Episode 25: Regulate to innovate - a call for modern payment legislation in Canada

Transcript of the recording

Lisa Sattler:
My name is Lisa Sattler. I'm the Senior Advisor of Public Policy at Payments Canada and your guest host on this episode of The PayPod. Join me for a walk down memory lane to 2001. The first iPod was introduced that year. Just think of how far smartphones and digital technologies have evolved since then. Digitization has had an incredible impact on all aspects of how we live, work, and play. Payments are no exception. Since 2001, the payments industry has seen incredible transformation. The growing popularity and convenience of the internet introduced the need for electronic payment options. The payment industry grew, adapted and innovated to meet the ever-evolving needs of Canadians. This included new products, new systems and services and new organizations to provide them. This pace of innovation and change within the payment ecosystem has not slowed since the early 2000s. In fact, the COVID-19 pandemic accelerated it.

But Canada's legislation in regards to access to our national payment system has stayed the same. 2001 was the last time changes to Payments Canada's membership eligibility were expanded within the Canadian Payments Act, which is the legislation that governs payments in Canada. At the time, Payments Canada's active membership was 113, and that number largely remains unchanged today. Payments Canada is advocating for changes to the Canadian Payments Act to reflect today's payment environment in a way that maintains the safety and security of our systems. This is a key focus of my role at Payments Canada and why I'm your guest host of this episode of The PayPod. 

In December of 2022, I engaged a diverse coalition of organizations from across the payment industry, to sign an open letter to the Minister of Finance that makes a collective request of the federal government to make amendments to the Canadian Payments Act, to further broaden Payments Canada's membership. Broader access to our membership will support the introduction of new participants in Canada's payment system and provide greater choice for Canadians and Canadian businesses in addressing their changing payments needs. Joining me today are supporters of the call for broader membership, Cyri Chiron, Senior Vice President, Product Strategy and Innovation at Peoples Group, and Nick Cicchino, Vice President Shared Services at Meridian. Both Peoples and Meridian belong to industry associations that signed the letter, and both are supporters of the call for broader access. Welcome and thank you both for joining me on The PayPod.

Cyrielle Chiron:
Thanks.

Nick Cicchino:
Thanks for having me.

Lisa Sattler:
So before we begin, can you both tell me a little bit about your roles, what you do at your respective organizations, and how they fit into the payment ecosystem? So Cyri, we'll start with you.

Cyrielle Chiron:
Sure. So as you mentioned, I am the Senior Vice President, Product Strategy and Innovation at Peoples Group, I lead the development of new products and services including the Innovation Hub's activities. So how does Peoples Group fit into the payment ecosystem? We are a large issuer of prepaid cards, prepaid payments cards, and an innovative merchant acquirer. And I believe that we are an entrepreneurial organization that excels at customizing solutions to fit the needs of our clients. And actually, just to mention it, we've been recognized as the pioneer and innovator of prepaid cards in Canada, and also an early adopter of payment solutions.

Lisa Sattler:
Nick?

Nick Cicchino:
Thank you. Yeah. As you had mentioned, I'm VP Shared Services at Meridian. I have accountability for several teams that support Meridian's retail business and wealth lines of business, and this includes the payments function and the payments team. The core accountabilities of the payments team are to lead payments innovation, provide subject-matter-expertise on payment services. This includes e-transfers, wires, checks, all forms of payment, supporting our ABM channel and of course our card products. We have extensive collaboration with internal partners to bring these products and services to life and to manage them on an ongoing basis and also to engage with external vendor partners across the ecosystem to bring new products to life and identify opportunities that we'd want to develop as far as our roadmap is concerned.

Lisa Sattler:
Thank you, Nick. So let's start with you Nick, with a broad question. Why are payments important?

Nick Cicchino:
So why are payments important? I think at its essence payments underpin Canada's economy. Taken from the perspective of a business or a consumer, either one, we exchange billions of dollars each day and increasingly exchange these funds electronically. Without a modern robust payment system, Canada's economic growth would slow and innovation likely inhibited.

At a foundational or a transactional level, payments are an important banking service that enables our members to quickly, easily, and securely transfer their money. In recent years, payments methods have evolved substantially, with cash and paper checks being replaced by digital payments like online, mobile and contactless transactions. Regardless of the option or channel, a robust and trusted payment processing system that facilitates secure payment exchanges at both a local level, and that could just be sending money to a friend or somebody even across the street or across town, to a cross border or internationally. In either case, for consumers, for businesses, for members, it's about choice and that choice is a critical component to facilitating those payments.

Lisa Sattler:
Thank you. Nick. Cyri, what are your thoughts on the importance of payments?

Cyrielle Chiron:
Where do I start? That's a very broad question, but I think Nick, you answer it the same way I would answer it. It's payments system are just indispensables to our lives. It's just as you said, it is the base of a smooth functioning economy. Without this, there is just no economy. To be a lecture, or an economy lecture here, but without payments, it's just a way you exchange food and services and you actually grow.

So it's really the base, and if you think that money is the lifeblood of modern monetary economies, payment system is just what helps to circulating this money. So it's a system that makes the movement. So payments is really at the core of the economy. It's something that we don't see. It's something we don't think about, only when it's not working. It's the same thing that electricity or water, we just used to it, it's there and it's part of our life. Payments is the same. It's the thing that we just cannot function without.

Lisa Sattler:
Well said, Cyri. So sharing the importance of payments and the benefits of payment innovation with government leaders is really important. But to foster payments innovation for the benefit of Canada, we need to broaden access to Canada's payment systems. That was what was outlined in the open letter that I mentioned earlier. Cyri, can you share why People's supports the need for broader access?

Cyrielle Chiron:
Yeah, sure. So as I said earlier in the intro, we really work with our partners, to fintechs to Paytechs, and we enable them to succeed. So for us, it's important to support the ecosystem overall. We work with many of today and fintechs by giving them tools and guidance to help realize their success.

So for us, the support is very important and providing access to the payments system will definitely strengthen our economy. We're talking about payments is the importance in the economy while making sure that the system are enhanced, are very important for the economy to grow. And providing access, I believe we boost innovation and competition, and all of this will be beneficial for end users, because this is what we need to think about at the end of the day. What is the best for the end users for Canadians, consumer and businesses?

And obviously we shouldn't grant access to everyone and anyone. This is not what we're talking about here. It is to be thought through properly. It is to be focusing on a risk-based approach and all of the beauty of that. We know these changes take time as well, so we need to stop looking at it sooner than later because it's not going to happen overnight. Something else I think I'd like to add is not granting access. I think we need to think about this as well. And not granting access will not stop innovation, but it might provide riskier options to end users. And as I said, at the end of the day, we need end user to use safe and secure payment systems in order for our economy to flourish. It's important to think about the two ways here.

Lisa Sattler:
That's great. Cyri, yes, the balance is super important for Canadians. Nick, what about Meridian?

Nick Cicchino:
Yeah, it's a great question. I think Cyri did a great job in her comments, and completely aligned with how she positioned it with respect to bringing it back to the ecosystem. So first off, I'll start off by saying, really encouraged by the collective group of financial institutions, trade associations, and just the number of groups that participated in the open letter. I think it was important that there was a collective understanding and alignment across the industry. So I was really encouraged to see that.

We go back to ecosystem. The importance of vibrant and healthy ecosystem in payments across the country is critical. The landscape's changing and it's changing very quickly. Canadian consumers and businesses need to adapt and embrace that change to remain competitive, quite frankly. So I think it's absolutely critical. As a credit union, Meridian supports enhanced access and inclusivity to Payments Canada and the clearing and settlement system for our membership and more broadly for Canadians to benefit from the same payment opportunities, whether it be from banks, credit unions, or fintechs within that ecosystem.

So as Cyri mentioned, you look at other entrants, this change could also drive other entrants in different ways to look at innovative solutions in the market in a regulated space, all playing by the same rules, that security, that trust in the system is there. What we wouldn't want to see is those entrants not playing by the same rules and introducing a level of risk that undermines that trust or confidence in the system overall.

When I think of our strategic objectives as an organization, we think about helping our members live their best lives, fair access to financial services and thinking digital first. And these objectives, these goals align very well with the Payments Canada objective of broadening membership. So a lot of benefits overall not only for individual organizations, credit unions, fintechs, FIs, but more importantly for the end users, be they consumers or businesses.

Lisa Sattler:
Thank you, Nick. So very similar themes around safety and choice and how together they can really help innovation and competition for Canadians. Speaking of broader access, Cyri, Peoples Trust recently became a participant on our Automated Clearing Settlement System, ACSS. The system that processes the vast majority of payments in Canada. This makes People's the first new direct participant in the ACSS since it's launch in 1984. What benefits or opportunities has Peoples seen since being onboarded?

Cyrielle Chiron:
So yes, we are very proud of that. We became the first company to join ACSS in almost 40 years, and each time I need to say that. The thing is as old as me almost, it makes me laugh all the time. But yeah, so becoming an ACSS Direct Clear was really an essential step in our strategic roadmap and really a major milestone in our journey for us as the partner of choice for fintechs and paytechs. So it's continuing to enable them by providing access to the Canadian payments ecosystem. So it's in that journey.

And as I said, we are very proud to have become an ACSS Direct Clear. It was a long journey, there's still some step along the way for us, but we are proud and we are really also grateful. Just wanted to say this. We're grateful with the industry, because that piece of work was extensive. It involves everyone to make this happen. So it's just positive things for Canada.

The opportunities that brought us... So this new access gives us more autonomy. I'm not going to lie, this is something that is important for us, but also it's one of the essential steps for us for pursuing our growth strategy, as I was mentioning. So our growth strategy of building multi-function utility hub with options in the merchants cards, banking as a service, lending payments, etc. So it's really helped us to give us that step by granting access in order to enable others to be part of the systems.

Lisa Sattler:
Thank you, Cyri. Typically, we don't think of regulations supporting innovation. How will amendments to the Canadian Payments Act differ, and why are these changes important for Canada on the international stage, Nick?

Nick Cicchino:
So there's going to be some common or repeat themes coming through with some of these responses, so my apologies in advance. But I think it's important to note when it comes to innovation, which we've said many times, and I think we'll say a lot more before we're done, but the changes that are proposed to the act, I think are done so precisely to support innovation. I think at its core that's what this is about. Creating access to the ecosystem will spur new entrants in Canada and internationally to participate and innovate, whether through overlay innovation. So I'm thinking about using existing or underlying services and infrastructure, or connecting directly.

The proposal aims to increase access to participants while also taking a risk-based approach for participation through oversight to protect Canadian consumers and businesses. This is not a wide open proposal, but a prudent approach that will foster innovation and competition. Credit unions who do not currently participate directly, but yet we are competing with other financial institutions who do. So again, promoting innovation, promoting access.

Having appropriate legislation sets the foundation, sets the guardrails and ensures credibility and confidence within the system and among all participants. It also supports the end user experience and what we as consumers can count on and have trust that it'll work as expected. As Cyri mentioned earlier, it works behind the scenes, it's invisible. But when it doesn't work, then there's a problem and that's when it stands out.

On the international stage, payments will get faster and more transparent as Canada's payments ecosystem modernizes using ISO standards. The modernization effort currently underway will again foster innovation based on global standards, increasing interoperability, speed and transparency. And maybe just to go a little bit further on that point, other countries have already launched real-time payment capabilities, and Canada needs to accelerate and enhance its payment systems to compete globally. Our payments infrastructure is widely recognized as one of the most secure in the world, but as other countries have moved to faster data-rich 24/7, 365 payments, our core clearing and settlement payment systems need to keep pace. Which is what payments modernization and the RTR as already mentioned are designed to support for the long-term growth of Canada's economy.

Lisa Sattler:
Great points, Nick. Thank you. Cyri, anything to add?

Cyrielle Chiron:
Well, I'm aligned totally with you with Nick. Regulation is great when it's not blocking. And that is the thing that really everyone has in mind when they think about regulation, which is not really true. In that case, as you mentioned, it really would enable us to innovate in a safely manner. So I think this is important to recognize that. And as you said, it's important to make sure we have the right framework in place to allow growth. It's everything, it's about growth not being left behind.

And these guidelines will help businesses to provide choices to Canadians and intimately grow our economy. So this is the theme that we've been seeing on how payments is important to our economy. And to go into the international stage, I totally agree with you, Nick. We need to make sure that Canada stays competitive. We were leading in payments a few years ago and we not necessarily really anymore, with the level that we are seeing innovation in other countries.

So we need to make sure we stay relevant at the international level. We are a G7 country, so we need to keep up with our peers. The world around us is evolving very fast. Very, very fast. There are things that are being implemented, there are things that are being removed, sanctions. But it doesn't stop money from moving, and it just creates new alternatives that are not necessarily safer for us as a country, for our citizens or even for the rest of the world.

So something else that's important is we can't grow in isolation. Payments is network. So payment only works when it goes from one thing to another. So it's important that we keep up. And if the countries around us are innovative, are growing, are modernizing and we are not, how are they going to connect with us? How are they going to continue to trade with us? I mean, we're still going to trade, but it's just going to be harder, most difficult, annoying, technically. So I think we need to think it through, but how does it mean internationally? Because if people are not innovating in our country, they will innovate elsewhere. And this is going to be a loss for us as a country and for us as Canadians.

Lisa Sattler:
So speaking of not thinking about things in isolation, the open letter is very much focused on the Canadian Payments Act, but it's not the only piece of regulation we're talking about these days. How do the Canadian Payments Act, the Retail Payments Activities Act and future regulations and policies around emerging trends like open-banking for example, intersect. Maybe we'll start with Cyri this time.

Cyrielle Chiron:
Yeah, sure. And then actually I like these questions, when you talk about thinking in isolation and in silos. They are fundamentally different, but they are connecting. They're all trends, they're all things that fit together. And even if for some organization it's different teams thinking about it. For a lot of organization, including myself, it's usually one team thinking about it. So it's the same people thinking it all of this together. And even if each piece is different because they are fundamentally different, ultimately they connect in some way with each other.

Payments is kind of the connector with all of this, if we think about it right now. So it's important, as we said, we don't think in silos. Innovation is coming from every single angle. It's coming fast. The moment you think about it [payments] in silos, I think you actually lose opportunity. Because you can develop resources, develop money when you just don't have to, because it could be saved, solving in one way.

So we really need to find ways to make sure that as a country we are not doubling up all the working groups. It seems a lot for the industry to work on all of this, but if we find a way to think about it collectively in commonalities, is this an English word? That it's going to help, and we will be more efficient. We'll be more efficient in our day-to-day, but we'll be more efficient as a country as well, and the success would be better at the end of the day. So I think it's important that we think about it together, otherwise we're going to lose. 

Lisa Sattler:
Nick, what are your thoughts from a credit union perspective?

Nick Cicchino:
Very similar to Cyri's. No, I think it's important that the idea of not thinking in silos, of collaborating and being comfortable with that. Partnering with other organizations or institutions or fintechs that have developed a technology or that have a solution that we can take advantage of that's going to benefit our members. Whether they be business members, or retailer consumers.

There is a benefit here. But if we are so focused on the here and now for ourselves, we're going to miss great opportunities to collaborate amongst credit unions, amongst FIs in general. For the betterment of our members, our clients, but also for the broader Canadian economy. So I think it's a really important point on that idea of partnerships around collaboration and not thinking in silos.

And then that intersection of access of the legislation coming together, of the participants playing by those rules and being guided by the regulations in place, that can only help to spur that innovation. And going back to the conversation around security, confidence and trust, it's all tied in. It's all ensuring that there is a commonality and there's an understanding. So it sounds very... So I'll stop there.

Lisa Sattler:
It all has to happen in lockstep, right?

Nick Cicchino:
It does. It absolutely does.

Lisa Sattler:
The broader access, the sound regulation, and the opportunities that an effective open-banking framework could provide. Really, they all happen in lockstep.

Cyrielle Chiron:
I was just going to say, I think I'd like to add that as an organization, we don't think, "Oh, what about this or what about that?" We think, "How do we innovate? How do we stay competitive? How do we grow?" And those pieces are tools in some way, because I'm not having a better word, to help us getting there. Do you see what I mean?

So I think we need to start thinking how businesses and Canadians think. How do I make my life better? I have choice, I'm less frustrated with what I have. So that's why it's important we don't think in silos, because the end user could be businesses, banks, whoever, just don't think like that. They don't have compartmental for open-banking. They just think, "How do I make my life better, faster, easier, and I make more money?" And I think we need to... And in a safely matter, always forget that. But I think this is how we need to think, and bring this back together in order for all of us to be more efficient.

Nick Cicchino:
Yeah, and great point. I was going to add that, take RTR as an example of developing that system, that platform. Critical from an infrastructure standpoint, but more so from that innovation standpoint as well. We have a good understanding of what it will deliver once launched, in terms of faster, data rich, irrevocable, all those great attributes. But it's the unknown, the exciting part about what's to come when it's officially launched in market. Now what can we leverage from it? What can we do with that system once it's in place, with all FIs, with all participants now looking at it and seeing what role do they play in bringing new solutions to life from a payment standpoint.

Lisa Sattler:
We're coming to the end of our discussion, and I'll ask you both one last question, Nick, what risks to Canada do you foresee if we continue to lack modern payment legislation that keeps pace with the industry?

Nick Cicchino:
Yeah, risks is always a difficult one to kind of get your head around. You want to think in the opposite of what those opportunities are. But there are definitely risks if the necessary changes aren't implemented. And what immediately comes to mind is slowing growth in the electronic payment space and a market that limits new entrant financial institutions that results in limited or reduced competition.

So Canada has a role to play in innovating, not only at home, but abroad. There's no reason that innovative payment types originating in Canada based on interoperability standards can't be commercialized in other markets. So why can't Canada be on the leading edge of innovation in payments or in technology more broadly? Instead of running the risk of stagnating, we should be encouraging an entrepreneurial mindset. Unleashing Canadian payment innovation even further by embracing the proposed changes called out in the joint letter that you referenced earlier. If Canada continues to lack modern payment legislation and does not keep pace in the industry, we risk our systems infrastructure and payment services experiencing decline, limited payment options for consumers and businesses, and of course innovation.

Lisa Sattler:
Thank you Nick. Cyri, what are your thoughts?

Cyrielle Chiron:
Again, pretty aligned with you, Nick. The risk is we're just going to become uncompetitive. And it might be very risky for end users to make payments, or it could be even more frustrating than it is today. So if we're not innovating, we're putting the system and the economy at risk. We know that people want to have choice. And since the pandemic, we know that Canadians are turning more and more into digital payments. This will not stop, this behavior is even growing. We can see they come back and forth with the more traditional payment method, but we know electric payments is definitely growing. Every single piece of research is showing these trends.

But it's true. We know that Canadians are getting more and more comfortable with digital payments, but what it means, it means that they're less going to check on them because they are comfortable, right? And they believe that the system they are using our safe and sound, because why would they not be available to them if they're not safe in sound? So that is really important that we provide them with tools and system that are safe and secure, because they're not their job in some way to make sure that the system they are using are safe and secure. It is, but it is our job to provide payment system that are safe and secure. But at the same time, payment systems and tools and whatever that can be provided to them that are competitive and innovative. Just to make sure that we always get the best. We don't want them to use unregulated tools that will expose them to risk because they will do that.

We've been seeing this with screen scraping. Like anything that is out there, innovation doesn't stop because there is no regulation. It's just making it a little bit more dangerous. So if we have the opportunity to fix that, it provides guidelines and rules that are equitable for everyone, and it provides better, good services, whatever it is, to Canadians, end users, businesses in order to grow the economy. I just don't understand why we're not doing it. So it's just as simple as this. It's not easy. I'm not saying it's easy, but it's definitely we need to look into it and we need to work together towards this. It's just going to be beneficial for everyone.

Lisa Sattler:
It's clear from today's discussion that modern payment regulation that supports innovation is important for players across the industry, and important in supporting Canada's competitive advantage today and in the future. The open letter to the Minister of Finance calling for changes to the Canadian Payments Act as part of budget 2023 was an important display of collaboration and agreement within the industry. 

Cyri and Nick, thank you both once again for joining me for this episode of The PayPod. It was a pleasure hearing your perspectives, and I hope we are able to celebrate the inclusion of the Canadian Payments Act changes in the coming weeks. 

To stay connected to the latest development in payments, visit payments.ca and sign up for The Exchange, Payments Canada's newsletter. And be sure to visit thesummit.ca to register for The SUMMIT, our annual payments conference. I'm Lisa Sattler, thanks for tuning in.