regulatory oversight for the functions they perform on behalf of consumer and business clients. With the implementation of RPAA, all PSPs will be subject to comparable oversight, offering Candians peace of mind that their payment is safe, and that their balances are well protected. This confidence will help support growth in the Canadian payments market and drive adoption of new payments services and products.
Looking ahead, implementing RPAA is also an important step towards Payments Canada’s ability to safely open up our payments systems for PSPs to participate and compete. This will further drive safe innovation in payments for the benefit of Canadian consumers and businesses and further fuel Canada’s vibrant fintech and paytech market.
Alex: Budget 2021 makes no mention of Canadian Payments Act amendments. The plan was always to sequence them after RPAA, but some people are worried that amendments to the Canadian Payments Act may fall off the agenda, or may come second or third to other government priorities. How can we, collectively, make sure that doesn’t happen?
Anne: By including the RPAA in the 2021 budget, the federal government acknowledged the importance of modernizing payments regulation and creating the opportunity for broader access to Canada’s national payments systems. But, as you mentioned, RPAA is just one important step and there is more work to be done. Changes to the Canadian Payments Act are needed to broaden access to the national payments systems – including the Real-Time Rail (RTR) – for credit unions, regulated financial market infrastructure entities (FMIs) and PSPs. Without these act changes, competition and innovation in the Canadian payments market will be inhibited.
While legislative change is ultimately the prerogative of the government of the day, Payments Canada is working with the Department of Finance to complete the needed analysis and ecosystem consultation to support changes to the Canadian Payments Act and Payments Canada bylaws to allow for open, risk-based access to our systems. Payments Canada looks forward to working with the industry, the government and our regulators to get this job done. This is a priority for us in 2021 and we will be working hard to finalize the approach that makes sense for Canada – in consultation with members, PSPs and other stakeholders.
Alex: As Payments Canada, I presume you’ve done your own consultations with your members and stakeholders on amendments to the Canadian Payments Act, just like you do for other goings-on at Payments Canada. What are the big issues we should be wrapping our minds around as we think about the government’s review of the Canadian Payments Act?
Anne: Exactly. Payments Canada continually consults with our members, stakeholders and the broader payments ecosystem to ensure our policies support the needs of end-users.
In 2020, our Policy team conducted targeted consultation around amendments to the Canadian Payments Act, including Payments Canada membership reform. What we heard from our members and stakeholders is that membership eligibility should be expanded to permit all regulated entities engaging in the payments ecosystem to become members – including credit union locals, financial market infrastructures, and payment service providers once the RPAA is in force. We also heard that the membership model should provide balanced rights and responsibilities based on the functions a member is performing as opposed to being based solely on the type of entity they are. And our membership and system access frameworks should be flexible enough to accommodate an industry that’s characterized by constant change.
In terms of things we are wrapping our minds around, as we add new member types to the fold, we need to think about things like governance, funding, and compliance, and what they need to look like to support a broader access environment. We will need to establish fair and transparent membership criteria – and I am sure we will need to make some bylaw changes.
Late 2020, Payments Canada also held a public consultation on the policy proposals around the RTR. The feedback received is being used to inform the capabilities of the RTR and the policies and rules that will govern RTR participants.
Our consultative processes provide valuable insight that informs our policies and priorities. We will continue to engage with industry working groups and the broader payments ecosystem to address consultation feedback and move together towards broadened access to Canada’s national payments systems.
Alex: The Real-Time Rail will not be all it can be without broader access. But let me keep it real for a minute: the RTR is going to pave the way for big improvements in Canadian payments. Who will be able to access the RTR and what are some of the expected benefits for consumers, businesses and governments?
Anne: The RTR will support Canadians to make and receive irrevocable payments—between accounts at different financial institutions—within seconds, day and night, 365 days a year. More generally speaking, the RTR will provide a fast and data-rich alternative to cheques and Automated Funds Transfer (AFT) payments.
The RTR will also act as a platform for payments innovation. Participants in this new payments 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.
For example participants could provide services that would enable consumers to receive their insurance emergency disbursement within seconds to support repair work. Or allow consumers to be able to pay rent to their landlord in just one click by including all the information usually found on a cheque (month, apartment number, etc.), or to pay for a car or make a down payment on a property without having to go to a bank to pick up a bank draft.
Businesses will be able to pay part-time staff for the time they’ve worked immediately after their shift. This supports Canada’s growing gig economy and flexibility for business hiring.
Finally, governments will be able to distribute emergency funds in a matter of seconds, directly into citizens’ bank accounts.
To participate in the RTR, an organization must be a member of Payments Canada. All Payments Canada members will be eligible to participate in the RTR provided they meet risk-based access criteria, which will support broader participation without compromising safety and soundness. In order for non-financial institution PSPs to participate in the RTR, changes to the Canadian Payments Act to broaden Payments Canada membership are required. This is why we are advocating for those changes – with the intention to coordinate that closely to the implementation schedule for RPAA.
Alex: It was recently announced that Payments Canada selected vendors to build the RTR. Vocalink is building the clearing and settlement layer. The exchange layer is going to be built by Interac. Payments Canada is aiming to launch the RTR for 2022, but there are whispers out in the market that it won’t be ready until 2023, if not later. What milestones are left for Payments Canada to hit before the real-time rail is actually launched?
Anne: As you mentioned, we are working with Mastercard’s Vocalink, the selected clearing and settlement solution provider, and Interac, the selected exchange solution provider, to develop the infrastructure and select services behind the Real-Time Rail, Canada’s new real-time payments system.
In addition to the provision of the new system infrastructure, we are working to develop a framework of rules and by-laws that provide an appropriate balance between flexibility and compliance, and facilitate payments innovation. The work in support of the RTR legal framework is already well underway, being led by Payments Canada and working closely with key program partners, including financial institution members, Department of Finance and Bank of Canada.
We are currently working with our member financial institutions to support completion of impact assessments related to the new system delivery and finalizing on the design phase of activities to support the start of build for the RTR. The RTR remains targeted for fall 2022. We are working together, as an industry, to determine timelines that will support the best product.
Alex: One thing I’m used to hearing is that the RTR is great, but not if you can’t access it. Payments Canada can do more than build an RTR with open access to support its future members. Other than launching the RTR, what is Payments Canada doing to support broader access?
Anne: As we work towards making our tent bigger, we need to make sure the posts are strong enough to keep the folks inside safe. Our policy team is exploring various options on how to get that piece right. Because getting it right is how you build a strong and competitive network to drive payments innovation. But changing Payments Canada’s membership to broaden access to our systems requires legislative change that Payments Canada does not control. We need the coordinated advocacy of players across the Canadian payments ecosystem to build strong support for amending the Canadian Payments Act so that we can broaden access to Canada’s national clearing and settlement systems.