Payments Canada has delayed the launch of the forthcoming Real-Time Rail (RTR) payment system, saying it needs more time to validate and test the system’s components and end-to-end integration.
“We recognize that there will be impacts for the payment ecosystem in Canada,” said Tracey Black, the president and CEO of Payments Canada.
“We’ve asked banks to invest in and build a payment system that their competitors will use to compete with them.”
It’s the second time Payments Canada has delayed the system’s launch. It first promised to deliver the RTR in 2022, and then rescheduled the launch to mid-2023.
No revised timeline was given by Payments Canada as part of its most recent delay announcement. Black said that Payments Canada’s members, stakeholders, and the broader payment industry would need to be consulted first.
“We are working closely with these groups to replan and confirm a revised launch date, which we will share publicly once confirmed,” said Black.
The delay is “disappointing” but also “not a surprise,” according to Alex Vronces, executive director of PayTechs of Canada. “Things have been absurd from the get-go,” he added. “We’ve asked banks to invest in and build a payment system that their competitors will use to compete with them.”
Vronces called delays in the RTR system and in the introduction of open banking to Canada “disastrous” for the Canadian FinTech sector. He noted that according to the Bank of Canada – the regulator for FinTechs in payments – Canada has some 2,000 payment service providers.
“Market research has uncovered that payments is the biggest fintech vertical in this country,” Vronces said over email. “Without a payment system like the RTR, fintechs will continue to be forced to partner with their competitors in order to compete with them. Look no further than recent exits of global fintech giants from the Canadian market for what the effects of this absurdity is.”
Slow rails
Canada is currently in the process of developing an RTR system which is meant to modernize the country’s core payments infrastructure. RTR will allow for payments to be sent and received within seconds. Along with open banking, it is something that has been touted by FinTech startups as a necessary development for financial services innovation and competition in the country. Like open banking, it has also been heavily criticized for its glacial pace of development.
Payments Canada called the RTR a fundamental part of its multi-year industry program to modernize the infrastructure, rules, and standards that underpin payments in Canada.
But in order to modernize the infrastructure, Payments Canada needs to complete the work. The organization is playing catchup: more than 54 countries globally already use a similar system. And Payments Canada has been working on modernizing its system since 2015, consulting with more than 100 organizations within the payments ecosystem.
Tata Consultancy Services (TCS) is in charge of work integrating the system. A global IT service, consulting and business solutions company, TCS began work on the system in April, helping plan and coordinate activities with industry stakeholders for the integration of RTR components, and deployment of the new system.
Black noted that while the overall RTR is delayed, modernization work was continuing on additional Canadian payments components, including the Lynx system, which is now in its second iteration.
Whereas RTR will process lower-value payments at a higher volume, the Lynx system is designed to process large-value, time-critical payments in real time for a number of major financial institutions, as well as the Automated Clearing Settlement System (ACSS). The system was launched in 2021.
Payments Canada reported at the end of August that it successfully completed testings on Lynx Release Two. Black said Payments Canada completed over 7,000 test cases to ensure the Lynx system is ready to go live in November.
Black also referenced the massive Rogers Communications telecom outage on July 8. “I’d like to acknowledge the Payments Canada teams that ensure Canada’s payment systems operate reliably,” she said. “The Rogers outage on July 8 impacted consumers and businesses across Canada.”
Despite that, 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’s not entirely unexpected that Black would raise the telecom outage given that Interac has been selected as the RTR’s exchange provider, and Mastercard’s Vocalink as its clearing and settlement solution provider.
Following the outage, Interac posted that the system-wide Rogers 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 per day – nearly 25 million transactions on a day like July 8th. We understand this resulted in tremendous frustration and impacted the ability for many Canadians to meet their needs on that day.”
Throughout the third quarter of 2022, the ACSS cleared and settled 2.3 billion payments valued at $2.2 trillion, and Lynx cleared and settled 3.1 million payments valued at $25.9 trillion.
Payments Canada’s members include a number of national banks such as Bank of Canada, BMO, and TD; a number of financial institutions including Community Trust and Peoples Trust Company; and FinTech startup Wealthsimple, which was recently named to the member advisory council.
A number of FinTech startups are also on Payments Canada’s stakeholder advisory council, including Koho, Square, along with several corporations such as Microsoft.
“Not normal”
While Payments Canada has said that RTR cannot be successful without its members and stakeholders, it’s not as though all parties get along. Several startups BetaKit spoke with in March 2021 were wary of the selection of Interac as Canada’s real-time payments provider, noting that, historically, Interac’s system has been more easily accessible for traditional incumbents like the Big Five banks.
That lack of equal access between incumbents and disruptors has been a major point of contention across financial services innovation, with governance being the current open banking battlefront. The pain is acute for startups in the payments space, however: currently, FinTech startups cannot directly access Interac’s e-Transfer rails, which is the peer-to-peer (P2P) method in Canada.
“At some point, we need to recognize that what’s happening in Canada is not normal.”
Worse still, Vronces told BetaKit that Payments Canada has been asked to build a payments system that leverages what has already been built with Interac e-Transfer. “On day 1, if and when the RTR launches, there’s going to be no functional difference between Interac e-Transfer and the RTR,” he said.
“If I’m a bank, you’re asking me to duplicate investments and level the unlevel playing field I’ve benefited from for decades?” Vronces rhetorically asked. “No thanks.”
Like Black, Vronces also referred to 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 people say 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 the incumbents is, itself, a financial stability risk.”
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Daniel Eberhard, CEO of Koho, agreed with Vronces when reached for comment: “The idea that competition and stability are competing forces is false.”
“At some point, we need to recognize that what’s happening in Canada is not normal,” Eberhard said via email response. “The banks are acting in a manner that is completely consistent with their incentives, which is to do nothing. Unless we’re willing to hold our banks accountable via real dates with fines and penalties, nothing is going to change.”
For its part, Payments Canada reinforced to BetaKit that while Interac is the RTR’s exchange provider, it is not being built on Interac e-Transfer. The organization noted that post-launch, RTR will feature several functional differences over Interac e-Transfer, including real-time payment settlement and clearance, support for the ISO 20022 standard, and no transaction holds.
“We are committed to delivering a real-time payment system reflective of the quality, functionality, and security expected in Canada’s financial industry,” said Black in a statement to BetaKit.
Vronces and Eberhard are not alone in calling into question the current process. Relatively staid Weathsimple co-founder Michael Katchen recently weighed in on the matter via a LinkedIn post.
The CEO stated that Payments Canada recently welcomed Wealthsimple as a member because of the latter’s status as a securities dealer, calling it “an exciting milestone for our industry.” That said, Katchen noted Wealthsimple is still waiting for a settlement account that would give it direct access to the RTR.
Direct access would mean the FinTech startup “could compete on a level playing field and have control over how we innovate and build, rather than be beholden to our competitors for access.”
Katchen noted that in the UK, the Central Bank has made the decision to allow non-bank payment companies direct access to the payment system, resulting in an explosion of FinTech services. So far that’s not been the case in Canada.
“Real change will only be realized if newer entrants like Wealthsimple are able to move in lockstep with legacy institutions,” Katchen said.
Update (10/21/22): This article has been updated with additional commentary from Payments Canada and detail on the organization’s advisory relationships.
Feature image by Mohamed Hassan via Pixabay