Quantifying the economic benefits of payment modernization: the case of the large-value payment system

In partnership with the Canadian Deposit Insurance Corp (CDIC) and the Bank of Canada, Payments Canada has released its latest research discussion paper, Quantifying the economic benefits of payments modernization: The case of the large-value payment system. The paper provides a framework to quantify the economic benefits and trade-offs of replacing the Large-Value Transfer System (LVTS) with Lynx, Canada's new high-value payment system, which launched August 2021

The framework consists of two parts. In the first part of this framework, we model the payoff function of each participant when sending an inter-bank payment via a large payment system. The payoff function is assumed to be a function of the characteristics of large payment systems and the individual attributes of the participant. In the second part, based on the estimated payoff functions, we calculate the participants’ welfare changes (economic benefits) when LVTS is replaced by Lynx via counterfactual simulation.

Insights from this paper will inform Payments Canada’s ongoing payment modernization initiative.

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