Canada’s payments Modernization program is moving along quite nicely and, as outlined in our Roadmap & High-Level Plan, enhancements to Automated Funds Transfer (AFT) – or batch payments - will be first out of the gate. We are looking forward to seeing this important work come to fruition for Canada. But, with new infrastructure forming such an important part of our future plans, we often get asked why we are bothering to enhance “legacy” AFT. This tells me that AFT – what I call the workhorse of the payments system - is due for a day in the sun.
Our Modernization journey began with a visioning exercise, which involved a series of workshops and interviews with industry stakeholders across the country. Through that consultation we heard loud and clear that AFT - which moves roughly 1.5 billion payments in Canada every year and represents the greatest value of payments in our retail system - is a reliable and necessary part of the overall payments ecosystem. It was something that both financial institutions and corporate Canada wanted to retain.
Our international research validated this. Of the many countries whose payments modernization initiatives preceded Canada’s, most retained their batch payments system, even with the introduction of a faster payments capability or real-time rail. That’s because not everything needs to be real time, so it doesn’t require the investment of real time. Batch payments remain the most convenient and efficient option for financial institutions and their business clients for important and predictable transactions such as payroll, bill payments, business-to-business and business-to-consumer payments. It increases efficiency though the ability to automate workloads and schedule activities.
Peter Thom, Director – Treasury Operations & Assistant Treasurer at Bell Canada agrees, “The modernization roadmap calls for two different solutions to facilitate faster funds movement and we welcome that. A new payment system with faster funds delivery than today, as well as near-term improvements to the current AFT solution will help us manage customers and supplier interactions more efficiently. I also am pleased to see that ISO 20022 will be required for both solutions, because seeing the data about the payment in the same message as the actual payment will simplify our internal reconciliation processes.”
To Peter’s point, while most of those interviewed during the Vision exercise agreed that retaining batch was important for the future of Canadian payments, there was also consensus that a few enhancements could make it faster and more flexible and deliver greater value to the marketplace. Same-day payroll, expedited bill payments, faster settlement of invoices, the move away from paper and cheques, more uniform service across the country in all time zones - these were just a few of the ways an enhanced AFT could support progress in payments. Over the last several months, Payments Canada has been working with a representative group of financial institutions and stakeholders to define the technical and rules changes required to realize these benefits. The conclusion is that this could be achieved through additional intra-day exchanges (at minimum to better serve Canada’s six time zones), faster funds availability via standardized requirements following exchange, and implementation of the ISO 20022 message standard.
Why are AFT enhancements a priority with such an ambitious modernization program ahead of us? There are straightforward and attainable improvements we can make to the AFT payment stream now that will keep Canada up-to-speed with countries around the world, support the changing needs of our central bank, help our businesses compete on the global stage and offer greater choice to the marketplace. It will promote electronic payments in Canada and enable both businesses and consumers to reduce or potentially eliminate their reliance on existing paper based payment methods. Not only will AFT enhancements support our financial institutions but they will benefit our economy. Simply put, it’s the right thing to do for Canada.
As the AFT working group finalizes their analysis and requirements definition for enhancements to the batch, we will begin to socialize these changes more widely across the Payments Canada network of members and stakeholders beginning next month. I encourage everyone – financial institutions, business and others user of the payments system - to review and consider how these important changes will benefit their organization, their clients and the country.
Thanks for reading, and long live the “enhanced” batch!
Jan Pilbauer is Payments Canada’s Executive Director, Modernization and CIO. In this role, he leads the modernization of the Canadian core clearing and settlement payment infrastructure, including implementation of ISO 20022. He also sets the strategic direction for the information technology at Payments Canada.