Mod Blog: A real-time what? Inspiration from across the pond(s)

By Jan Pilbauer, Executive Director of Modernization & CIO

Since Canada set off on our Modernization journey, we have talked a lot about faster payments, a.k.a.  the real-time rail. And, while I’m pretty sure the concept is quite familiar for those of us in the payments space who love exciting words like “deferred net settlement” and “bilateral exchange” and “liquidity savings mechanisms,” I am coming to learn that not everyone speaks this language. So how does one explain a real-time rail to those who stand to benefit the most – Canadian households and businesses? Let’s give it a shot.

Today we are experiencing what I call a “one-click” revolution. When I need more laundry detergent, I can hit a button on my machine and Amazon delivers a replacement the next day. When I download an app, I place my thumb on my iPhone and the deed is done. When I get out of an Uber, I skip the click all together!

But, when it comes to payments, we are far from one click. If I want to send you money, for example, I must log in into my bank account, key in my account number, set you up as a contact, create a security question, make sure you know the answer and, finally, I can send you some money. That’s six steps – on my end. It’s almost as many for you to get that money. In a one-click society that just won’t do. It’s a simple example, and improvements are being delivered, but this “friction” can actually have negative effects for our economy when the whole world is moving ahead at a one click rate.

Canada is one of thirty-or-so countries that has already implemented or is in process of implementing a new real time payments capability or other modern payments system, and we are inspired by the innovations these broader changes have enabled. In the UK, for example, Pingit / Paym links your mobile number with your bank account, meaning users can ping money back and forth as easily as they text. In Australia, it is looking like BPAY will transform how people pay their bills with just a touch of their phone.  In India, a new service in the works will allow residents to pay merchants with just their thumbprint.

Even cooler are the payments innovations that are changing lives, such as the “Helping Heart” jacket. A Dutch agency has been testing a jacket that is equipped with a contactless terminal and allows passersby to tap their contactless cards and make a €1 donation. The wearer can then redeem those funds at official homeless shelters for a place to sleep, a shower or food. At Payments Canada, we call this kind of innovation “payments with purpose” and we are really excited to see what comes to fruition here in Canada with the introduction of a real-time payments capability.

So, what exactly is a real-time capability? It’s an always available payment system that delivers funds in a matter of seconds. For businesses, it can improve cash flow, give them the ability to pay immediately when they need to and provide an option to credit cards and cheques. For consumers it means simpler, faster and more convenient payment options to choose from. And for financial institutions and payment service providers, it’s a platform for innovation, creating more opportunities to deliver value to customers. And we know from our recent research that Canadians are excited about this kind of change.  In fact, 66 per cent of Canadians are willing to let go of cheques and 50 per cent are willing to let go of cash for more convenient digital payment methods.

Canada’s real-time capability is one of the five key pillars in our Modernization plan. We are in the process of evaluating a potential service provider and we hope to begin development of a faster payments rail next year. It’s our job as a public purpose organization to deliver a system that meets the needs of Canadians, needs that were identified in our cross-country consultation with more than 100 organizations representing consumers, businesses, governments and financial institutions.  I personally look forward to bringing this exciting new platform to the marketplace, and I can’t wait to see how the industry will leverage it to build incredible Canadian experiences.

Jan Pilbauer is Payments Canada’s Executive Director, Modernization and CIO. In this role, he leads the modernization of the Canadian core clearing and settlement payment infrastructure, including implementation of ISO 20022. He also sets the strategic direction for the information technology at Payments Canada.