To continue to compete in a fast-paced, global digital economy, Canada is right now modernizing its payments infrastructure. A major part of that effort is the Real-Time Rail (RTR), a national payments processing system that will enable fast, data-rich payments — giving governments and businesses of all sizes the ability to move meaningful sums of money instantly and with certainty.
Interac is working with Payments Canada to help build the RTR, leveraging the technology behind the Interac e-Transfer service, which is currently used by millions of Canadians every day. Once live, the RTR will provide the Canadian economy with new digital payment tools to grow. For a deeper dive into what it all means, Interac Reports recently held a conversation between Kirkland Morris, Vice President, Enterprise Initiatives and External Affairs at Interac Corp., and Janet Lalonde, Senior Director, Real-Time Rail at Payments Canada.
Why is payments modernization so important to begin with?
Janet Lalonde, Payments Canada: Modernization is going to strengthen Canada’s competitive position, in particular through faster payments. They’re a global trend. We have to keep pace. These improvements are also going to strengthen the safety and soundness of our core systems. They’re going to facilitate innovation and competition and promote a stronger Canadian economy.
Let’s talk specifically about the RTR component of modernization. Why does Canada need real-time payments?
Kirkland Morris, Interac: Canada has been at the forefront of consumer payments innovation, we were super early adopters of debit cards and the related technologies there. We’ve been eager adopters and voracious users of money transfer through Interac e-Transfer and other products. But particularly in the corporate world, there is room for improvement. Larger businesses in particular still have a lot of reliance on some legacy payment methods.
JL: The situation right now with legacy payments leaves a lot of those end users in the position of having to expend effort on reconciliation. After they receive a payment, they have to match up the funds that have been deposited into their account with the information that goes along with it. It’s long been a pain point, in particular for medium- to large-sized corporate users.
Modernization supports the introduction of more efficient payment processes to replace manual processes.
What do you expect the benefits will be for the Canadian digital economy at large?
KM: There’s a public policy objective here to make payments faster, more seamless, more efficient. The tangible benefits of the speed of settlement are real. The ability to know now, in the moment, that I have funds and I can take immediate advantage. That will support a broad array of use cases and the digitization of commerce.
RTR payments enable users to embed metadata. How does that help organizations?
KM: The data richness that comes with RTR payments will allow for the abandonment of a lot of traditional paper invoicing and cheques and other elements of that legacy environment that are still lingering, in meaningful ways, in large segments of the corporate and commercial payment space.
That will allow for the real migration of businesses and corporate entities and governments into much more seamless digitization of their own payments, whether that’s in their supplier networks, or in payments that they make out to the world at large.
RTR means less paper, in other words.
KM: Yes, exactly. The days of cheques taking multiple days to clear? Those things go away thanks to the speed of settlement with RTR.
There’s also a reduction of risk. Gone are the worries that the cheque you got may bounce. And so we see real gains with the removal of the inefficiencies in those traditional payment systems.
Beyond eliminating the headaches of paper-based payments, what are some use cases that RTR enables?
JL: There are potential use cases for companies that want to pay part-time staff and be able to pay them immediately after they’ve completed their shift. That will support Canada’s growing gig economy.
We see a lot of potential, I think, in the RTR for use cases around bill payments. There’s definitely some opportunities there to allow companies to streamline how they collect payments for invoices.
Some of the use cases that we could point to in particular are government use cases, for example the ability to distribute emergency funds in a matter of seconds directly into the bank accounts of Canadians.
Why does Interac make sense as the exchange solution provider for RTR?
KM: We have an awful lot of the components and service attributes that Payments Canada was looking for in the RTR exchange.
JL: Unlike other countries, we have an in-market solution today with Interac e-Transfer that’s already fulfilling some of the needs in the marketplace related to real-time payments. So it makes a lot of sense for us to work with Interac to leverage the advancements that have already been made. And the partnership will allow us to make use of Interac’s existing infrastructure in the ecosystem and the existing connectivity to the nearly 300 financial institutions that Interac deals with today.
KM: That ability to lever and build on top of a robust, existing, mature, proven in-market solution like Interac e-Transfer was a real benefit. With Interac e-Transfer, we’ve been a leader in real-time payments exchange since the early 2000s. That solution has enjoyed widespread adoption on both the issuer side of the financial institutions that offer the service, and widespread uptake among Canadian consumers and businesses who’ve really come to rely on Interac e-Transfer as an important means to make important payments.
So we’re starting with a pretty rich foundation. We’ve been at the heart of Canadian payments for more than three decades, across a variety of products and services, delivery channels, use cases and markets and market segments.
As you work together to build RTR, what comes next?
JL: Top of mind for us is the fact that the RTR is more than just a technology solution. It requires the establishment of a sound legal framework as well. We’re working through our Member Advisory Council and our Stakeholder Advisory Council, just to make sure that we are representing all of the interests of the stakeholders of the system. That’s very important as we move forward.
KM: It’ll take some time for the market to adjust away from cheques. They aren’t brilliant, but they’re well entrenched. And old electronic funds transfers are not perfect, but they’re well entrenched. So there’s some inertia that will invariably takes some work to overcome.
It takes time for market participants to figure out fully how to take advantage of new capabilities. But we will see RTR embraced over time, as we have seen Interac e-Transfer embraced.