Fintechs Canada – critical work continuing through the pandemic

Doug Kreviazuk, Executive Director, Fintechs Canada, April 30, 2020

Clearly, the pandemic has had an adverse impact across many sectors of our economy and unfortunately, the payments sector is not immune from the impacts.  Over the past several weeks, Fintechs Canada has been conducting global payments-related research, closely monitoring industry developments in Canada and engaging regulators and industry participants to fuel our understanding of this critical industry.  More importantly, during this unsettling time, it is important to document industry participants’ reactions to the pandemic and gain critical insights into how the plans for the payments industry are being modified.

At the beginning of 2020, as hopes ran high that Canada would soon see the introduction of critical pieces of legislation to aid in the payments systems’ evolution– Covid-19 arrived.  At that time, there was a tidal wave of interest in advancing the government’s agenda to introduce new legislation and regulation that would see payments service providers being recognized as key players in the payments system, offering valuable services to users.  A new Retail Payments Oversight Framework (RPOF) had been proposed that would establish prudential and market conduct regulations to address the market risks from their participation in the payments system.  Expectations were that this proposed legislation would be tabled in Parliament as part of the budget in early April, 2020.  Unfortunately, due to the pandemic, this did not happen as the priorities of Parliament were completely disrupted.

This single event resulted in a series of cascading implications, all of which meant that the anticipated and desired legislative changes respecting the national payments system would be delayed for an indeterminate period of time.  This delay has likely set the industry back a full six months, or more.  In the absence of the new framework, plans of Payments Canada to consider expanding access to include payments service providers will remain on-hold and the likelihood for any other consequential amendments to the Canadian Payments Act granting additional authorities to non-bank service providers, now seem remote.  Similarly, despite plans to review other related matters including the governance of Payments Canada, the emerging reality suggests that we are likely to continue to operate under the current framework for sometime to come.  At a time when innovation should thrive, the framework that should enable innovation to flourish, is frozen in time.  For PayTech firms, many innovative projects have been placed on-hold and access to limited funding sources poses challenges as critical legislation is stalled.

The work at POC continues:

 This all said, there is light at the end of the tunnel as efforts by staff at the Finance Department, the Bank of Canada and Payments Canada continue to opine on the key policy questions and consider the range of possible policy options.  Throughout the current payments review process, consultations with incumbent institutions and key stakeholders have been active and on-going.  Earlier this year and with the assistance of POC, the Bank of Canada established the Retail Payments Advisory Committee, composed of 10 leading PayTech firms, Finance Canada and the Bank of Canada in an effort for regulators to better understand the retail payments ecosystem and current business practices.  The first meeting of the committee (February 12, 2020) focused its attention on the objectives, current practices and future options in protecting end-user funds against the myriad of risks.  Minutes of these discussions are expected to be posted on a new public website shortly, and will contribute to the transparency of the overall process.  In the end, the Bank of Canada will support Finance Canada in the development of the appropriate regulatory options for safeguarding funds under RPOF.  Further and broader consultations have been promised in the resolution of this and other critical RPOF issues.  POC will continue to monitor, engage and report on these developments.

At the same time, POC sought to engage Payments Canada on the critical issue of access to the payments system.  Working with Payments Canada, POC convened a meeting of some 20+ PayTech firms to engage in a rich policy discussion relating to access to Canada’s national payments system.  Specifically, the areas of discussion include:  the type of access (i.e. direct, indirect), which systems (i.e. ACSS, new Real-Time-Rail, Lynx), level of functionality (i.e. roles, responsibilities), and a future liability framework.  Discussions with Payments Canada continue and are expected to be broadened to include the Bank of Canada later this spring.  This has proven to be an excellent forum for POC to engage policy makers and attempt to influence the direction and final recommendations of the participation requirements for PayTechs in Canada’s payments system.

In terms of thought leadership and efforts to participate in and drive the key policy discussions for the payments system, POC has developed a research agenda and commissioned a specific piece of research contrasting the state of Canada’s current payments industry to key comparators, including the U.K., Australia and selected countries in the European Union.  Many of the key findings will soon be shared and leveraged to support the on-going policy discussions.

Finally, as part of our commitment and contribution to the paytech industry, POC will seek to publish weekly opinion pieces about the changes and direction of Canada’s payments system; we encourage your feedback. Taking the time to develop a solid and well considered policy framework at this time has the best chance for Parliamentary support post-pandemic and the expeditious passage of critical new legislation.

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