Episode 26: The best of The 2023 SUMMIT

Transcript of the recording

Elizabeth Dempsey:
In May, the best thinkers, visionaries, and disruptors in payments came together at The 2023 Payments Canada SUMMIT. Over the course of two and a half days, more than 250 speakers, and over 1,900 delegates shared insights on the challenges and opportunities facing the payment industry in Canada. I'm Liz Dempsey, Lead, Event Content and Communications at Payments Canada and host of The PayPod, where we explore the trends and topics influencing payments in Canada and around the world.

In this episode, we're bringing you back to the main stage of The 2023 SUMMIT. Hear leading industry experts discuss some of the most timely and relevant topics related to the regulation of payments in Canada. Including how broadening access to Canada's payment systems will benefit businesses, consumers, and the economy. Why the Canadian Payments Act and the Retail Payments Activities Act are needed to support innovation, modern payment regulation and consumer protection; why there couldn't be a better time for open banking in Canada; the benefits that faster payment options will bring to Canadian consumers and businesses, and much more.

Our featured speakers include Nick Catino, Global Head of Policy and Social Impact at Wise. Grant Mackenzie, President and CEO of People's Group. Hanna Zaidi, Chief Compliance Officer of Payments at WealthSimple. Ron Morrow, Executive Director of Supervision at the Bank of Canada. Abraham Tachjian, Open Banking Lead with the Department of Finance Canada. And Tracey Black, President and CEO of Payments Canada. Let's listen into the discussion.

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Tracey Black:
Welcome to our panel, increasing innovation across the Canadian payment ecosystem. Broadening access to payment systems is amongst the most important issues in Canada's payment landscape. With forthcoming systems like the Real-Time Rail offering potential for providers to deliver enhanced value, more choice, and more secure services to Canadians, a path forward to broader access is essential to spurring competition and safe innovation. In order to broaden access to Canada's payment systems, legislative change is required. In December of 2022, Payments Canada engaged a diverse coalition of organisations from across the payment industry to make a collective request of the federal government to make amendments to the Canadian Payments Act in 2023 to expand payments Canada's membership eligibility to support broader access. This panel will discuss how broader access will benefit businesses, consumers, and the country as a whole. I'm expecting an engaging conversation. But before we dive in, let's start with introductions. So, Hanna, I'll start with you.

Hanna Zaidi:
I'm Hanna Zaidi, Chief Compliance Officer for our payments business at WealthSimple.

Tracey Black:
Thank you, Grant.

Grant Mackenzie:
Grant Mackenzie, President and CEO of People's Group. People's Group consists of a federally regulated trust company, a schedule one chartered bank, a card issuing business, and a merchant acquiring business amongst others.

Tracey Black:
Great.

Nick Catino:
And I am Nick Catino, Global Head of Policy and ESG. At Wise, we're a global payments technology company, building the best way to move money around the world. We have 16 million people and businesses who use Wise to send, spend and receive funds internationally. And we have Wise platform, which is used by more than 50 banks and enterprises to integrate our services via API within their own platform. So EQ Bank, for example, is a customer. So look forward to talking today about how payments modernization and expanded access to the payment system, uh, can improve services for not only our customers, but within the broader ecosystem.

Tracey Black:
Excellent. All right. So let's dive into the topic. Grant, you're first on the list here. In August of 2020, Payments Canada amended a rule to remove a participation volume requirement on the automated clearing and settlement system. People's Trust was the first indirect clearer to apply for direct clear status, what motivated People's Trust to become a direct clearer on the ACSS.

Grant Mackenzie:
Thanks, Tracey. Not the first time I've been asked that question, <laugh>. Um, so I, I need to take you on a bit of a journey actually to, to answer that. Once we heard that that, uh, volume requirement was being removed, it sparked a conversation within our company and our management team, and we laid that up against our, our strategy. And what we wanted to do is we're a large, um, uh, provider of products and services to pay tax fintechs and access to the payment rails. We, we started to talk about, okay, this has been removed, what can we do with this? And we, we, we came to the conclusion quite quickly that it really lined up with our desire to, to expand our products and services and our utility hub as it related to banking as a service, FinTech paytex, as I said.

Grant Mackenzie:
And we decided to go for it. Once the, uh, once the the issue was removed, we decided to, to step up and, and, and start to go down the journey of, of doing the hard work. So with that came a lot of, uh, angst and, and a lot of anxiety. And, and one of the things that I found very important through this journey was the levelling of the playing field as it relates to an indirect clear versus a direct clearer. And this allowed us to apply our risk framework as it pertains to products and services, and, and we held that responsibility. I could no longer, you know, push back, have a push back to someone else to say, can't do it. It was our responsibility now, which we take very, very seriously. So, again, aligning up to our strategy, continuing to evolve our Utility hub, build more products and services directed to our clients.

Grant Mackenzie:
That was the reason that we did it. And I want to tease out one last thing. There hadn't been a new direct clear in Canada, uh, that's still active in 35ish years. So what was missing a book on how to do it? So we had a lot of hard work to do, uh, and, and we created a playbook with Payments Canada and the 12 existing direct clearer participants in Canada. And there was a tremendous amount of collegial work that got done to create this. And I think Tracey probably took us two years, uh, to get it complete. So I'd like to thank those participants in the industry and our, our our colleagues at Payments Canada. Uh, we're very proud of that achievement, and, uh, that's why we did it.

Tracey Black:
Excellent. Well, thank you for being first. And there's the playbook now. Yep. <laugh>. All right, Hannah, this question is for you. WealthSimple recently became a Payments Canada member and was granted a direct settlement account at the Bank of Canada. What new possibilities do you envision at WealthSimple by having direct access to payment infrastructure?

Hanna Zaidi:
Yeah, thanks so much, Tracey. So maybe taking a step back and explaining a little bit of what WealthSimple is. So, at WealthSimple, we aim to be the primary financial relationship for our clients. We serve over 3 million Canadians across the country. They're using us today for things like everyday spending, filing their taxes, paying their bills, investing. And so money movement is really core to that experience. And so as we become more integrated, we we're adding more experiences, um, you know, things like delays, working with multiple partners, laying those things together became challenging, and it wasn't the vision that we really want for our clients. So we knew that in order to realise the vision that we want, we needed to connect directly to the payment systems. And so in late 2021, we, um, through our securities dealer, WealthSimple Investments Inc became a member of Payments Canada.

Hanna Zaidi:
And we were one of the first to do so, but we were the first securities dealer to actually build into the payment system and actually use it. And then subsequently in late 2022, we applied for a settlement account at the Bank of Canada for the upcoming Real-time Rail payment system. And we were the first non-bank non-credit union to be granted a settlement account. So we're super excited about these milestones. Our clients are excited, we hope the industry is excited, and we're really envisioning some, some interesting use cases for all of these things. Like, for example, immediately started to utilise our Payment Canada membership and to level the playing field with incumbents. We, you know, have, we've launched direct deposit, bill payments, pre-authorized debit, um, multiple ways to move money in and out of our ecosystem. And of course, we're adding our own flare to it.

Hanna Zaidi:
And then for RTR, we're already imagining some use cases that we're really excited about, but of course, it's really contingent on the final specs of what RTR is gonna look like when it's gonna be live. So, um, I can't share specifics just yet, but one of the thought exercises I used to just to get the brain juices flowing to sort of illustrate what are the possibilities with the real-time payment system, the example that I use, which is a bit exaggerated, which is instant wage disbursement. So imagine that you could choose to get paid on an hourly basis instead of biweekly. How would that change your relationship with money? Would you value it differently? Would you budget differently? Is it a good thing? Is it a bad thing? I mean, that doesn't really matter, but it's really just to get your, um, you know, your thoughts flowing on what's possible. So we're really excited about what's gonna be possible for RTR, and we have some exciting things lined up for you.

Tracey Black:
Great. Thank you Hannah. Nick, Wise has had a transformative experience in the UK following the Bank of England's decision to allow broader access to UK payment systems. With broader access here in Canada, what do you think could be possible for Canadian businesses and consumers?

Nick Catino:
Sure. And, and gaining direct access was transformative indeed. Uh, and sitting next to a couple trailblazers here with, with, with their companies, the benefits for our customers were clear for innovation and competition and ecosystem and financial stability as well. So going through those customer benefits in the UK by gaining direct access, this was in 2019, we were able to pass on a 20% price drop to our customers. And the average payment time went from 15 minutes. Think about that, with an instant payment system, it was still 15 minutes by relying on the intermediary two, when we were able to originate directly ourselves, instant, less than 20 seconds, subsequently, we gained direct access to the payment systems in Hungary and Singapore and Australia will launch soon and hopefully Canada too. And we, we saw similar things happen in Hungary passed on a price drop to our customers, and a percentage of payments that we consider instant.

Nick Catino:
So less than 20 seconds increase from 20% to 80%, again, by owning that relationship and, and payment ourselves. And so second, innovation and competition in the ecosystem. Before access was expanded, there were 18 direct participants in the faster payment scheme in the UK that increased to 33 today, mostly FinTech payment companies and the benefits are now, uh, a lot more providers providing better services. It's probably part of why the UK is considered a FinTech hub, and I think a lot of people here that follow would probably agree that their customers have a wide array of options and services and at low cost. And then third on financial stability, regulators now have more visibility into retail payments. Some of the largest retail payments originators. Uh, there's direct relationships as a result, and that's probably why the Bank for International Settlements, the central bank for Central Banks has supported this as has the World Bank who has called for direct access to the payment system. Why? To help remittent senders, low income immigrant communities who often pay 6% or more to send money abroad, often to support family and friends. They believe this is a key way to achieve the 3% price target. We're 6% now globally and in Canada, and 3% by 2030, which is a UN sustainable development goal. So the benefits to us are pretty clear. It's customers. So that's consumers and small businesses that we'll probably talk about in a moment. Innovation and competition, and then financial stability all impacted positively by expanded access to the payment system.

Tracey Black:
Okay. You threw a number out there that nobody in this room will forget that 20% number. We all heard it. Uh, so I'm curious, you've mentioned your connections in a bunch of different countries. Is that, is that a consistent number across all of your implementations?

Nick Catino:
Yeah, absolutely. In, in Hungary, uh, same thing happened. And, and, uh, in the UK for example, our cost to originate that payment dropped nine x by relying on the bank partners, 35% down to four per cent. When we can originate ourselves verse the cost in that intermediary, so exactly the cost of those intermediaries, when you eliminate that are philosophy, is to pass that on to customers.

Tracey Black:
Great. Thank you for the clarification. Okay. Um, with innovation, sometimes there is risk, uh, and safeguarding against fraud, cyber threats, data and privacy breaches, those are all of critical importance, I think to everybody, uh, in the room today. How, how can measures that ensure safety and security, support innovation and growth, and maintain and maintain trust? I'd also like to ask you if you have, uh, if you can wind this into your answer, what do you feel about the risk of not innovating? So, Nick, why don't I start with you?

Nick Catino:
Sure. Well, certainly the protection and safety of customers needs to be the top priority. Industry has a responsibility to keep customer funds safe, educate consumers, and prevent financial crime. From a policy perspective, the launch of a new instant payment system creates a lot of opportunities for rules and features and functionalities as the previous feature, uh, speaker mentioned, uh, so other countries have looked at fraud directories with an instant payment system, multi-factor authentication, confirmation of the payee, ensuring the recipient name matches. Those won't stop fraud entirely, nothing will, but it's a good start. And the risk of not innovating is the status quo. There seems to be a recognition here that innovation and competition is lacking. Payments modernization will help probably pretty significantly. And that's because it'll lead to, uh, not just the more innovation, but the competition as well. Competition results and choice, choice results and better services for customers. And that's, again, consumers and small

Tracey Black:
Businesses. Great. Thank you, Hannah. Over to you.

Hanna Zaidi:
Thank you. Um, so a couple things actually. I think Nick mentioned some really important things. Things like fraud directories, and, you know, collaboration within the industry. Everyone needs to do their part, especially when it comes to payment modernization, where we're introducing new risks. Um, I think some of the challenges I see in the Canadian ecosystem is like, we definitely could do better when it comes to collaborating, especially when really prioritizing the end user outcome, the consumer at the end of the day. And so things like having fraud directories, symposiums, or sharing information, really tackling like some complex cyber and fraud attacks that are happening, actors are becoming increasingly sophisticated. And so collaborating is incredibly important, and that's something that we need absolutely need to do better, and we can learn from other jurisdictions. There's examples of this being done really well. And then every institution needs to do its part. They need to invest in, heavily in their AML compliance, fraud management, cyber risk management, because it's an ecosystem. So if you are a weak actor, it impacts the broader ecosystem at WealthSimple. We've heavily invested in all these areas, and this has been recognized by regulators and policy makers. We need everybody in the ecosystem do do the same.

Tracey Black:
Okay, thank you, Grant.

Grant Mackenzie:
I can only add reinforcement to all the comments that have already been made. Uh, look, as a veteran, uh, of the, um, mortgage market in a previous life, the mortgage business, this, this still is, uh, an ever living danger. And it, it involves the movement of money. Fraud's never gonna go away. We are in this ecosystem together. There's no finger pointing, there's no blame. What we're here to do is protect the end consumer. That's it. That's all. And we have to have, you know, standard sets of rules, you know, that, that, that we can all follow and, uh, and make sure that we preserve the integrity of our payment system.

Nick Catino:
Agree.

Tracey Black:
Okay. I'm gonna ask you another question, Nick. As you become a participant in a payment system, what are the obligations on you as a participant as it relates to fraud, uh, and, and protecting end users more broadly?

Nick Catino:
Sure. And, uh, I, I should know, part of why we've approached things as a global company is to take the highest bar possible. Uh, and so we've implemented proactively multifactor authentication, even where it's not required to cut down on fraud customer notifications to make sure they're aware of trends that are happening. Uh, we've added friction within the platform where we've seen, um, you know, some, some tricky areas occurring. And, uh, as Grant was just mentioning, information sharing, I, I think is, is something that is a next phase of evolution here with within, uh, industry to combat these challenges. There, there probably needs to be more, and that can happen with within the system. And so fraud directories, for example, you know, hopefully that is, is part of RTR and, uh, and cross-border payments specifically, it's, you know, we're here talking about Canada, but it's ultimately a collection of domestic payment systems. And that, that's why it's really important that the global community works together to harmonise some, some of the requirements. And, um, I think we're heading in the right direction. Okay.

Tracey Black:
Just one more question on this topic cause it's a, an important one. Um, we're all about protecting end users, consumers, businesses, of all sizes. What do you feel their obligation is the end user obligation as it relates to fraud protection and, and looking out for themselves? Like maybe I'll start with you, Hannah, on this one.

Hanna Zaidi:
Have a strong password.

Hanna Zaidi:
To use two factor authentication, multi-factor authentication, like at minimum. Um, I think we really try to educate our clients on how you can protect yourself. Um, and I think that it's as good as our clients are, are able to implement those, but you're, as an institution, you also have to have the features and functionality available for your clients to be able to do that, and not all institutions do. So I think that's really important.

Tracey Black:
Anything to add, Grant?

Grant Mackenzie:
Yeah. Uh, the end consumer has, uh, ownership and responsibility in the transaction as well. They just can't self-select and say it, you're responsible now. I, I agree with you, strong password is a good start, but also, also being, uh, cognizant aware and responsible for the, the actions that you're taking. And you, you really shouldn't be down-streaming that to someone else to blame them.

Tracey Black:
Well, I think we have a, we have an education, uh, obligation. I think that, uh, we'll have to, we'll have to keep that current. Okay. Thank you. Um, we all know that payments play an important role as an economic contributor. Uh, and as a result, payments innovation is expected to create lots of opportunities and, and some challenges. Uh, what payment innovation do you think will be the biggest game changer for Canada? So, Nick, I'll start with you again.

Nick Catino:
Sure. We like to think about the customer problems that we're solving. And the biggest pain point is how long it takes for money to be sent for the recipient to get it and the cost involved. And there's also convenience and transparency as well that are important. Sending money should be like sending an email. It should be instant, should be low cost, maybe even free. That's a result of innovation. And it's the who that ultimately benefits. There's, uh, an example that demonstrates why this is so important that, that I learned of, uh, randomly with, within the last week, we had a customer whose mother needed an emergency medical procedure in another country. If they couldn't get those funds same day, the family had to take out a payday loan to fund it. Fortunately, through Wise, we were able to get that money from the sender to the recipient pay for that medical procedure.

Nick Catino:
She was able to get the help she needed. This didn't happen in Canada. Why? Because there's no instant payment system. This was a UK customer. Fortunately, in that situation, the money was able to move from the son to the mother and family to pay for that emergency medical procedure. That's why it's just so important the everyday lives of, of consumers. And for small businesses, we have a, you know, for a lot it's a trade economy. They are selling or, or buying goods and services abroad. And so the speed of payments unlocking working capital and the cost is, is vitally important. And if you look at some of the most forward looking technologies around the world that I think a lot of companies here are already, uh, trying to replicate or, or perhaps create things like account to account transfers, QR codes, mobile wallets, more payment options using simple identifiers instead of complex bank details, it's payments modernization that will help facilitate them and it'll facilitate that innovation, uh, and competition from, from really it's, uh, the new entrance. That's what makes a competitive ecosystem. And part of how this is gonna gonna occur is through payments modernization, instant payments on the way new payments licence coming is, is helpful for customer trust. Open banking, the one that hangs into balance is access to the payments system, the amendments to the Canadian Payments Act. It's crucially important and I I hope this panel will help make the case for why these policy changes will define the future of innovation and competition in Canada.

Grant Mackenzie:
Uh, I agree. I agree largely with everything Nick said, with the exception of maybe free <laugh>,

Nick Catino:
I said low cost or free. I

Grant Mackenzie:
Know, I know. I just wanted it's hedging. I wanted to key in on that one word. Um, look, I, I agree with, with everything that's been said, uh, so far, and, um, you know, we, we see a lot of change in opportunity. Access to real-time payments is critical for this country. We're a G seven, uh, nation. We should have that. And, uh, and, and there should be the free flow of money as long as all participants are responsible and share their ownership and get educated. I can't reinforce that enough. And, uh, it it's just super important that, that we do that. Um, yeah.

Tracey Black:
Okay. Hanna?

Hanna Zaidi:
Yeah, I completely agree. I mean, like Grant said, most G7 countries have real-time rail systems and, you know, the US government recently European Commission has said that the consumer benefits are substantive. And so they're mandating institutions actually opt in and, um, you know, require instant payment money movement in their jurisdictions. But I'll take a slightly different, um, you know, response as well. Um, I think the real game changer for Canadians will also be like a proper implementation of open banking, not this industry-led approach that we're seeing with bilateral agreements between institutions where there isn't really a real tangible impact for the everyday Canadian, but a proper implementation of open banking with data rights and portability at the core of it. And so the example that I used to sort of illustrate what open banking could do is I use the example of your phone number being portable.

Hanna Zaidi:
And so if you recall over a decade ago, um, you, you gained the ability to move your phone number to multiple service providers, and it made clients way less sticky. And of course, telcos fought tooth and nail to prevent that from happening because clients were much less sticky. You can now shop around for whatever you're looking for in terms of price coverage, um, features, functionality, um, of course, I'm not saying like there's much less much to be desired in terms of competition when it comes to our phone bills. But the idea being a, being able to apply data portability to financial services, for instance, so you as a consumer are in control, can revoke access at any time. You can direct your data to whatever use case or service provider you want, and that would really force financial service companies to compete for your business. And so imagine the innovation that comes out of that, and we're seeing this in other jurisdictions like Singapore, for instance, is using open banking as a tool to help Singaporeans prepare for retirement readiness. This is something that we also need to solve for in Canada. So I think open banking could truly like be a game changer for Canadians.

Tracey Black:
Okay. Interesting and helpful. Any other comments from,

Grant Mackenzie:
I can't help myself? The, go ahead. One other issue that's gonna bear itself is artificial intelligence. And I, and I think that that's, uh, we all see the press every day. We see what's happening with Chat GPT, et cetera. It's, it's going to be a challenge for us to actually identify who's who. So, I worry about that.

Tracey Black:
I think you're right to worry about that.

Nick Catino:
Policy makers have their hands full right now.

Grant Mackenzie:
Yes. Yes, they do.

Tracey Black:
Can't wait too long, though. All right. Uh, thank you. Thank you very much for sharing your expertise today. Obviously a lot to talk about here. Lots of things to anticipate. It's been an absolute pleasure to have this conversation with the three of you. Thank you for joining me, uh, on the stage today. Uh, and, just for closing remarks, Payments Canada will continue to advocate for changes to the Canadian Payments Act in 2023, and to work towards making broader access to payment systems a reality in Canada.

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Tracey Black:
I'm delighted to be joined today by Ron Morrow, the Executive Director of supervision at the Bank of Canada. Ron, thank you for being here with us today. Just a little bit of context around our discussion today. I mentioned yesterday on the panel that I hosted  you know, the modifications to the Canadian Payments Act, looking for broader access to core systems. What we're gonna talk about today is, the Retail Payments Activities Act and that is a, a co-related item, as we think about broadening access to our payment systems. So, just wanted to provide you a little bit of context around that. So, Ron, let's start by hearing about your current initiatives.

Ron Morrow:
Sure. Thank you very much, Tracey, thanks for the invitation, a pleasure to be here. Before we get started, I think what I'd like to do is maybe set the stage a little bit. I'm eager, eager to get to your questions. So what I'm gonna do is I'm gonna talk a little bit about our new forthcoming responsibilities for overseeing, retail payments service providers. And I'm gonna do that starting with, a bit of a sense of how it complements some of our existing regulatory responsibilities. So, for some of you, many of you, maybe just the payments geeks of you out there, you probably know that the bank currently oversees financial market infrastructures or FMIs. We got that responsibility in 1996 with the passing of the Payment Clearing and Settlement Act. So what are these FMIs of which I speak?

Ron Morrow:
Well, FMIs are critical systems that sit at the core of the Canada's financial system and help people to help financial institutions exchange money and securities and make financial transactions. Now, at the bank, we only focus on the FMIs that are the most critical, the most important to the financial system, where their failure could cause financial instability, could cause great, economic loss within the system, or undermine confidence in the payment system more broadly. So, couple of examples of FMIs so, Lynx and ACSS, which are, owned and operated by Payments Canada are to the FMIs we oversee. Interac E-transfer is another example of a, of an FMI that we oversee. So in our oversight role, our focus is on making sure that these systems are as resilient as they can be, that they're robust to a wide array of risks, because these systems have to operate every day, otherwise, the financial system can grind to a halt.

Ron Morrow:
So that's where we put our time, effort, and energy. And the, when these systems operate well, as they almost always do, they're the backbone that allows people to exchange payments, make investments in recent years. However, as we all know, there have been a whole host of innovative new approaches in the payment space, a whole range of new ways to pay, a whole new range of ways to hold your money and a great growth in the number of players providing these services to people. So, as you know, PSPs have grown that's given rise to governments both here in Canada and abroad to step forward with some additional regulations, some additional legislation. And that's where our new responsibilities come from. So, with the passing of the Retail Payments Activities Act in the summer of 2021, the bank was named the supervisor for PSPs.

Ron Morrow:
We estimate there are about 2,500 or so PSPs operating in Canada right now. And, and our job, unlike our job with FMIs, which is to ensure they never fail and don't bring down the financial system, our supervision of FMIs or of, uh, PSPs is gonna be much, much more narrow. We're really just focused on making sure PSPs do a good job of managing operational risk. We're focused on ensuring that in the unlikely event a PSP becomes insolvent, funds can be returned to end users. So it's a much narrower regulatory focus for us. But it is new. We're excited to take on this new responsibility. So that's enough stage setting, the, I'm keen to catch your questions about what this whole new supervision regime is like and our started, so let's get to it.

Tracey Black:
Thank you. So you've outlined the Bank of Canada has an oversight role for FMIs, like Payments Canada and you're adding in the supervision of PSPs. I know that you've recently closed a consultation paper looking for public comments around RPA and I was wondering if you could tell us how that came out, if there were any big findings from that consultation, and then also how are you going to support the Department of Finance and the delivery of any next steps coming out from that consultation?

Ron Morrow:
Sure. So there was a, there's been consultation throughout the process. We created something called our Retail payments advisory committee to help us in the Department of Finances. This regime was coming together, they helped us a lot as we tried to draft initial set of regulations. Those just recently came out for public comment. We've gotten the comments. I believe the Department of Finance will be making all those comments public mid-month or so. And so what did we hear? So the, we heard a lot, we heard a number of things. I think one of the, if there's an overarching theme to the comments we received, it was around the burden associated with the regime. A lot of concern from payment service providers that you know, what we're requiring in terms of reporting requirements or, you know, other aspects of what they'd have to do to demonstrate they were man doing a good job of managing operational risk. 

Ron Morrow:
It was a lot of work and a lot of burden for PSPs. So we've heard that, and I know the teams at the bank and at the Department of Finance are going through the comments and really keeping that top of mind, thinking about how we can strike the right balance. If you are holding or moving people's money there is actually a minimum standard you do need to meet and should need to meet. But we wanna make sure that we're not an impediment to innovation and new PSPs coming in. So we'll be focusing a lot of our energy on doing that, providing our advice to the Department of Finance, and then they'll finalise the regulations.

Tracey Black:
Thank you. Two questions following that. One relates to market conduct. You know, this is a topic that comes up quite frequently and the Bank of Canada, even on your website, you've been quite clear that market conduct is out of scope for phase one. But I was wondering if you could share with us, did you hear any feedback on market conduct and what are the plans going forward to cover that?

Ron Morrow:
Sure. Well, maybe I'll take a, a short step back and talk a little bit about the work, the really, the Department of Finance has been leading in the area of payments. So there are a couple of pillars. So one of them is to develop an oversight of payment service providers. So we've began that responsibility for operational risk and end user fund safeguarding. They will be, they've said they're still focused on you know, once this is done going forward and thinking about market conduct and the issues like pricing and, you know, competitiveness with within the space. So, you know, they'll focus on that. So that's one pillar. Another pillar is a development of the RTR. Another pillar payments modernization, changes to the Payments Act to allow broader participation within the payment system. So all, all of those remain, remain priorities for the government. I know that because Julian said so just yesterday, so I'm not speaking at a turn. It's all earned linked and there's a focus on moving it all forward.

Tracey Black:
Okay. Fantastic. And then the other related question is, for broader part participation in Payments Canada systems, to be a participant in our systems, we have a series of participant requirements must be met. Those participant requirements are the same for any member of Payments Canada, whether it's an existing member or a future member that is, you know, that's what we expect will happen in the future. So as we think about RPA a and Payments Canada's requirements, how have, how have we worked to make sure that there is an overlap or no significant gaps between those two things, and how will we do that going forward as well?

Ron Morrow:
Well, so the, one of the themes I've, I've heard about throughout the conference is a lot of interest from payment service providers in terms of, you know, wanting to be able to join the, the RTR and be able to participate directly. So there are a couple of necessary conditions for that. One, you have to be overseen by the Bank of Canada, under the Retail Payments Activities Act. Second, you have to be members of Payments Canada. So our, the RPA regime is coming in at force. I know the Department of Finance is committed to making the changes to, to allow the broadening membership, but those are the necessary conditions. If you, if you want to join the RTR directly, then there will be an next step. There will be operational requirements that Payments Canada will  establish for people to be able to participate.

Ron Morrow:
We, you know, there has to be a, a level of confidence in people's ability to participate and not be disrupted with the system as a whole. Equally by participating in the system, directly, that would mean getting a settlement account at the Bank of Canada. So, we have, will have requirements that people will have to meet, be able to meet a, to get a, a settlement account. Those will, there'll be some financial requirements, there'll be some operational requirements, and, you know, we've developed those and we will, you know, work very closely with you and your colleagues at, at Payments Canada to make sure that all of this is well coordinated.

Tracey Black:
Okay. I just wanted everybody to know that we're all working together here, so thank you. Thank you for that answer. So, we spent a lot of time this morning already talking about, you know, end users and trends. Uh, as we think about the introduction of RPA and the capabilities or the oversight that the bank will be monitoring, what will that mean for Canadians and, and will, you know, will end users see any impact of, of RPA a in their, in their daily payment lives?

Ron Morrow:
Well, in one aspect, it should have, I hope, very little impact. Everyday Canadians use payment service providers. Whenever they tap their card or make a an online payment, they're little do they know they're using one, two, maybe three or four payment service providers to move funds from themselves to someone else. And that the fact that Canadians embrace this shows they have a high degree of confidence in payment service providers, and the reliability. So the regime is really just to ensure that that confidence is well placed and Canadians can continue to count on PSPs for the services. They provide the area where they might see a difference. Uh, the, uh, moves more into the future as the regime comes to place. You know, as the RTR comes online, as psps are able to directly participate in the RTR I think that opens up a lot of opportunity for innovation within the, within the payment space, new services and capabilities being offered to Canadians. So I think that's where they'll probably see and feel it most.

Tracey Black:
Excellent. Thinking about the registration capability that's being introduced in Canada, is this similar to something that exists anywhere else? Or is this a sort of a unique solution that we've devised here in Canada to provide the kind of oversight that's going to, you know, strengthen our overall payments ecosystem?

Ron Morrow:
Uh, well, we're not, we're not the first jurisdiction to start thinking about how best to regulate payment service providers. Europe, the UK, Singapore, are all good examples of other jurisdictions that have, have moved on this ahead of us. So we've looked closely and spoken with those regulators tried to understand what they did, the choices they made. And in, in cases where there were, you know, comparable issues, uh, the, so, you know, you know, reporting critical incidents to the, to the regulator, the, we looked at what other jurisdictions had in place, looked reasonable to us. So we just imported that, uh, that language into our regime. We didn't want to be different or have a made in Canada regime where we didn't have to, where global standards are already out there and, you know us adopting them just makes things easier for PSPs to be able to comply with regulations globally. That said, they're maybe one or two differences. We have to make sure that this is a fit and proper regime for Canada, but where wherever possible we look to align with our colleagues internationally.

Tracey Black:
Excellent. And will there be an annual registration process? What, what's the cadence by which PSPs who register with the Bank will need to refresh their information to ensure that we have currency?

Ron Morrow:
The, maybe before I get to that, I'll just talk about the timeline more broadly.

Tracey Black:
Yes, please, please do

Ron Morrow:
The, so in, so right now as I outline the Department of Finance and with our advice is looking to final finalise the regulations and working hard on that, our working assumption is that we can have the regulations finalised this fall. We'll see, it depends on a few factors, but that's our current working assumption. We'll then come out with guidance for PSPs. So this guidance is gonna have two pillars to it. One of it's gonna be what we're calling supervisory policy, which are things like information that we think is gonna be very important for PSPs, but where we're not really, you know, opening up a big debate or discussion. You know, here's our approach to enforcement, here's our framework for calculating monetary penalties, if you know that we're taking an enforcement decision. So not an area where we're looking for a lot of consultation.

Ron Morrow:
There are gonna be other areas which I'll call guidelines to PSPs, which are, you know, here are the things we're gonna expect of you to demonstrate your compliance with op risk, with safeguarding end user funds. Here's the annual reporting you're gonna have to do to us. This is the form it's gonna take. And that's where we're gonna be very open to getting feedback from, from PSPs and, and seeking, seeking comments and probably iterating a little bit on all of that. So the guidelines, you know, I would hope are done mid 24. We then start moving into registration period for PSPs. So there'll be a window where PSPs will have to register. I believe it's a 15 day window. The will then take 10 months or so to process those 2,500 applications. And that means the regime goes live probably early in the second half, or the mid to second half of 2025. So what a PSP is gonna have to do annually, well there's gonna be an annual fee. It's a cost recovery regime, just as OSFI has a cost recovery regime with banks. It'll be the same thing here with PSPs. And there'll be annual information they'll have to submit through the supervisory application on things like your update, your payment volumes and values and things of that nature.

Tracey Black:
Okay. And just to confirm, I've understood this correctly, you'll be open, there'll be a call come register, then there's a period where the Bank of Canada will process all of the registrations. So it's not in like first in first out kind of thing. You'll just hold all those, all the registrations and then doors open.

Ron Morrow:
Exactly. It, also gives us time to go through our list, cause we have a list, and follow up with people who we really think probably should have registered with us, but did not. So we'll be able to do that as well.

Tracey Black:
Excellent. Okay. So this is a new process and you can appreciate, there are a lot of questions. And I know, you know, you've been very active. The bank has been very active in creating opportunities for people to learn more about this. So I really wanna thank you for taking my questions today and for this audience today. It's been a real pleasure having the conversation with you and I think this is a great thing that's gonna drive broader access.

Ron Morrow:
Well, thank you, Tracey. So shameless plug the, for those of you who do have questions, the Bank of Canada.ca/rps, all the information is there. Or come on over to our booth and we'll be happy to answer your questions. But thank you very much for the invitation. This has been fantastic.

Tracey Black:
All right. Thank you, Ron. And, thank you. May the fourth be with you, everybody.

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Tracey Black:
I'm delighted to be joined by Abraham Tachjian Canada's Open Banking Lead. Abraham was appointed in March of 2022 with a mandate of developing a made in Canada regime for open banking. Welcome Abraham, and thank you for being here today with us.

Abraham Tachjian:
Thank you for having me, Tracey. It's an honour and a privilege to be here with you today.

Tracey Black:
Thank you. Okay. So your mandate is develop to develop a made in Canada regime. Uh, and this is a term that many people bring up when they're talking about the development of our open banking system in Canada. Mm-hmm. <affirmative>, could you describe what made in Canada means to you?

Abraham Tachjian:
Yeah. Great way to get us started, Tracey. Made in Canada means a system that addresses the unique makeup of our country. Now, there's a couple of elements that I'd like to unpack with respect to that. Now, the first one being the distribution of powers between federal and provincial jurisdictions. As you know, banks are under federal jurisdiction, whereas credit unions fall under provincial jurisdictions. So, made in Canada means having a system that is inclusive of all Canadians and does not exclude anyone from a federally designed open banking system because of the mere fact that their financial relationship is with a credit union. So the first important point of what made in Canada means. The second element is with respect to existing frameworks. Well, Tracey, when I took this job, I made it clear that I wanted to avoid making this an academic exercise.

Abraham Tachjian:
I wanted to be as pragmatic as possible. And to the extent there's already anything out there that we can copy paste, I would be happy to do it if plagiarism works for tech can work for Abraham Tachjian. So, to that effect, the best example I have when we talk about existing frameworks is with respect to governance, right? When you start putting together all the elements that fit into the responsibilities of a governance structure, you start to see that we already have some of that foundation here in Canada. And the clearest example is a topic that keeps coming up. Something I heard during the sessions this week, as well as in my conversation with stakeholders with respect to consumer protection, consumer education, financial literacy. Well, those are responsibilities that are already taken up by the FCAC, an existing agency.

Abraham Tachjian:
So made in Canada implies that, you know, we're not creating a system with duplicative requirements or conflicting ones as well. And by a similar tone, there's also alignment with existing government initiatives. We heard Ron Morrow speak yesterday about the Retail Payment Activities Act. There's a modernization of our privacy legislation that is making its way through parliament with C27 that will enshrine an individual's right to data portability. So made in Canada, again, by the same token implies having a system that is not creating conflicting requirements. Then also, there's this matter of the policy objectives that underpin our system, you know, compared to other jurisdictions. We're not trying to take punitive measures to address market behaviour. Something you've seen in the U.K. and Australia, which may have been the genesis of their, of their systems. We don't, we, we don't have that here. Of course, we're, we're, we're trying to encourage competition with the system, but at the core of our mission is the consumer to increase their financial welfare. So we start from that perspective, from a policy perspective. So when you wrap this all in together, you know, what does this mean from a made in Canada perspective? Well, it's clear that the government will have to take an active role in the system because individual organisations are not best placed to address these elements, which make up, uh, our made in Canada regime. And, you know, Tracey, if data is currency, well, the government's always had a hand in currency, so.

Tracey Black:
Excellent. Could I ask, just for clarification, and you can appreciate that open banking is a big hallway topic at this conference. Could you talk about the scope of what you're looking at? You know, I know in some of the jurisdictions that you mentioned Yep. It's not, it also includes payment initiation. Yep. And so if you could just provide an overview of the scope of your activities, that would be helpful.

Abraham Tachjian:
Of course. Of course. So I've taken the advisory committee's report as the roadmap for the work that we're doing. And in the report, the suggestion was for the scope to be limited, to be phased in the sense that we will start with data only and eventually move on to other, um, capabilities. So what does that mean from a data perspective? Well, we'll have a system, uh, that will capture retail and SME accounts with respect to checking, lending, investment accounts, KYC information about, uh, your consumers as well as product data. That's the scope that was outlined in the advisory committee report. And that's the scope that will design a system around as an initial phase. Right. What we've seen is in certain jurisdictions is that a phased approach is the best way to start kind of iron out the details of a system and then expand. And the best example of that is Australia.

Tracey Black:
Okay. That's a very helpful answer. Thank you.So my next question for you is what you feel the risks are if Canada does not move forward with open banking?

Abraham Tachjian:
Again, there, there's a couple of angles here. First, from the consumer perspective, we, we run the risk of not giving consumers complete control over their data, as well as the financial tools to make sense of it. Instead the control would rest with organizations that have their data. The other risk is from a global perspective, from an international competitive per perspective, in the sense that we run the risk of falling behind our peers. Look, some of you may be aware that the U.S. after many years of what's typically termed as an industry-led model has made an about face in the sense that the CFPB is intending to have regulation around open banking with a target date of next year. And if that happens, we could potentially be the only G7 country without an open banking system, right?

Abraham Tachjian:
Let that sink in, in terms of global competitiveness and risks associated with that. Now, more domestically I think we run also the risk of not giving the proper tools to certain smaller financial institutions to be able to better compete with their larger peers to address this information asymmetry that exists between larger and smaller organizations. So, of course I'm talking about the competitiveness or of our financial sector. And on that same note, I think we would be doing a huge disservice to our local FinTech champions, which would probably run into a ceiling in terms of growth without being able to rely on data for their products and services. So the last bit I have in terms of risk I would say from a policy perspective, we wouldn't be taking those first steps towards growing Canada's economy towards a data-based economy in the sense that you can view open banking as the first steps towards that share data sharing economy without it, you know, we, we run the risk of leaving data sharing to small groups led by bilateral agreements which are completely unscalable from a global, from an economy perspectiveand unfit for purpose to be frank.

Tracey Black:
Okay. Thank you. So it's, it's been a bit of a wild ride the last month or so in the economy. And I'm, I'm wondering, are there any concerns about moving forward with open banking right now? Is it the right time? Yeah. What are your thoughts on that?

Abraham Tachjian:
Yeah, that's a great question. Look, I'm gonna channel my internal Chandler Bing from Friends here by saying that there couldn't BE a better time for open banking. And again, I look at this from a couple of perspectives. As the economic environment continues to put pressure on everyday Canadians, I think open banking will provide them with the right tools to kind of offset that to help them with their financial planning, to help them better save for their future, to shop around for new financial products and just generally increase their financial wellbeing. So I find open banking to be a very good tool to offset those pressures. I also look at the industry sentiment. Look, I think a couple of years ago, if you had a conversation with stakeholders around open banking, the common theme would be one of doom and gloom in all the ways open banking is gonna ruin the financial system.

Abraham Tachjian:
But I think with better understanding of what comes with open banking, what I've noticed in the engagement with stakeholders is that that sentiment has shifted from one of that doom of gloom to opportunity to how they can leverage it for their businesses and to serve their consumers. So I think there's this mental readiness around it in terms of properly capturing the opportunities and look similarly from a, from a technical readiness perspective. Look, sure, other jurisdictions have beaten us to the punch, you know, while we've been researching consulting, discussing fair enough. But I would suggest that nobody's got it right until, until this day. They've released new systems, they've iterated and they've improved. I think the benefit to us is that, you know, we can import that to Canada, we can see what's worked well, what hasn't. And it's something that the team and I at the Department of Finance focus a lot on.

Abraham Tachjian:
We spend a lot of time speaking to our counterparts and other jurisdictions to learn just this in terms of what we can import here. And I think there's readiness, uh, from the industry perspective in the sense that they see what's going on in other jurisdictions and they're preparing their, uh, their offerings in response. So when we go to turn that key on, it's, it's, it's, it's not gonna be completely alien in the sense that the market's been preparing for this, uh, from a product proposition perspective as well as mentally to be more comfortable with this. Now, as you mentioned in your question, I think I would be remiss if I don't acknowledge the financial tremors that we felt, uh, over the last couple of months with certain financial institutions failing. Uh, but I would caution you, um, against making the association between the causes of the risks, uh, that led to the collapse of certain financial institutions, be it credit risk, liquidity risk and interest risk with open banking, the risks that exist in open banking are materially different than those. And it's risks that we are paying attention to as we built the system. In fact, we've got, we've got a working group dedicated exclusively to this to be focused on how we can address the risks associated with the system.

Tracey Black:
Thank you. So you mentioned, you've got lots of committees and discussions, and I know you've been doing a, a great deal of consultation about open banking, and you've probably met with everybody in the room, since you started in your role. Yeah. But I'm, I'm curious as you, as you have your conversations with different types of stakeholders Yeah. You've talked about FinTechs, large banks. Are you finding that there is alignment in their views, alignment in their objectives and their desires for open banking? You know, are there any key takeaways that you can share with us? Yeah. You know, on the QT about the discussions that you're having?

Abraham Tachjian:
Yeah. You're right, Tracey. I've met a lot of people in person, which is very refreshing here today. I remember when we did this last year, I was sharing a room with my kids Peppa Pig toys. So it's very refreshing to be doing this in person. Look, let me take a step back and shed some light a bit on the work we've do, we've done in engaging the industry. When I took the role, we set up four working groups to focus on specific pillars related to open banking. And those were accreditation. What are the requirements that you will have to fulfil to access the system? We looked at privacy requirements, essentially. How do you manage consent as a consumer? How do you give that consent? What does that look like in a customer journey? And importantly, how you revoke that consent.

Abraham Tachjian:
We looked at liability requirements, everybody's favourite topic, who's on the hook for what, when something inevitably goes wrong. And finally, as I mentioned, we looked at security requirements. What are the security requirements from an information security perspective or a cyber security perspective that you will have to fulfil to have access to the system? So we've had multiple meetings in each one of those working groups. In fact, we just wrapped them up thankfully. And in parallel to those, we've had steering committee meetings where we've brought everybody together to have a discussion on updates on how this is progressing, as well as, I mentioned earlier, a lot of discussions with our counterparts and other jurisdictions. So we'll distil all of this into a framework that will take all these views into consideration. And now going back to your question, I think the one thing I've really noticed that, that stuck out to me is that throughout these conversations, there's a lot of consensus among the industry on how to address certain key topics.

Abraham Tachjian:
Which again, goes back to what I was mentioning in the sense that the sentiment around open banking among stakeholders has moved from this doom and gloom to, okay, how can we move forward? How do we address these risks? And how are we all within the system comfortable with it? So I think there's a lot of consensus among these participants. That's not to say it's perfect, right? You're in a virtual room with competing interests. So the conversations get lively occasionally. And I think one area where we still don't have a hundred percent consensus on is with respect to governance, right? How, how are you gonna be overseeing this system? And I think it's a topic that also came up in our second round of consultations a couple of years ago. And, and the sentiment still remains in the sense that certain stakeholders would prefer an industry driven model, whereas others, uh, prefer a purely regulatory one. But I think this, this lack of agreement on this key point further strengthens what I was saying earlier in the sense that the government will have to take an active role in this Made in Canada system to address these points.

Tracey Black:
Great. Thank you. I have one more question for you: when?

Abraham Tachjian:
Yeah, yeah. I suspect it was coming. Look, Tracey, as I mentioned, we just wrapped up our working groups. There's a couple of months left in my mandate, between then and now. We intend to go back to the entirety of the participants in our working groups, at our steering committee discussions to give updates as to what the system will look like. I'm on track with my recommendations to be presented to the government, for the government to present an open banking framework this year. So we continue to do work and we'll be engaged, continuing to engage the industry to that end.

Tracey Black:
Great. Thank you. Thank you so much for joining me today. Thank you for sharing your expertise and being,  you know, so amenable to answering my questions.

Abraham Tachjian:
It's been an absolute pleasure to have the conversation, my pleasure conversation and very, very helpful for the audience. Thank you for having me. Thank you.

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Elizabeth Dempsey:
It's clear from this discussion that payments are evolving faster than ever before. And in order to make meaningful change, it's important that we continue to come together as an industry to discuss, debate, and understand what the future of payments looks like for ourselves, our organizations and Canadians. It's through modern payment legislation and continued collaboration that will be able to deliver an enhanced value, more choice and more secure services to Canadians, so that ultimately financial innovation happens within and not outside the regulated financial system. To stay connected to the latest developments and payments, visit payments.ca and sign up for the Exchange Payments Canada's newsletter and save the date for the 2024 summit. Coming back to Toronto, May 29th, 30th and 31st. I'm Liz Dempsey. Thanks for tuning in.