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Despite industry backlash, Canada has made the prudent decision to delay the launch of the forthcoming Real-Time Rail (RTR) payment system, as Payments Canada pushes to open up the new payment system to non-banks.
Last week, Payments Canada pushed back the launch of the new real-time payment infrastructure, a move that was dubbed as “disappointing” and “absurd” by industry participants.
The delay is not a “complete surprise” but is “frustrating for the industry as a whole”, Andrew Gomez, managing consultant at international payments analysts Lipis Advisors, told VIXIO.
The launch of the RTR would bring Canada back up to speed with the rest of the developed world in terms of payments. The delay does not only affect the launch of the infrastructure but also the banks and other providers that have to make the technology available to their clients, Gomez explained.
“They need to know when things are going to go live, they have to start planning for the technological developments they make, for the testing, to build products and services up for the new infrastructure.”
The instant payments infrastructure was originally planned to launch this year and was first postponed until June 2023.
As a result of various difficulties over the past few years, “there is a lot of frustration in the industry from all the different angles you can imagine”, Gomez said, noting, however, that such a delay is not unprecedented.
For example, VIXIO has reported previously on the UK’s New Payments Architecture (NPA), which has been delayed so many times that the industry has grown sceptical about whether Pay.UK would be able to deliver on its promise and potential.
According to Payments Canada, the delay will provide additional time to validate and test the components and end-to-end integration of the RTR system.
The agency has not set a new date for the launch yet, but Tracey Black, CEO of Payments Canada, told VIXIO it is working closely with members, regulators and stakeholders to replan and confirm a revised launch date, which will be shared publicly once confirmed.
As the country has a smaller number of banks, Canada can take a more inclusive approach during the development process than many other countries.
Payments Canada is working in close collaboration with its member institutions and RTR partners and, according to Gomez, it is possible that all the banks will go live as soon as the infrastructure is ready.
“It is in everyone’s interest for things to be done in a slow and methodical manner if it means that the end result is better than if they have rushed it out.”
In that sense, the delay is “not necessarily a bad idea”, he stressed, particularly if more work needs to be done on the technical or software level.
“The last thing you want to do with something so important like a payment infrastructure is to go live with a system that is not really ready and then you end up having a mass of problems, whether it’s payment outages, increased fraud or misdirected payments,” Gomez said.
Canada knows a thing or two about outages. In July, a massive outage at Canadian telco Rogers caused widespread chaos to the country’s banking and payments system.
Fintechs' access to payment system
Currently, payment service providers (PSPs) cannot directly participate in any of Payments Canada’s systems. The country is now considering expanding membership eligibility to payment firms as part of the review of the Canadian Payments Act, launched back in 2018.
Last week, Payments Canada asked the government to complete the review and extend eligibility to PSPs as part of next year’s budget act.
Although there is a general trend around the world to enable fintechs and PSPs to access the central payment infrastructure, the initiative may face difficulties in Canada.
Payments Canada, which is responsible for building the new system, is funded by the fees it collects from its member institutions. The larger the banks are, the more they are required to pay in.
This means that large incumbent banks may have an interest in limiting access to the payment system, funded by them, while the government is seeking to push for wider participation.
Alex Vronces, executive director of PayTechs of Canada, described this situation as “absurd from the get-go”.
“We’ve asked banks to invest in and build a payment system that their competitors will use to compete with them,” Vronces told Betakit.
Preparing for ISO 20022
While the RTR system launch has been delayed, the agency has made significant steps to comply with other objectives of Canada’s wide-ranging plans to overhaul its payment systems.
As part of that effort, Canada will introduce the ISO 20022 financial messaging standard to the Lynx system in less than two months.
Payments Canada and industry participants have completed more than 7,000 test cases to ensure the system is ready to go live in November. Industry testing involved companies Nexi and IBM, the Bank of Canada, Payments Canada, Lynx participants and the vendor community.
Lynx launched last September and processed 12m payments valued at $115tn during its first year of existence.
