Payments Canada is forging ahead with its efforts to modernize the core payments infrastructure so it can keep up with the arrival of fintech innovations in the Canadian market.
This modernization project began in mid-2015 with consultations with more than 100 organizations within the Canadian and global payments ecosystem. From that consultation came the vision of a payments system that is fast, flexible, and secure, promotes innovation and strengthens Canada’s competitive position. It includes addressing pain points such as cross-border payments, faster, easier payment options, and transaction transparency, while providing activity-based oversight, open and risk-based access, and a platform for innovation.
It’s a multi-year effort that continues to adapt as the environment changes. And as Capgemini’s 2019 World Payments Report points out, open banking is the key, and the changing payments landscape requires the adoption of payments standards such as ISO 20022 for Payments Canada’s high-value payments system, Lynx (aligning Canada with SWIFT’s recently-announced requirements) and interoperability among players.
And it requires interconnectivity on robust, low-latency networks that can cope with the demands of real-time payment processing systems such as the project code-named Real-Time Rail (RTR), scheduled to go live in 2022 following the launch of Lynx next year. RTR will be an always available system that moves funds between the sender and receiver’s banks within 60 seconds at any time, unlike the current system where settlement doesn’t occur until the next business day. It will incorporate account number based routing and the ISO 20022 message standard at launch.
Canada will be joining over 54 other countries that currently have live real-time payment systems, many of whom have selected prime contractors such as DXC, Accenture, or IBM to manage an underlying real-time payment service such as Vocalink, Equensworldline, SWIFT, or ACI. Payments Canada is now in the process choosing its suppliers for RTR.
The infrastructure for these systems needs to reside in a datacentre that provides a robust foundation and strong interconnectivity to support the mission-critical functionality required for payments. Global colocation provider Equinix, for example, offers connections to more than 1800 network providers across its 210 datacentres worldwide. In the Americas alone it has 90 International Business Exchange datacentres connecting to more than 1420 networks.
“One of the key considerations with regards to building out a real-time payments ecosystem has been making sure that not just present but also the future banking and fintech participants have the ability to quickly and easily connect to the market infrastructure.” says Lance Homer, Global Head of Digital Payments and Banking at Equinix. “A major trend we are seeing is banks and fintechs deploying payment hubs in Equinix to be able to quickly connect to all of the different payment networks, their customer and partners as well as their cloud providers on our Equinix Cloud Exchange Fabric platform. Our payments ecosystem is a unique differentiator in the market.”
Payments Canada’s modernization plan continues to evolve. This year, it says in its annual modernization update, ” Our priorities include engaging Interac Corp as the service provider for the exchange function of the RTR, leveraging their infrastructure and connectivity to almost 300 Canadian financial institutions, and procuring a vendor for the clearing and settlement functions.”
Yet another complication arises now that many financial institutions and fintech services rely on the cloud: hybrid multi-cloud interoperability. Services such as Equinix Cloud Exchange Fabric (ECXF) allow secure communications between on-prem datacentres and multi-cloud environments. As real-time payments interoperability begins to happen across domestic platforms, ECXF will allow real-time participants to connect to other platforms and participants internationally where Equinix operates.
As payments systems move from batch to real-time processing, the communications networks themselves become increasingly critical to the payments infrastructure. In major centres, the participants in the real-time payments ecosystem frequently have a variety of existing networks that can provide robust connectivity but outlying areas often need help. Private networks can be costly and take weeks, or even months, to install. That opens the door for network edge services that can offer the speed and reliability customers require without adding sometimes impractical (or impossible to obtain) connections that may or may not be capable of providing the necessary secure low latency real-time service.
Payment systems are also being adapted to allow for the use of debit cards in semi-connected environments such as transit vehicles so customers can pay their fare with a tap, regardless of the vehicle’s connectivity at the time. With the move to contactless transactions accelerated by the COVID-19 pandemic and the resulting reluctance to handle cash or touch surfaces, this functionality is rapidly moving from nice to have to a necessity.
“Secure” is the key word for all of this, and using tokens and keys is critical to ensure data is properly protected in motion and at rest. But expensive hardware devices aren’t always the answer; often it’s easier, and more economical, to subscribe to a service, many of which are based on blockchains.
“We are at a pivotal moment, with a number of key driving forces that are accelerating the transformation of Canada’s payment environment,” said Cyrielle Chiron, Payments Canada’s Head of Research and Strategic Foresight. “Evolving technology and industry innovation are changing the game, fuelled by consumer and business demands for friction-free, fast and secure payments.”