Payments Canada delays the launch of the real-time rail payment system (further)

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The CEO of PayTechs of Canada calls the process “disappointing” and “absurd”.

Payments Canada delayed the launch of the future Real-Time Rail (RTR) payment system, saying it needs more time to validate and test system components and end-to-end integration.

“We recognize that there will be impacts on the payments ecosystem in Canada,” said Tracey Black, President and CEO of Payments Canada.

“We asked the banks to invest and build a payment system that their competitors will use to compete with them.”

This is the second time that Payments Canada has delayed the launch of the system. It first promised to deliver the RTR in 2022, then postponed the launch until mid-2023.

No revised timeline was given by Payments Canada as part of its most recent delay announcement. Black said Payments Canada members, stakeholders and the broader payments industry should be consulted first.

“We are working closely with these groups to reschedule and confirm a revised launch date, which we will share publicly once confirmed,” Black said.

The delay is “disappointing” but also “not a surprise,” according to Alex Vronces, executive director of PayTechs of Canada. “Things were absurd from the start,” he added. “We asked the banks to invest and build a payment system that their competitors will use to compete with them.”

Vronces called the delays to the RTR system and the introduction of open banking in Canada “disastrous” for the Canadian fintech sector. He noted that according to the Bank of Canada – the regulator of FinTechs in payments – Canada has some 2,000 payment service providers.

“Market research has revealed that payments is the largest fintech vertical in this country,” Vronces said via email. “Without a payment system like RTR, fintechs will continue to be forced to partner with competitors in order to compete. Look no further than the recent exits of global fintech giants from the Canadian market for the effects of this nonsense.

Slow Rails

Canada is currently in the process of developing an RTR system that aims to modernize the country’s core payment infrastructure. RTR will make it possible to send and receive payments in seconds. Along with open banking, it is something that has been touted by FinTech startups as a necessary development for innovation and competition in financial services in the country. Like open banking, it has also been heavily criticized for its chilling pace of development.

Payments Canada has called TRR a fundamental part of its multi-year industry agenda to modernize the infrastructure, rules and standards that underpin payments in Canada.

But to modernize the infrastructure, Payments Canada needs to finish the job. The organization is catching up: more than 54 countries around the world are already using a similar system. And Payments Canada has been working on modernizing its system since 2015, in consultation with more than 100 organizations within the payments ecosystem.

Tata Consultancy Services (TCS) is in charge of the system integration work. A global IT services, consulting and business solutions company, TCS began work on the system in April, helping to plan and coordinate activities with industry stakeholders for the integration of RTR components and the deployment of the new system.

Black noted that while the global RTR is being delayed, work continues on its components, including the Lynx system, which is now in its second iteration.

The Lynx system is designed to process high-value, urgent payments in real time for a number of major financial institutions, as well as the Automated Clearing and Settlement System (ACSS). The system was launched in 2021.

Payments Canada reported at the end of August that it had successfully completed testing on Lynx Release Two. Black said Payments Canada completed more than 7,000 test cases to ensure the Lynx system is ready to go live in November.

Black also referenced the massive telecom outage at Rogers Communications on July 8. “I would like to thank the Payments Canada teams who ensure that Canada’s payment systems operate reliably,” she said. “The Rogers outage on July 8 has impacted consumers and businesses across Canada.

Despite this, Black said, Lynx and Payments Canada’s ACSS remained fully operational with no degradation in production. “This unexpected outage demonstrated the resilience and reliability of Canada’s core payment infrastructure,” Black said.

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It is not entirely unexpected that Black is increasing the telecom outage given that Interac has been selected as the exchange provider for RTR and Mastercard’s Vocalink as the clearing and settlement solutions provider.

Following the outage, Interac job that Rogers’ system-wide outage caused “widespread impact,” including the unavailability of Interac debit and e-transfer services. The financial services company noted, “Interac facilitates the transfer of money and information between Canadians millions of times a day – nearly 25 million transactions on a day like July 8th. We understand that this caused tremendous frustration and impacted the ability of many Canadians to meet their needs that day.

During the third quarter of 2022, ACSS cleared and settled 2.3 billion payments worth $2.2 trillion, and Lynx cleared and settled 3.1 million payments worth $2.2 trillion. $25.9 trillion.

Payments Canada members include a number of national banks such as the Bank of Canada, BMO and TD; a number of financial institutions, including Community Trust and Peoples Trust Company; and several companies such as Microsoft.

Stakeholders include a number of FinTech startups, including Koho, Square and Wealthsimple (the latter was recently named to the Payments Canada Member Advisory Board).

“Not normal”

Although Payments Canada has stated that RTR cannot succeed without its members and stakeholders, it is not as if all parties agree. Several startups BetaKit spoke to in March 2021 were wary of selecting Interac as a provider of real-time payments in Canada, noting that, historically, Interac’s system has been more easily accessible for traditional cardholders like cardholders. five major banks.

This lack of equal access between incumbents and disruptors has been a major point of contention in financial services innovation, with governance being the current battlefront of open banking. However, the pain is acute for startups in payments: Currently, FinTech startups cannot directly access the Interac e-transfer rails, which is the peer-to-peer (P2P) method in Canada.

“At some point, we have to recognize that what is happening in Canada is not normal.

Worse, Vronces told BetaKit that Payments Canada was asked to create a payment system that leverages what has already been built with Interac e-Transfer. “On Day 1, if and when RTR is launched, there will be no functional difference between Interac e-Transfer and RTR,” he said.

“If I’m a bank, are you asking me to duplicate investments and level the uneven playing field that I’ve enjoyed for decades?” Vronces asked rhetorically. “No thanks.”

Like Black, Vronces also touched on the Rogers outage, noting that with Interac down, Canadians without access to cash or a credit card couldn’t pay for groceries or gas. . “Some say that competition and innovation come at the expense of stability and security,” he said. “But the opposite is true when your financial sector is so concentrated. The lack of alternatives to incumbents is, in itself, a risk to financial stability.

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Daniel Eberhard, CEO of Koho, agreed with Vronces when contacted to comment, “The idea that competition and stability are competing forces is wrong.”

“At some point, we have to recognize that what is happening in Canada is not normal,” Eberhard said by email. “The banks are acting in a way that is entirely consistent with their incentives, which are to do nothing. Unless we are prepared to hold our banks accountable via real dates with fines and penalties, nothing is going to change.

Vronces and Eberhard are not the only ones to question the current process. Weathsimple’s relatively stuffy co-founder Michael Katchen recently weighed in on the matter via a LinkedIn Publish.

The CEO said Payments Canada recently welcomed Wealthsimple as a member due to the latter’s status as an investment dealer, calling it “an exciting step for our industry.” That said, Katchen noted that Wealthsimple was still waiting for a settlement account that would give it direct access to RTR.

Direct access would mean the FinTech startup “could compete on equal footing and have control over how we innovate and build, rather than being beholden to our competitors for access.”

Katchen noted that in the UK, the Central Bank took the decision to allow non-bank payment companies direct access to the payment system, which led to an explosion of FinTech services. So far, this has not been the case in Canada.

“Real change will only be achieved if new entrants like Wealthsimple are able to keep pace with legacy institutions,” Katchen said.

Featured image by Mohamed Hassan via Pixabay

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Elaine R. Knight