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Hi everyone! I’m Nick from the Policy team at Wise (formerly known as Transferwise).

Before joining in early 2019, I worked on the U.S. Senate Banking Committee, which naturally means today I’m writing about… Canada (humor me for a sec).

More specifically, I’m writing about their payments modernization efforts, which I often categorize in most markets as four key initiatives:

1. Instant payment rails
2. Modern payments license
3. Non-bank access to the payments system
4. Open banking (broader than payments but bear with me)

Until now, “payments modernization” has been somewhat of an under-the-radar effort only followed by a subset of industry in Canada. Yet, it’s 2021, so obviously this is all emerging as an elevated policy issue in the run-up to the September 20th federal election. In addition to enabling faster, lower-cost and more accessible payments, the Canadian government is doing all this in hopes of attracting fintech companies (like FTT subscribers) to invest in the market and offer services to Canadian consumers and businesses, while also helping spur more homegrown innovation.

The official platforms from the Conservative and Liberal parties both highlight open banking and payments modernization. Erin O’Toole, the Conservative Leader, even recorded a video message highlighting the benefits of fintech-induced competition (no it wasn’t a TikTok video).

The good kind of political attention

Why are the major political parties suddenly paying attention to fintech? Because financial innovation and competition is sorely needed in Canada. While the big five Canadian banks are not political targets to the same extent as their American counterparts on Wall Street, it’s increasingly clear to policymakers and the public that Canadians have not benefited from innovation and competition like their neighbors to the south. One example of this is Revolut pulling out of the Canadian market earlier this year.

That’s why Canada is in some ways copying the playbook of the United Kingdom, which has embraced fintech as a key driver of growth and competition.

Payments modernization initiatives

Let’s run through these payment modernization initiatives one-by-one.

1. Instant Payments: Nearly 60 countries around the world already have real-time payments systems, and Canada is joining that list - launching its Real-Time Rail (RTR) in 2022. RTR will utilize the ISO 20022 data standard, which has become the global standard for payments messaging and a common language for financial institutions around the world. The RTR features and policy framework are being finalized at this moment by Payments Canada, which, as the name implies, operates the payments systems in Canada. However, there’s increasingly a concern that the initial launch may not include some of the features fintech companies desire, like alias directories (think emails and phone numbers) or request to pay (think easy bill payments via text message). Also related to its payments modernization effort, Lynx, a new high-value payments system, was launched in early September.
2. Modern Payments License: In its recent budget, the government created a new payments license - called the Retail Payments Activities Act (RPAA). It's worth noting that aside from the province of Québec, Canada actually didn’t have money transmission or payments licensing requirements until now. Payments companies only had to register with FINTRAC (the national financial intelligence agency, similar to FinCEN in the US). Now, however, with the RPAA in law, the Bank of Canada will become the primary regulator of payments companies. While it seems simple, the process may take agonizingly long as regulations need to be developed and the Bank of Canada has to build out a payments supervision team. Speculating a bit, the first step will likely be the registration of payments companies in 2023, with oversight starting in 2024. That delay will heavily impact the timing of #3 below.
3. Non-Bank Access to the Payments System: The government has already had multiple rounds of consultations (the equivalent of regulatory comment periods in the US) proposing to expand access to its payments system to these newly RPAA licensed companies, who could become members of Payments Canada and directly clear and settle payments. This would be a big win for fintech companies hoping to make lower cost payments and reduce reliance on costly bank partners. Unfortunately, this proposal will take a while and it isn’t certain, as it still requires another change in law. Best case scenario is that the so-called Amendments to the Canadian Payments Act are included in the 2022 budget. Even if that happened, it’s possible direct access wouldn’t be granted to payments companies until after Bank of Canada RPAA payments supervision begins, which likely means 2024 or 2025 at the earliest.
4. Open Banking: Unlike in the US, where open banking is already happening and industry driven (like the Plaid-US Bank collaboration), in Canada, the practice is still entirely relegated to screen scraping and consumer rights to data are limited. The government is trying to change that by creating an open banking framework. (Side note: they’re calling it Consumer-Directed Finance after polling a couple years ago suggested “open banking” is a scary phrase to consumers.) While the effort was seemingly stalled most of this year, that changed in early August just before the election was called. This was when the government finally released its Open Banking report, which came from an Advisory Committee and included 30+ key recommendations. Some of those were about scope, governance, common rules, and technical specifications and standards. It’s a big win for fintech even if the framework only initially includes “read” access (data) for now, though hopefully “write” access (payments initiation) will be implemented subsequently, which could enable new account-to-account payment rails like in the UK. The key next step will be the appointment of an Open Banking “Czar” to drive this forward. There’s hope that this framework could be developed in 18 months, and go live by early 2023, but that will require quick action from the next government, including possibly the passage of a new privacy law first.

While industry needs to continue applying pressure to get these initiatives across the finish line, I’m optimistic that once implemented, Canada can go from being viewed as a laggard to a leader on fintech innovation and competition.

Thanks to everyone for reading! Reach out with any questions on Twitter or LinkedIn :)

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Nick is the Global Head of Policy & Campaigns at Wise where he leads interactions with governments around the world and coordinates grassroots consumer education campaigns to modernize and make international payments more transparent. Prior to Wise, he spent a decade specializing in financial services policy for three members of Congress. While Staff Director of the US Senate Banking Subcommittee on International Finance, he was a lead negotiator for the first major banking legislation in a decade, authored several other laws, and influenced countless regulatory actions.