Companies serving Canadian customers and those with contact center operations, both employees and gig/contract workers in the country are experiencing a critical behind-the-scenes modernization of how payments are made.
To understand what is happening, why, and recommendations we interviewed Ryan Grundy, Lead, Industry Relations at Payments Canada.
Q. Outline Canada’s payment modernization program
Payments Canada owns and operates Canada’s payment systems, including the technology, rules, and standards to provide resilient, secure, and efficient payments for all Canadians. We are a public purpose, not-for-profit organization, mandated by the federal government through the Canadian Payments Act. In 2021, our systems cleared and settled over CAD 135 trillion—more than CAD 539 billion every business day.
Working with our regulators, members, and stakeholders, Payments Canada is leading a multi-year industry program to modernize the infrastructure, rules, and standards that underpin payments in Canada.
The RTR [real-time rail] will change the Canadian payment landscape.
These improvements will strengthen the safety and soundness of our core systems, facilitate innovation and competition, and promote a stronger Canadian economy.
The program involves the introduction of Lynx, a new high-value payment system (completed in summer 2021), a new real-time payment system (the Real-Time Rail or RTR), planned to go live in 2023, as well as enhancements to the Automated Clearing Settlement System (ACSS), the retail batch payment system.
The RTR will change the Canadian payment landscape. It will enable Canadian consumers and businesses to securely send and receive payments within seconds, 24/7/365 - which they cannot do in the current payment environment.
This new system will also act as a platform for payment innovation, as existing and new participants will be able to develop enhanced ways for Canadians to move money and pay for goods and services.
Q. How reliable are Canada’s payment systems and how will modernization help?
Canada’s financial sector has proven its strength over the years, including in response to the 2008 financial crisis and the adverse financial impact of the COVID-19 pandemic.
Our regulatory rigor has played a critical role in Canada’s financial stability and resilience in navigating these financial storms over the last decade.
The same regulatory rigor will be applied to RTR, a financial market infrastructure (FMI) that will be a critically important payment system subject to regulatory oversight.
Q. What impact has modernization had/will it have on the following?
Managing customer service issues resulting from payment problems
The RTR will reduce friction in the payment experience. For example, through it a customer will be able to make a real-time payment to their internet service provider on the due date and avoid late fees, knowing their payment has been received immediately. This will eliminate the need to call customer service to inquire about the status of their payment.
Today, businesses and consumers lack standardized payment information, so reconciliation is costly and prone to error.
But with the RTR, if an unrecognized credit appears on a person’s bank statement, the data-richness of the RTR’s ISO 20022 financial messaging standard will help the person better understand their charges.
All the individual will need to do is click on the item to reveal what it is (for example an income tax credit from the government), making it easier for them to understand their credit and charges. At the same time it will be faster for businesses to reconcile payments with invoices.
Canadian retailers want more low cost, reliable options for point-of-sale (POS) payments. In the future, because the RTR is a platform for innovation, a retailer will be able to use a QR code at their point-of-sale to receive direct payments from customers using their mobile phones.
Thanks to the RTR enabling such innovative payment methods merchants will receive the funds immediately and avoid the costs of accepting credit card payments.
eCommerce relies heavily on credit card payments, which, as noted earlier, are costly to merchants. The RTR will offer a cost-competitive alternative to credit.
eCommerce merchants will have better liquidity management, as payments will be made directly to them, and payments will be final. Better liquidity management and cost-competitiveness will entice more businesses to use this sales channel.
Moreover, the data-richness of ISO 20022 will provide users of eCommerce more information with their transactions. Consumers will no longer need to refer to their receipt for merchant information. Gone will be “Appears on your statement as…” receipt information.
Ending payroll frustrations
Today, liquidity management is a problem for businesses. The RTR will help solve many payment frustrations associated with payroll.
For example, the RTR will help provide flexibility for businesses to structure the pay cycle in line with today’s needs (daily, weekly, per milestones accomplished).
Payments made via the RTR will be fast (exchanged, processed, and settled) within 60 seconds. They will also be final and irrevocable, and users will receive real-time payment status notifications, providing transparency and certainty for end-users.
This will help large corporations distribute payroll, bonuses, and expense reimbursements to their employees faster, within the same day, giving more flexibility around the management of payment cycles, and resulting in increased flexibility and convenience.
Independent contractor/gig worker payments
Payments Canada research shows that the COVID-19 pandemic has led to an increase in the number of Canadians who participate in short-term contracts or freelance work.
In fact, 11% of Canadians participate in the gig economy and 41% of businesses employ gig workers. Gig workers and the businesses that employ them want the same thing from a payments solution standpoint: fast, convenient, secure, and traceable payment methods.
The RTR will enable more convenient and efficient payment options for gig workers and those that employ them. With it employers can pay contractors in full immediately after their shifts. This supports Canada’s growing gig economy and gives more flexibility for business hiring.
Q. Are there changes to the use of payments by phone, such as through an IVR or live agent as compared to making online payments in Canada and what is its future?
Payments Canada does not track any stats on telephone payments (IVR or call center). But it appears that Canadians are moving away from this method.
According to forecast data from TSI’s Canadian Payments Forecast, 2021, it is expected that the automated banking machine (ABM) and telephone channels will dwindle to a combined 51.2 million bill payments and transfers by 2025.
This represents an average rate of decline of 6.3% per annum (compound annual growth rate or CAGR) over the period. The telephone and ABM channels will account for a combined share of just 3.8% of total transfers and payments made across all delivery channels.
Q. What are your recommendations to Canadian customer-serving contact centers and to employers there to take full advantage of payments modernization?
As a public purpose organization, Payments Canada takes pride in its role as a connector and collaborator within the payment ecosystem and encourages anyone eager to learn more about the modernization of Canada’s payment systems to visit payments.ca.
In preparation for the launch of the Real-Time Rail, developers and businesses can explore a preview of RTR’s capabilities through Payments Canada’s Developer Portal. This sandbox environment allows developers and businesses to explore and develop against API functionality using test data.