The Real-time Rail is coming! What can Canada learn from other instant payment schemes?

Canada’s payments ecosystem can breathe a sigh of relief as Payments Canada has announced that the Real-Time Rail (RTR) has a path forward. While no specific launch date has been given, the RTR’s final clearing and settlement component will be built throughout 2024, testing is planned for 2025, and which will move to industry testing in 2026. 

The update delays the target go-live by a further few years and comes with the news that Vocalink will no longer provide the clearing & settlement piece. New partners, IBM & CGI, will work with Interac to complete the project. This follows a string of previous delays and challenges in building the RTR for Canada.  

Originally expected to launch in 2022, Canada now trails behind a wave of instant payment schemes launched in all major (and some not-so-major) markets. 79 countries now offer at least one instant payment scheme. Some date back to the early 2000s. 

The advantage now is that Canada can pre-empt headwinds, learn from other markets, and align with legislative changes such as the rollout of the Retail Payments Activities Act (RPAA). It is an exciting time for Canadian payments.  

Lessons to learn

So, what is the immediate impact of this news?   

For the average consumer or business – the people who will use the system – not much…yet! But industry alignment, a path forward, and confidence in the updated plan is a great start, albeit long-awaited.  

This is a big opportunity for Canada to focus on the lessons learned from around the world.  

Take fraud for instance; every major market that has introduced an instant payment scheme has seen a significant rise. In the UK, authorised push payment (APP) scams overtook card fraud in the first half of 2021.  

Solutions like Confirmation of Payee (CoP) services have sprung up all over Europe as a result, to notable success. The Netherlands saw an 81% fall in reported fraud after SurePay introduced a CoP service. The EU is now mandating that all EU banks must deliver a CoP service in a phased approach as part of their instant payments offering to combat digital payment fraud.   

It’s a big lesson for Canada.  

There will likely be a rise in fraud when the RTR launches. As a result, Canadians are demanding a fraud solution at RTR go-live and it’s encouraging that Payments Canada also announced that the RTR will include a centralized fraud utility service although did not include any additional details.   

We know Payments Canada must focus on getting RTR over the finish line. But we must not ignore the lessons learned from others around the world.  

RTR can transform Canada’s financial ecosystem

Canada’s financial system historically has been very conservative, which has served the country well in times of crisis. However, it has also hindered competition in financial services and has limited options for clients. 

Currently, Payment Service Providers (PSPs) and fintechs can access the existing payment schemes indirectly via a member of Payments Canada. Membership is reserved for traditional financial institutions, so PSPs and fintechs partner with banks to gain access and build their products ‘on top’.  

PSPs and fintechs often have a strong frontend (UI) and nicer workflows (UX) – but their underlying services often must rely on traditional clearing providers in the background, subject to limitations such as cutoff times and other Service Level Agreements (SLAs). 

This will soon change. The Canadian federal government also made another long-awaited announcement in November last year that complements today’s: it is finally moving forward with the Retail Payments Activity Act (RPAA) framework and changes to the Canadian Payments Act (CP Act).   

After a public consultation, RPAA – the consumer-driven banking regulatory framework (A.K.A. open banking) – overseen by the Bank of Canada, will implement a new payment supervisory regime to govern, accredit, and supervise PSPs while mitigating operational risks and safeguarding funds. It will allow the original (estimated) 2,500 interested PSPs to register starting November 1, 2024, and then expects decisions regarding the approvals will be published by September 8, 2025.  

Why is the announcement so timely?

The RPAA framework will launch just as the government intends to amend the Canadian Payments Act to expand membership eligibility for Payments Canada, which will allow approved PSPs who meet the necessary regulations to become members of Payments Canada and thus access the RTR directly.

The RTR, meanwhile, will be API-ready and act as a platform for innovation, with the ability for participants to develop new overlay and competitive services for Canadian businesses and consumers.  

Let’s say a mortgage company sees an opportunity to create a killer app that removes friction from the current onboarding and administrative processes. The app speeds up time to approval and funding, reduces overall risk and delivers an excellent customer journey. With the RPAA, the company may become a member of Payments Canada and leverage the RTR for a seamless, fast, data-driven payment exchange and settlement as the “last-mile” to complete the transaction.  

The combination of the RTR scheme, implementation of the RPAA framework and the upcoming changes to the Canadian Payments Act will make innovative services like this truly possible.  

Participation will not be easy

New participants will be heavily supervised, and there will be strict guidelines they will have to comply with.  

In addition to meeting obligations under RPAA, it’s proposed that new RTR participants will need to pre-fund using a Lynx (Canada’s RTGS system) account to safeguard the system. That means a fintech hoping to use the RTR must apply for an account & post collateral in their settlement account, forecasting estimated instant payment transactions. This will mitigate risks such as liquidity and settlement risk, by ensuring that funds are available for settlement in real-time, thereby minimizing the potential for failed or delayed transactions while maintaining the integrity and stability of the financial system. 

The road ahead  

This marks a big step forward for Canada’s payments ecosystem. Finally, there is a plan for the RTR supported by the much-needed legislative and regulatory changes, all the right ingredients to ensure we can achieve the promise of promoting broader access, innovation, and competition. A question remains: will Canada also take this opportunity and learn from the lessons of those who have gone before us?  

I hope we’re all a bit more optimistic today about the future of payments in Canada.  

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