What Does Interac's Broadened Access Mean For Canadian Payment Firms?

October 25, 2023
Last month, Interac, Canada’s debit network, opened its online money-sending service to third parties, a move that may pave the way for future access for payment firms.

Last month, Interac, Canada’s debit network, opened its online money-sending service to third parties, a move that may pave the way for future access for payment firms.

On September 27, Interac announced the historic move to broaden access to additional types of financial institutions for participation in its e-Transfer service.

The announcement revealed that organisations that are both money service businesses (MSBs) regulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) and investment dealers regulated by the Canadian Investment Regulatory Organization (CIRO) can apply to become participants in e-Transfer.

The network is a widely used debit card system in Canada. It enables consumers to make point-of-sale purchases and withdraw cash from ATMs using their debit cards.

Interac also offers e-Transfer services for peer-to-peer money transfers via online banking. This service has grown significantly in recent years, processing more than 1bn transactions over a 12-month period in April 2022.

Fintechs welcome the move

Expanding access to e-Transfer has received a warm welcome from the fintech industry.

“It's important for payment networks to keep their access rules up to date, recognising that the who's who of regulated financial institutions is always changing,” Alex Vronces, executive director of Fintechs Canada, told Vixio.

Securities dealers and MSBs “aren't exactly new kids on the block” but “it's a step in the right direction”, he added.

“I hope this announcement is a signal of more to come,” Vronces said, noting that payment service providers (PSPs) will soon be supervised by the Bank of Canada, which will give Interac “another opportunity to keep their access rules up to date”.

While expanding access often raises questions about the stability, safety and security of a payment system, Interac told Vixio that newly eligible financial institutions must undergo a “rigorous” application process and meet all the same requirements and obligations as existing participants.

The spokesperson also added that the Bank of Canada provides the oversight of e‑Transfer, which has been designated as a prominent payment system since August 2020.

“This means Interac has to manage the full range of risks related to operating a payment system and has to manage them to the Bank of Canada's liking. That's no small feat,” Vronces stressed.

First fintech to join

The first non-bank institution to obtain provisional approval to access e-Transfer is Wealthsimple, the home-grown online investment management service that also offers peer-to-peer payments via the Wealthsimple Cash service.

Although the company currently offers Interac e-Transfer services for Canadians, becoming a participant will “greatly expand” its services, Wealthsimple said, and will enable it to offer its clients the same experience as banks and credit unions do when they move money.

Specifically, direct access enables easier money movements between the users of Wealthsimple Cash in a “seamless, in-app experience” and makes it easier for its clients to fund all their accounts, the company told Vixio.

Hanna Zaidi, Wealthsimple’s VP of payments strategy and chief compliance officer, said the company worked with Interac and regulators to help expand access to those that fall under the category of being a securities dealer and are registered as an MSB, which will allow payment activities.

This is not the first time Wealthsimple has been a pioneer in the fintech space.

In December 2021, Wealthsimple became the second securities dealer to receive membership to Payments Canada, while in October 2022 it became the first fintech to obtain a direct settlement account at the Bank of Canada.

The settlement account and the Payments Canada membership mean that Wealthsimple has direct access to Canada’s upcoming new payment system the Real-Time-Rail (RTR) as soon as it launches.

A signal for the future of payment firms

Although these developments are significant milestones in Canada’s fintech scene, getting direct access either to Interac services or the RTR rail may be further down the road for payment firms.

As Vronces pointed out, the expansion to e-Transfer currently applies to securities dealers, such as Wealthsimple, and MSBs.

However, according to the Bank of Canada's estimates, there are around 2,500 PSPs, many of whom do not meet that criteria.

Additionally, the Canadian Payments Act does not currently allow PSPs to become members of Payments Canada, which means they will not be able to be direct participants in the upcoming payments infrastructure.

Although the recently enacted Retail Payment Activities Act, which will regulate retail payment activities in Canada, will enable PSPs to apply for an RTR settlement account with the central bank, the government is still in the process of finalising the regulations and the Bank of Canada is finalising its supervisory approach.

Once that happens, the access criteria for e-Transfer would have to change again for payment firms to be eligible, Vronces said.

“In particular, they'd have to make payment service providers registered with the Bank of Canada eligible to access e-Transfer.”

However, it may take a couple of years until the regulations are in place for the Bank of Canada to start supervising payment firms.

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