By Anne Butler, Vice-President, Policy, Research, Legal and General Counsel
Around the world, consumer demand for speed and convenience has sparked significant change in retail payments.Traditional financial institutions are innovating and collaborating on new and exciting ways for customers to pay for goods and services, and a wealth of FinTechs are entering the payments space with creative new offerings. Add to this a series of new market entrants who also happen to be giants - Apple, Google, Facebook - and suddenly the retail payments landscape looks nothing like it did ten years ago. As exciting as this is for the Canadian consumer, it’s also essential that these payment services are safe and secure, and that’s where the federal government’s new retail oversight framework comes in.
At Payments Canada, we began our payments Modernization journey by speaking with more than 100 organizations across the country about what they expect from modernized payment systems. One of the key findings was related to activity-based oversight. Respondents uniformly agreed that rules and regulations should be developed to focus on services provided, instead of the type of institution that provides them. That means that whether you are a traditional financial institution, a FinTech or Facebook, any “payment service provider” would be subject to the same type of comprehensive oversight as others that perform the same functions, promoting safety, security and consumer protection.
With its proposed Retail Oversight Framework, the Department of Finance has defined an innovative and comprehensive regulatory regime for retail payments including, for the first time in Canada, defining the payments industry and its players through a functional approach. This will provide more clarity and consistency in the oversight of payment service providers navigating the complexity of Federal and provincial regulation, and will allow for innovation to happen in a safer and more predictable environment for end users of the payments system - Canadian citizens and businesses.
Concurrently with these changes, Payments Canada is undertaking major improvements to its core payment systems as part of Modernization, including the development of a national real-time payments capability. The timing of the Federal government's planned changes to retail payments oversight couldn't be better - as we will be in a position to modernize our rules and standards concurrently with the implementation of this retail oversight framework, with a view to further enhancing efficiency and clarity for payment service providers, businesses and households. We are working collaboratively with the Department of Finance to share our insights and expertise, to help ensure that gaps and overlaps are avoided.
The framework aims to strike a balance between safety and innovation in the retail payments space. Canadian consumers will benefit from national operating standards such as maintaining detailed accounting records, ensuring there is enough liquidity to pay end-users, and that clients’ funds are separate from the service providers’ own assets.
I also believe the new regulations will positively impact the continued growth of the retail ecosystem: providing clear rules and parameters could act as a springboard for attracting prospective investors, both domestically and internationally. This will translate into a more positive business environment, while fostering collaboration amongst existing players - ultimately ushering in a new era of trust amongst payment service providers and their customers.
With the flow of new products and services set to continue, and potentially accelerate, we will need to collaboratively work on crafting new legislation that enables the entire industry to move forward. It will be a challenge, but I am confident that we’re heading in the right direction.