Payments modernization and open banking are gamechangers for Canada’s financial sector. The announcements made in the 2023 Fall Economic Statement are a testament to the ever changing fintech ecosystem and the need for increased competition to ensure consumers can continue to make the right choices for themselves when selecting a financial services provider.
The establishment of an open banking framework and increased access to the payments system are both incredibly important policy changes that will help shape the future of the movement of money in Canada.
Wise is on a mission to build the best way to move and manage money around the world, built around the principles of transparency and speed. Join us as we explore the dynamic landscape of Canadian payments and the future for fintechs, like Wise, in Canada.
To start, could you tell us a bit about yourself and what you do?
BC: I am the North American Policy Lead at Wise, leading our advocacy efforts in the pursuit of Wise’s mission of instant, convenient, transparent and eventually free cross-border payments with key stakeholders in Canada, the U.S. and beyond. I joined Wise’s policy team in Brussels in 2019, focused on EU policy, which provided me with a unique view on what has worked and not worked in other jurisdictions. Prior to joining Wise, I had years of public affairs and advocacy experience behind me from my time in Brussels at global communications firm FleishmanHillard and the American Chamber of Commerce to the EU.
Can you provide an overview of the current state of payments in Canada?
BC: The payments landscape in Canada is primarily shaped by the significant presence of the “big six” banks, collectively holding around 90% of the country’s banking assets. These banks play a crucial role in the operations of Payments Canada, managing clearing and settlement systems, and have long served as the middle broker for fintechs when interfacing with Payments Canada.
While the big six have been dominating the movement of money through the networks of Visa, Interac, Mastercard, and Payments Canada, the financial ecosystem is becoming increasingly more diverse through the inclusion of neobanks, fintechs and other financial service providers. As you may have seen by following the 2023 Fall Economic Statement (FES), the recently proposed policy change to allow for expanded access to the payments system will help ensure fair access for all players in the payments sector, removing the need for a middle broker.
This is a significant step and in a direction that Wise is very excited about. We see the progress Canada has made with its payments modernization efforts as an avenue for increased competition within the Canadian payments landscape. This will lead to better choice and lower costs for Canadians, whether it be through cross-border money transfers or transactions made right here at home. We envision a more accessible and collaborative future for the financial services industry, enabling fintechs like Wise to do what we do best.
What is the importance of the consumer-driven banking policy mentioned in the 2023 FES when it comes to security and Canadians’ privacy?
BC: Consumer-Driven Banking, also known more broadly as open banking or consumer-driven finance, is meant to enhance the security of financial data transfers. The 2023 FES announced important and necessary legislation through Budget 2024 to establish a framework regulating access to financial data. The framework the government has proposed will provide secure access to data-driven financial services for both Canadians and small businesses. The amendments being made to the Canadian Payments Act and the expansion of open banking will result in overall lower payment costs and increased competition, innovation and financial stability.
While we don’t have an exact timeline yet, we know that the framework will come through a phased-in approach through Budget 2024. It’ll be interesting to see what the timeline looks like. From Wise’s perspective, open banking and expanded access to the payments system are complementary policy changes that will eventually lead to positive impacts on consumers.
Regarding instant payments, what led to the delay in the launch of the Real-Time Rail (RTR), and how is Payments Canada addressing concerns from fintech companies?
BC: While RTR was set to launch in Canada in mid-2023, it faced delays due to the need for extensive validation, testing, and thorough industry consultation. Fintechs in the Canadian market identified concerns regarding missing or inadequate features in the initial RTR system that was proposed.
At Wise, we understand the importance of an RTR system and fully support its development in Canada. It is important that Payments Canada does its due diligence and continues to actively consult with industry stakeholders to finalize features and the accompanying policy framework.
Though the launch has taken a bit longer than expected, we see it as a positive that Payments Canada is prioritizing a high-quality, secure RTR system that Canadians can rely on. We look forward to more progression here this year.
How is Wise preparing for faster payments?
BC: Wise believes sending money, whether domestic or international, should be as fast as sending an email – instant. Speed is central to our mission, with more than 60% of our global transfers being instant. Once RTR launches, more Canadian customers will gain the ability to send and receive funds instantly.
We expect to see our customer satisfaction increase significantly as real-time payments will solve worries on timeliness of transfers. For the broader population, instant payments will help consumers avoid hefty fees from overdraft and check cashing, while unlocking working capital for small businesses. The result is more efficient and lower cost payments that help boost economic growth.
How does payments modernization and fintech compare in Canada to other global examples?
BC: Countries like the U.S. and the U. K. have made significant strides in this arena. The U.S. boasts a robust fintech ecosystem supported by ample technology, talent, and capital and recently launched FedNow, the Federal Reserve’s version of a Real-Time Rail. The U.K. has also established itself as a hub for fintechs by creating a regulatory environment that promotes innovation. They’ve achieved this by creating a payments/e-money licence. Or, in other words, they’ve regulated payments as an activity instead of trying to apply a banking-license-for-all approach. They’ve also launched their Faster Payments system a number of years back – and in 2018, opened up risk-based access from banks only to payments companies like Wise as well. The consumer benefits in the U.K. have been remarkable: at Wise, when we plugged into Faster Payments as the first non-bank to do so, we lowered costs immediately for those customers by 20%, and increased speed from an average of 15 min for payments to instant.
So while Canada has been lagging behind, the recent progress and commitments outlined in the FES will help us catch up. What we’re most excited about is the establishment of a true payments regime under the Retail Payments Activities Act and the democratization of access to the payments systems, and hopefully the launch of Canada’s own Real-Time Rail sometime soon. Together, these changes will deliver cheaper, faster payments for all Canadians, notably New Canadians sending money to friends and family abroad.