How real-time payments can accelerate Canada’s digital economyNovember 18, 2020 | By Hayden Harrison
Countries all over the world are realizing that a vibrant digital economy requires the real-time movement of money. Payments Canada is the latest organization to partner with Mastercard to build a state-of-the-art, real-time payment infrastructure, bringing faster, simpler, more flexible and convenient payments to Canada by 2022.
We invited Tracey Black, president and CEO of Payments Canada, and Paul Stoddart, president for New Payment Platforms at Mastercard, to consider how real-time payments will accelerate Canada’s digital economy and bring innovative new solutions to people, businesses and the government.
How is the world trending to real-time payments?
Paul Stoddart, Mastercard: When Vocalink, now a Mastercard company, partnered with BCS to build and launch Singapore’s FAST real-time payment system in 2014, there were just 18 other equivalent systems around the world. Fast-forward to 2020 and our internal tracker counts 49 live global real-time payments systems covering 58 different countries and territories. These markets account for the equivalent to more than 89% of global gross domestic product.
Almost two-thirds of these markets have access to a real-time system based on ISO 20022 data standards, whose advanced message capabilities provide greater context to the transaction, enable a range of innovative use cases, and allow for more efficient processing by back-office systems. With widespread adoption, they enable global cross-industry interoperability.
Why did Payments Canada want to introduce real-time payments as part of its modernization program?
Tracey Black, Payments Canada: Canada requires a real-time payments system to remain globally competitive.
Domestically, we believe that the Real-Time Rail (RTR) will act as a platform for payment product and service innovation. To support this, Payments Canada is preparing for changes to our legislation that will broaden our membership base and allow nonbank payment service providers to directly access the RTR. We anticipate that existing and new members will leverage the real-time payment system to introduce new payment options that meet the evolving needs of Canadians and Canadian businesses. Additionally, a real-time payments system will position Canada to participate in innovation that is shaping the global payments landscape, such as open banking and cross-border, real-time payments.
What are the benefits of real-time payments for people, businesses and governments that transact with them?
Black: We have observed a steady shift towards digital payments in Canada, and in 2020 there’s no doubt that the COVID-19 pandemic has accelerated this shift.
A real-time payments system provides the opportunity to enhance existing electronic payment experiences, such as bill payments. The RTR will support the ISO 20022 messaging format, and the suite of messages will include those that will allow a biller to send a request for real-time payment to a customer. Once the customer initiates the payment, the money will move from the customer to the biller in seconds rather than hours. The RTR will also allow for new payment experiences, such as real-time payroll, where the employee can request to be paid by the hour, by the day — basically on-demand.
Real-time clearing and settlement are also going to be a great enabler for business-focused innovation. Our hope is that business payment experiences will catch up with consumer payment experiences; hopefully, they could even leapfrog.
One feature of the RTR that will be hugely beneficial is the use of ISO 20022 messages for data-rich payments. Data — such as remittance information — can improve processing efficiency and reduce matching errors. And the reduced reliance on paper (including checks) is expected to drive significant bottom-line value for Canadian businesses and government.
Stoddart: A 2019 report from Deloitte and Vocalink shows how real-time payments can boost working capital and improve the efficiency of the financial system, with longer-term impact as corporates, startups and policymakers harness the infrastructure to deliver innovative products and services to consumers and businesses. The mix of benefits may differ from country to country, but the overall economic implications are powerful and convincing.
How can real-time payments drive a more digital economy?
Stoddart: When money moves seamlessly, it breaks down barriers. And real-time payments, being instant and irrevocable, function as a proxy for trust — which makes them a viable alternative to cash. Overlay services and applications can provide safe and convenient ways for people to pay in-store and online, receive wages and disbursements, and send money to other people.
The true benefit to consumers and businesses is to provide them with increased payment choice: whether they wish to transact using a card, a digital wallet or directly from their bank account.
Real-time payments are safe, simple and accessible — that's what drives adoption: PromptPay, the real-time payment solution we implemented in Thailand, has contributed to an 83% increase in digital payments in the country between 2016 and 2018.
Black: In Canada, we’ve seen evidence of consumer preference for in-store electronic payments , and a proportionate increase in online purchases. We expect that some of our existing payment types will evolve to take advantage of the speed that real-time payments provide.
Canadians are quite receptive to payments innovation: We had a very smooth migration to chip and PIN, for example, and Canadians are contactless payment champions. We envision there will be new payment products and services that come into the market that benefit Canadians who may not use electronic payments today.
Payments Canada is one of many operators joining the real-time revolution. How will the future of a faster, global digital economy be realized?
Black: We’re starting now to see more incidence of real-time payments crossing borders, which is something that Canada should be prepared for in order to remain globally competitive.
We started on our modernization journey way back in 2015 as a twinkle in somebody's eye. But we've worked with the industry — not just our members, but more broadly. I think that’s really a critical factor for the evolution of payments: Listening to our members and being ready for them with what they need when they need it.
As we build our system here in Canada, partnering with Mastercard, we're looking to Mastercard's expertise. We’re taking the necessary steps to ensure our domestic real-time payment system will be interoperable with other domestic systems so that we can be ready to participate in a global real-time economy.
Stoddart: To create a system that empowers all people, businesses and governments to put their money to use requires partnership and collaboration. Real-time payments lay the groundwork for a more efficient, safer and more accessible ecosystem where money works harder for everyone, everywhere.