Payments Canada has selected its second solution provider for the country’s upcoming real-time payments system. In response to the news, Canadian FinTechs are taking a wait-and-see approach as to whether they will directly be able to participate in the new system.
Interac Corp. has been selected as the exchange solution provider for the Real-Time Rail (RTR). Expected to launch in 2022, RTR consists of two components: a clearing and settlement component and an exchange component. Mastercard-owned Vocalink was selected last year to operate the settlement component.
Canada has long lagged behind similar markets when it comes to payments innovation; more than 54 other countries around the world already use an RTR system.
A real-time payment system designed to modernize Canada’s core payments infrastructure, RTR will allow for payments to be sent and received within seconds. The system will be operated by Payments Canada and regulated by the Bank of Canada. The idea behind RTR is to create a payment system that is fast, secure, and flexible, to allow for innovation.
Interac might be considered a natural choice for Payments Canada to work with when it comes to building the exchange. Interac is set to use the already-existing technology behind its Interac e-Transfer service to build the exchange component of Canada’s RTR. Interac e-Transfer is currently used by millions of Canadians daily and connects to almost 300 financial institutions in the country.
Tracey Black, president and CEO of Payments Canada called Interac “a well-suited partner” to support the launch of Canada’s new real-time payments system. She noted Interac’s significant investments in infrastructure, services, and existing connectivity to financial institutions, which she said will enable the rapid adoption of real-time payments in Canada.
“The Real-Time Rail will be the foundation for faster, data-rich payments and act as a platform for innovation,” said Black. “Participants in the payment system will be able to connect and develop new and exciting ways for Canadians to pay for goods and services, transfer money and better compete nationally and internationally.”
While Canada has been working to modernize its payments infrastructure in recent years, the country has long lagged behind other similar markets when it comes to payments innovation; more than 54 other countries around the world already use a similar type of RTR system. The RTR project began in 2015 with consultations involving more than 100 organizations within the payments ecosystem.
Among those organizations are Canadian FinTech startups, who have faced many barriers trying to bring competitive products to market, including receiving banking licenses and pulling customers away from the Big Banks.
How the choice to work with Interac will affect Canadian FinTechs is unclear. Currently, FinTech startups cannot directly access e-transfer rails, which is the peer-to-peer (P2P) method in Canada. Historically, Interac’s system has been more easily accessible for traditional incumbents like the Big Five banks.
“If Interac opens up, it could work, but their track record is not encouraging.”
A member of the Canadian FinTech community told BetaKit that if Interac chooses to adopt a fair policy and payments framework that includes FinTechs instead of upholding the status quo, it could be a positive step for startups. “If Interac opens up, it could work, but their track record is not encouraging,” the source said.
Payments Canada has been working to secure its exchange provider over the past year, noting in November that it was in the final stages of the vendor procurement process. One source with knowledge of the partnership told BetaKit that while Interac was a natural fit to be the chosen vendor, Payments Canada had to pressure the payments company to sign the deal. According to the source, Interac delayed the process, “dragging [its] feet,” until Payments Canada stated plans to work with another company to build the exchange component.
RTR is one component of modernizing the country’s payment system. There are also ongoing consultations regarding open banking, which also include both incumbents and startups. Open banking refers to a framework where consumers and businesses can authorize third-party financial service providers to access their financial transaction data through secure online channels, as well as providing authorized third-party financial service providers to initiate payments on their behalf, through APIs.
Multiple sources with knowledge of the consultations have expressed frustration to BetaKit about the open banking consultation process, with one even calling it a “massive waste of time.” The sources indicated that the signals coming out of the consultations are that the Bank of Canada is going to follow the lead of the Big Five banks rather than working with innovative financial companies to create new technology, infrastructure, and processes.
UPDATE 03/03/2021: Updated with commentary from Interac.
“Interac is a vendor to Payments Canada – we do not set the Real-Time Rail (RTR) payments framework or rules, nor are we responsible for determining who can participate in the RTR system,” a spokesperson for Interac told BetaKit when reached for comment. “The intricacies of an agreement of this magnitude take time. Interac followed the rigorous vendor procurement process set out by Payments Canada, which included participation and review by the Bank of Canada.”
“We are very proud to collaborate with Payments Canada, and excited to design, build and operate the exchange solution for the RTR,” they added. “Our rich history and track record in the Canadian payments system speak volumes: in 2020, 764 million Interac e-Transfer transactions took place on our network, with millions of Canadians relying on Interac everyday to move their money.”
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