Canada is “definitely last to the party” in the world when it comes to developing a real-time payment system, says a payments solutions expert.
“It’s going to take significant investment to catch up,” said Robert Matys, associate partner with IBM Payments Solutions, at a recent ITWC webinar.
Canada currently relies on a legacy system which processes payments at the end of the day, or on the next business day. That’s not fast enough in today’s always-on world, said Matys. Canada needs real-time payment systems which offer instant fund transfers anytime.
It’s become a big challenge for financial institutions in Canada. “They are being asked to operate in a way that they currently don’t, and never have,” said Matys. “But the advantage of being last to the table is that many of the problems have already been solved.”
The number one reason for adopting a real-time payments system is to meet customer demand, said Namit Agrawal, Associate Partner with the IBM Payments Centre – Canada. “Consumers expect to be able to send or receive funds instantly, anytime and anywhere,” he said.
A number of other factors are adding to the pressure to transform the way we make payments, said Agrawal. Payment processing amounts to one-third of a bank’s revenue but the revenue is declining. At the same time, new entrants are disrupting the traditional payment models. Agrawal noted that this presents an opportunity for banks to gain an edge by partnering with new upstarts.
Advancements in technology are also providing new ways for financial institutions to streamline costs and improve the customer experience.
New regulations are another catalyst for change. Payment Canada’s modernization program is expected to drive the banks to upgrade their payments infrastructure, said Agrawal. As well, financial institutions are implementing new ISO standards to enable cross-border real-time payments. Finally, all businesses must adapt to increasingly complex privacy rules.
The reality of real-time payments
“The integration challenge is often underestimated,” said Matys. Existing systems for things like accounting or fraud detection were designed to process batches of transactions at the end of the day, not in real-time. “It’s a very significant piece of the puzzle.”
Matys advises financial institutions to break the problem down into “logical piece parts” and see which issues have already been solved elsewhere.
Many are turning to technology to meet the demands. A resilient cloud architecture, with its ability to scale as needed, will help to meet the always-on requirements, said Matys. AI can be used to do real-time customer profiling and pattern analysis to help detect fraud. For real-time payment, this has to be done in seconds, said Matys. Modern reporting systems are also needed to monitor systems in real-time to ensure transactional integrity.
IBM has launched a Payments Centre in Canada to help clients address these challenges. It offers a cognitive payments platform in the cloud, with value-added services like AI and Blockchain. “It’s intended to be a centre of excellence where financial institutions and new entrants can collaborate,” said Agrawal.
Matys stressed that financial institutions need to tackle the issue with the right mindset. “Operations will have to change. There is no way around it,” he said. “Understanding how the organization will set up for success is absolutely critical.”