The payments landscape in Canada is constantly evolving and staying up to date can seem like a never-ending task.
The global payments landscape is in the midst of rapid and extensive change. Technological, social and economic developments are challenging payments systems around the world to keep up. At the core of our economy is a national payments system, which safely circulates billions of dollars each day. To support the rapidly changing needs and expectations of the Canadian marketplace, foster innovation and strengthen competition within the ecosystem, our payments system must continue to be modernized to remain competitive.
The evolution of the payments landscape in Canada is ongoing, and credit unions need to stay aware of changes within the industry and how they will impact them. To elaborate on this, Celero’s VP of Payments and Cards, Valarie Geib, discusses what Canadian credit unions should know about payments modernization, payment types and processing, the path of payments, Celero’s role in payments and the impact to credit unions.
01./ Payments Modernization
Payments Canada is responsible for the clearing and settling of all payment transactions for the Canadian payments financial ecosystem. This includes infrastructure, network and applications. There is a lot of talk about payments modernization, but you may be wondering what modernization actually entails. There are several components to payments modernizations, which are broken down below.
Currently, all batch payments clear through Payments Canada Automated Clearing Settlement System (ACCS) and all high value transactions run through the newly-developed Lynx system (previously the Large Value Transfer System). This system was recently modernized and implemented in September of 2021.
Lynx provides the irrevocable transfer of payments in Canadian dollars between Canadian financial institutions across the country. The second release of Lynx will incorporate the use of ISO 20022 standards, currently targeted for release sometime in 2022.
With the payments landscape changing at an unprecedented rate around the world, consumers and businesses want and expect immediate access to funds through a frictionless process. To meet these demands, Payments Canada is on a payments modernization journey.
They are in the process of modernizing the ACCS system to incorporate ISO20022 standards, which will allow for richer data to be sent with payment transactions, decreasing reconciliation for consumers and businesses and increasing processing times.
ACCS is also referred to as the Retail Payments System. On average, this system processes 28 million transactions per business day. Automatic Funds Transfer (AFT)’s run through the Retail Payment System and comprise the greatest value of payments in Canada every year, with roughly 1.7 billion payments processed annually.
Real Time Rail (RTR) is another modernization initiative underway at Payments Canada. This will allow for 24/7/365 real time irrevocable payment transacting. They are currently in the build phase and are targeting implementation in 2023.
02./ Payment Types and Processing
The six major payment types are e-Transfer, AFT/EFT, wires, paper cheques, Remote Deposit Capture (RDC) and bill pay.
There are also two types of payments processing: near real-time and batch payments. e-Transfers, RDC and bill pay are the current payment types available in near real time within the credit union system. These are payments where the front end of the transaction happens to the member in real time. Money moves in and out of their account immediately, however, the actual clearing and settling of the funds happens overnight through batch processing.
The remaining payment types are processed via file transfer (called batch payments), where all money is moved, cleared and settled overnight.
03./ Path of Payments
There are three major components of payments as they pass through processing: origination, integration and clearing/settling.
Origination is the point where the payment transaction starts. For near real-time transactions, these usually happen through a digital channel or online banking. Transactions such as e-Transfer, RDC and bill pay (and eventually AFTs and wires) are initiated through digital banking platforms.
An integration layer is the means by which a transaction can flow from a member-facing digital channel to the necessary processing systems, such as a core banking system like Fiserv DNA and payments processing providers like the Prairie Payments Joint Venture (PPJV). Celero Xchange.NEXT is used for transaction processing – from origination to core banking systems and payments providers. The platform is totally agnostic for integration to and from all platforms.
Clearing/settling is the back end of all of this, which is the end of day processing that moves money:
- In and out of accounts at the credit union via settlement files in core banking
- In and out of other financial institutions
- Settlement with the Bank of Canada
Celero hosts and supports all clearing/settlement systems on behalf of the PPJV and provides assistance in building out the integration capabilities needed to support PPJV’s modernization roadmap, which includes Celero Xchange.NEXT.
04./ Celero’s Role in Payments
Initially, the biggest impact of payments modernization to credit unions will be through e-Transfer, as credit unions choose their digital banking platform and provider. Regardless of a credit union’s choice of digital banking platform and core banking system, Celero can be engaged from a Celero Xchange™ perspective, to provide integration for all platforms and to assist credit unions in their migration and conversion to a new digital banking or core banking system.
Until such a time where other payment types are available through a digital platform (i.e., AFT’s and wires) and the full modernization of Real Time Rails and ISO20022 standards are fully implemented by Payments Canada, the impact to credit unions is minimal as these payment types will continue to be processed via batch.
Have questions about payments modernization in Canada and how it will impact your credit union? Contact your Celero Account Executive to discuss further.