Payments Modernization is Underway in Canada

Nov 23, 2022
5 minutes Read
Amid Canada's digital transformation, payment modernization is redefining secure, efficient transactions for businesses and consumers alike.
Payments Modernization is Underway in Canada

Do you remember the first time you bought an airline ticket online or tapped a POS terminal to pay for coffee in person? Transactions that used to feel revolutionary are now standard fare. Still, these payment methods are relatively new in the history of the Canadian payments ecosystem. And more changes are on the way.

It’s no surprise that our financial system moves in tandem with changes in technology, the economy, and social life. Currently, the digital landscape is evolving and expanding at a dramatic rate, with consumer and businesses expectations are changing in parallel and demanding more convenience, ease of use, and interoperability. This process of transforming the payments ecosystem to make it faster, more flexible, and consumer-centric is called payments modernization – and it’s underway right now in Canada and around the world.

A new vision for payments processing

A few factors are driving this change. For one, innovative new players in the financial landscape are disrupting the usual ways of doing things. The legacy systems now used in the financial sector are struggling to meet new expectations and deliver the seamless interoperability expected of digital channels. As Canada moves forward with open banking, consumers and businesses will have a secure way of sharing their financial data with organizations beyond the traditional banks. They will deal with fintechs (financial technology) companies and apps and gain access to a range of options for moving funds and making payments.

New payment habits are also driving the need for payments modernization. People and organizations are using banking services more frequently to make payments. They’re doing more with mobile and less with cash. Consumers and businesses alike are looking for faster settlement methods, more transparent transaction data, and easier and simpler ways to make payments across their channel of choice. At the same time, as they encounter more varied digital payment options, they seek enhanced security over transaction and personal data.

Payments modernization isn’t something that happens overnight. Infrastructure, rules, and standards are needed to accommodate any updates to the payment ecosystem. A game plan and background efforts are necessary to build a safe, secure payments system that works for consumers and businesses and coexists with payment systems around the world.

In Canada, that process is managed by Payments Canada, the organization that owns and operates the country’s payment clearing and settlement infrastructure. In 2016, it developed a national vision for payments modernization: to establish a fast, flexible, and secure payments system that would promote innovation and strengthen Canada’s competitive position. After consulting with financial institutions, stakeholders and regulators in Canada and around the world, Payments Canada identified eight attributes that Canadians expect to see in a modern payment system, and folded them into its vision for payments modernization:

  • Fast payment options: consumers and businesses can transact payments in real time or near real time, and in higher amounts
  • Data-rich payments: the system adopts ISO 20022, an international messaging framework that that attaches transaction data to electronic payments in a standardized format
  • Transaction transparency: all parties to transactions are instantly notified about payment activity and payment status
  • Easier payments: payors can make payments easily, using common identifiers (e.g. a phone number or email address) without providing banking information
  • Cross-border convenience: interoperability makes methods for making payments to and receiving payments from other countries are simple and readily available
  • Activity-based oversight: services are regulated instead of types of organizations, and deliver security to customers
  • Open & risk-based access: the system is open to new players, encouraging competition and innovation, while maintaining security and data privacy
  • Platform for innovation: the system is flexible and adaptable, which reduces costs and delivers new efficiencies to users

Business benefits of payments modernization

Modern payments infrastructure that prioritizes Canadian competitiveness gives business leaders a lot to smile about. But organizations stand to benefit in other ways, too. For instance, real-time settlement with comprehensive transaction data takes the headache – and the potential human error – out of accounting and record-keeping procedures. With data-rich payments, tracking and matching invoices will be far more efficient.

Faster payments are good for business by creating less commercial friction. Consumers make purchases more readily and have been shown to spend more. Payment innovations also introduce new products and services, such as rewards programs and payment options, such as BNPL (Buy Now Pay Later). Used creatively, they can build new consumer touchpoints, open channels to new markets and younger, international demographics, and foster opportunities to invigorate and strengthen brands.

Perhaps most importantly for retail leaders and financial service providers, the shift to faster, instant payment settlement reduces risk. Real-time payment means more payments effected entirely with guaranteed “good funds.”

A payment system that bolsters Canadian business

While much of payments modernization is still happening on the regulatory level, Canadian merchants will need to adjust their own business models to take full advantage of the payments innovations to come. Those that are further behind on digital transformation may need to accelerate that process or boost their technology investment to meet  consumer expectations as the payment landscape evolves. Others may need to explore new partnerships with payment service providers or adopt new skillsets to meet software and security requirements.

It’s exciting time for consumers and businesses as Canada makes major strides to modernize its payment system. Get ready for a payment system that is fast, flexible, secure, innovative, and that entrenches Canada as a business leader for years to come.