Lynx: Canada’s new high-value payment system

*This article was originally published in Financial IT’s Special Sibos 2022 issue on October 10, 2022. For more information about Financial IT, please visit financialit.net.

An interview with Mike Hoganson, Director, Lynx, at Payments Canada

Financial IT: Mike, could you please briefly explain the history of Lynx, in the context of where Canada’s high-value payment system has come from and where it is going?

Mike Hoganson (MH): In 2016, Payments Canada released the Vision for the Canadian Payments Ecosystem. To support the long-term growth of Canada’s economy and payment needs of today and in the future, a fundamental part of this Vision was the introduction of a new high-value payment system.

Planning for this new system began in 2017, in partnership with various stakeholders- including the Bank of Canada, our regulators, our members and our technology partners. To mitigate risk, a decision was made to release Lynx in two stages.

In Summer 2021, Payments Canada successfully launched the first release of Lynx to replace the Large Value Transfer System (LVTS), which served as Canada’s high-value payment system for over 20 years. This first release included a new risk model and new technology (application and infrastructure). Release Two will take place in November 2022, and will deliver end-to-end support for ISO 20022 messaging standard that will enable data-rich payments.

Financial IT: Does this mean Lynx is all about ISO 20022?

MH: Yes and no. Lynx, first and foremost, is about safety and soundness and effectively managing the settlement of high-value payments.

When we embarked on the modernisation journey, we realised that Canada’s payment systems could and should be able to handle much more data and offer more reporting capabilities. By the end of this year, that will include ISO 20022 messages, which can incorporate structured remittance data such as purchase order details, invoice reference numbers and much more.

Lynx is very data-rich relative to LVTS. The financial institutions that use it have access to key metrics in real-time, as well as databases that underpin historical reports. The wealth of data and enhanced reporting capabilities available - and not just because of the move to ISO 20022 messaging - are some of the key benefits of the Lynx system.

Financial IT: What are the other key features of Lynx that you would highlight?

MH: First off, I’d note that Lynx is designed as an open and accessible system. It can and does capture most of the value that is exchanged daily through the payment systems in Canada. In terms of hard numbers, in its first year of operations, Lynx cleared and settled over 12 million payments valued at $115 trillion - or an average of just under 50,000 items worth about C$500 billion daily.

Although it is a high-value payment system, there are no minimum volume or value requirements for participation.

Any deposit-taking financial institution that is a member of Payments Canada can be involved with Lynx. There are four conditions for involvement. The member institution in question must: maintain a settlement account at the Bank of Canada; be able to pledge the necessary collateral to the Bank of Canada for Lynx purposes; meet the technical requirements that are set out in the Lynx Rules; and be a member of SWIFT. There are some institutions that are not directly involved with Lynx but access the system via institutions that are directly involved.

There are also new APIs, which provide Lynx participants with the ability to integrate directly with the system, making use of cutting-edge technology and gives the system flexibility.

In addition, we have had to focus on risk and governance processes. We have had to ensure that a completely new stack of technology will work reliably and understand the risks for each participating institution.

Financial IT: The focus on risk required a lot of testing, right?

MH: Definitely. The launch of Lynx was a significant collaborative effort. As a part of our preparation for Lynx, Payments Canada tested the system in partnership with our technology partners, IBM, Nexi and SWIFT, the Bank of Canada and our 16 participants over five months. We looked at all kinds of contingencies in order to identify fallback solutions. We only launched Lynx once the testing had confirmed that the system was ready to go live.

At this point, I’d note that we were ready to go live at the time that we had originally envisaged. I am very proud of the dedication and professionalism of the team at Payments Canada. Thanks in part to our very strong relationships with the participants and in part to our ability to work remotely, the COVID-19 pandemic had no impact on our go-live date.

Financial IT: What would be your ‘elevator pitch’ description of Lynx?

MH: Lynx is Canada’s high-value payment system. Based on the real-time gross settlement (RTGS) model, Lynx processes large value, time-critical payments with real-time settlement finality. Relative to its predecessors, it is rich in terms of the data that is provided to participants. It will be fully aligned with SWIFT’s ISO20022 protocols by the end of 2022.

From the point of view of the Bank of Canada, Lynx is a systemically important payment system under the Payment Clearing and Settlement Act. Lynx makes possible the safe sending of large-value payments. It is also a critical part of the infrastructure through which the Bank of Canada executes monetary policy. For these reasons, Lynx plays an absolutely central role in the economy.

Financial IT: Thank you.

Payments Canada is a public-purpose, non-profit company that is fully funded by its members. Employing around 270 full-time staff, its headquarters is in Ottawa and it has an office in the financial district of Toronto.

Payments Canada supports Canada’s financial system and economy by owning and operating the country’s payment clearing and settlement infrastructure, including the relevant by-laws, rules and standards.