After Years of Delays, Canada’s Instant Payments Network Finally Goes Live
Payments Canada is launching its national instant payment system after years of delays, as the country’s payments infrastructure becomes a priority piece of Ottawa’s bid to bolster sovereignty.
The not-for-profit, which oversees the country’s national payment networks, said Monday it is initiating the first phase of the real-time rail system – payments infrastructure that enables the instant transfer of money. Ottawa announced the real-time rail launch in the federal budget last week, along with a parade of financial services sector changes aimed at growing the economy as the government seeks to reduce reliance on the United States.
“What it does is ensure that cash remains in the hands of Canadians more of the time, and that should facilitate things like businesses improving their cash flow, consumers being able to pay and settle their bills, and having greater, more seamless access to credit when they need it, or payments,” Payments Canada chief executive officer Susan Hawkins said in an interview.
Canada is the last G7 country to launch a real-time rail system. Many of Canada’s global peers already have instant payments systems, including the United States, Britain, India and Brazil.
Payments Canada owns and operates the RTR, which was built in partnership with Interac Corp., IBM, CGI and Deloitte Canada.
Through the RTR, payments will send almost instantly, 24 hours a day and 365 days a year, and will include data that makes it easier to track the flow of funds. The clearing and settlement process – a traditionally time-consuming behind-the-scenes process that is invisible to most consumers and businesses – will happen almost instantly.
This means that companies could pay their workers immediately after a task is completed, retailers and restaurants could receive funds in real time once a customer has paid them and landlords would receive rent payments instantly with a confirmation of funds.
The C.D. Howe Institute estimated in a recent study that the RTR would contribute more than $16-billion in economic gains.
Eight institutions joining the initial phase, including Wealthsimple Financial Corp., Questrade Financial Group Inc., Peoples Trust Co., Koho Financial Inc. and Bank of America.
Through the RTR, fintechs can access payments systems directly and at lower cost, bypassing the need to do so through partnerships with banks and other institutions.
Participants will be added to the RTR in three phases to help control the volume of transactions added to the system, with the goal of including every Canadian financial institution on the rail by mid-2027.
The major banks – which will shift massive amounts of volume onto the RTR – are not involved in the first phase of the rollout, but will join in the second and third phases.
The RTR could also help spur more innovation in Canada’s concentrated financial sector, which is dominated by Royal Bank of Canada, Toronto-Dominion Bank, Bank of Nova Scotia, Bank of Montreal, Canadian Imperial Bank of Commerce and National Bank of Canada.
“What we’re trying to do here is support the Department of Finance and the Bank of Canada’s policies to open up the national payment infrastructure and the membership of Payments Canada to qualifying members beyond the traditional financial institutions so that we create an environment for innovation and competition,” Ms. Hawkins said.
Competition in banking has become a key focus for the federal government in recent years. The federal government has said it is prioritizing introducing an open-banking regime to make it easier to switch banks, level the playing between small and large lenders, and improve payments connections between Canada and global markets.
As the trade relationship with the United States becomes increasingly uncertain and geopolitical tensions escalate, Prime Minister Mark Carney has also placed the security of Canada’s payments system at the top of his priorities list, ranking it alongside critical capabilities, including defence and critical minerals.
In the budget, Ottawa said it would modernize the country’s payments systems, including launching a public consultation on payments priorities early next year, and review the Canadian Payments Act. The RTR is one part of that effort.
The RTR launch has faced several delays over the past decade. After Payments Canada began the process in 2015 to set the foundation for the RTR, a launch date was initially scheduled for 2019. Since then, the rollout has been pushed back numerous times.
“It has taken longer than what Canada would want, but we’re starting in a place now where we have a rail that’s been built by a Team Canada in Canada that’s internationally extensible and is ready to be built upon,” Ms. Hawkins said.
While RTR allows for instant payments, it also increases customer vulnerability for fraud, financial crime and other issues in a system where it could be more difficult to recoup funds, because the money is sent in seconds rather than days. Unlike the other G7 countries with RTR, Canada’s system is launching with fraud safeguards at the outset.
The RTR is currently set up to process domestic transactions, but it is built according to a global standard that would allow it to connect with networks in other countries.
Last month, Ottawa unveiled plans to negotiate connecting Canada and the European Union’s instant payment systems to allow Canadians to send money to people and businesses in the region with greater speed and at lower cost.
Payments experts have said this could increase the speed of trade, circumvent the routing of Canadian funds and data through U.S. correspondent banks, and lower the costs of processing transactions.
More than 80 per cent of Canadian payments destined for Europe are routed through the U.S., Ms. Hawkins said.
“Payments infrastructure is the plumbing that moves money between people, businesses and banks, and potentially other markets. Whoever controls that plumbing has influence over who can move money, how fast the money can move and under whose rules and legal framework the money can move,” Ms. Hawkins said.
“What we mean when we talk about payment sovereignty at this moment in time is the ability to keep our economy running and making our own policy choices without someone else being able to switch off the systems or dictate terms to Canada.”
This article was first reported by The Globe and Mail
