By: Doug Kreviazuk, Executive Director, Fintechs Canada
“In mid-2017, the Department of Finance released a new Retail Payments Oversight Framework (RPOF) in response to mounting pressure to modernize retail payments regulations and the rapid emergence of new, unregulated participants in the broader payments ecosystem. The RPOF was designed to better safeguard the payments system from new risks and enhance the system’s transparency. Under the direct oversight authority of the Bank of Canada, most Payments Service Providers (“PSPs”), historically viewed as either unregulated or under-regulated, would be included under this new regulatory umbrella.”
I wrote this introductory paragraph in June of this year, anticipating the passage of the RPOF. However, in the intervening period since my previous RPOF article, little to no progress has been made in making the framework a reality. Unfortunately, the hopes and expectations of a movement to seek positive and imminent change to the payments system have begun to fade.
The RPOF legislation is a critical first step in embracing the utility and resourcefulness of PSPs and promoting the eventual rollout of new, innovative payment and payment-related services. You see, RPOF is a cornerstone piece of legislation that essentially recognizes the value proposition that PSPs introduce. On its own, this legislation does not provide any specific authorities for PSPs that seek to operate in the payments system. However, it does provide a framework of trust for other system participants and system users. Without this framework and oversight model, critical industry updates like expanded access to the national payments system, third party origination of payment items and the direct involvement of service providers in an open banking framework will be extremely difficult to achieve and may never come to fruition.
Have you ever expressed concern about the cost of a domestic or international wire payment? The time it takes to complete an international payment? Or your inability to personally customize your payment needs? If you have, you are not alone. Millions of consumers and businesses have been lamenting these and other industry inefficiencies for years. In 2007, demands for change from industry players and consumers in the UK led to the introduction of the European Union’s Payments Service Directive, and later its successor PSD2 in 2015. The essence of these directives was to specifically increase the level of financial services competition across Europe by reducing participation barriers for financial service providers and promoting their direct entry into the payments system.
European payments system modernization efforts served multiple public policy objectives: i) to enhance competition for the provisions of financial services; ii) to broaden and strengthen consumer protection measures; iii) to drive greater efficiencies; and iv) to promote innovation. By any measurement, the benefits of this modernization push have been significant in the EU. Here in Canada, though, discussions continue to churn without reward.
Canada’s RPOF may be viewed in the same light as these early European regulations. The PSD, when it was introduced, was truly “pioneering” regulation offering a completely new way to view the payments system on a global basis. The RPOF could be construed as essentially Canada’s 2.0 version of the PSD, beginning the process of catching up to our global competitors. Canada’s new legislation will provide the necessary foundation to all future payment and payment-related services aimed at eliminating the real and longstanding inefficiencies in today’s Canadian payments system. The legislation would also promote competition and begin the introduction of needed market incentives to promote continued innovation. Today, at a time when our economy is stalled, RPOF and related activities in support of the payments system may be the necessary catalyst to fuel growth. For this reason, it is essential we collectively support its rapid introduction and expeditious passage in Parliament.
In most sectors of the economy, delaying legislation and regulation has the effect of speed-bumping progress while inviting work-around solutions- not so in the rapidly evolving payments sector, where a delay in foundational legislation can have lengthy, adverse consequences to the industry’s entire ecosystem and more dire outcomes for innovative, emerging players. When you are dealing with people’s finances, there must be absolute trust and a high degree of confidence that the actions of the participants are scrutinized to avoid losses or frauds. As such, in the absence of RPOF, there are few solutions available to service providers to attract and measurably grow their payments business.
In the face of global acceptance for service providers and the ultimate benefits that will accrue to Canadians, it is unconscionable not to directly proceed with the introduction and passage of the RPOF.
Please watch for Part 2 of this RPOF discussion and the interview with Fintechs Canada Board Chair, Laurence Cooke, on the outstanding issues and concerns of RPOF delays and the benefits of rebalancing the payments playing field.