For many Canadians, the holiday bills are still rolling in. That may serve primarily as a prudent reminder to be more frugal in 2017, but it is also a real-life example of one of the trends identified in the Canadian Payments Association’s (CPA) latest research: while cash is still king, credit cards now account for 57% of point-of-sale value.
Overall, the Canadian Payment Methods and Trends: 2015 report shows changing consumer and business behaviours and a payment system in transition. Between 2011 and 2014, the decline of cash and cheques accelerated as Canadians turned to electronic payments and new payment channels. In fact, electronic payments like direct deposits and pre-authorized debits now account for 44% of all transaction value and are poised to overtake cheques.
Another indication of change on the horizon is the excitement around new payment innovations such as Apple Pay, which launched in Canada late 2015. While these kind of innovations are important to address changing consumer demands, widespread adoption and success of new payment methods depend importantly on safety and security to inspire confidence in both users and regulators.
These are just a few examples of how evolving technology and changing user expectations are placing new demands on payment systems in Canada and around the globe. To address these shifting needs, the CPA is taking a holistic look at the future of payments in Canada, including the modernization of its systems. Over the past 13 months, the CPA has established a new strategic plan, governance model and board of directors and is vested with a legislative mandate to promote the public policy objectives of efficiency, safety and soundness and the consideration of user interests in the Canadian payments system.
Through research, interviews and workshops with industry participants and stakeholders, the CPA has also been developing an industry “Shared Vision” for the future Canadian payments ecosystem with the help of McKinsey & Company. Early findings indicate that consumers want a more convenient and transparent payment experience, including knowing when their payments were received and access to funds sooner. Businesses want more information to travel with electronic payments and straight-through processing, while financial institutions are focused on delivering value to their clients and the Canadian economy. Of course, Canada is not alone in these diverse needs.
Already, more than 40 countries have embarked on modernization initiatives of their payments systems. In many cases, this has meant exploring faster or real-time payments. For instance, Europe’s only 24/7 real-time payments system, U.K.’s Faster Payments Service, processed 1.1 billion payments in 2014 and their figures for 2015 – while not yet available – are expected to be higher. Meanwhile, The Clearing House in the US signed an agreement in December, 2015 to deliver national real-time payment services. The CPA is following these developments closely.
As part of our modernisation initiative, the CPA is also joining our global counterparts in developing ISO 20022 payment messaging standards to promote payment harmonisation nationally and internationally, allow for richer data to travel with payments, and support the shift to electronic payments. All modernization efforts that have gone live since the UK’s implementation of Faster Payments have included ISO 20022. In early 2016, our new ISO 20022-enabled messages for Automated Funds Transfers will be available for use in the market.
These changes will hasten the shift towards digital payments. Some countries are accelerating the decline of cash through legislation – the Danish government recently mandated that some retailers will no longer be required to accept cash. However, in Canada, where coins and bank notes are considered “legal tender”, and their use as a method of payment is a matter of private agreement between the parties involved, the phasing out of hard currency in Canada will likely be market-driven.
Through the first part of 2016, the CPA will socialise the Vision for the payments ecosystem. We will also begin looking at changes to CPA systems, rules and services to best support that Vision. Most importantly, the CPA will continue to ensure that Canada’s core clearing and settlement systems meet international standards remain safe and sound.
About Garry Gaetz
Gerry Gaetz is President and CEO of the Canadian Payments Association (CPA). The CPA owns and operates Canadas payments clearing and settlement infrastructure, including associated systems, by-laws, rules and standards.
About Canadian Payments Association
The Canadian Payments Association (CPA) owns and operates Canada’s payments clearing and settlement infrastructure, including associated systems, by-laws, rules and standards. The CPA underpins the Canadian financial system and economy by providing safe, efficient and effective clearing and settlement of payments. The CPAs Large Value Transfer System (LVTS) is designated by the Bank of Canada as a systemically important payment system.
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