Payments Canada provides input on the Competition Act

Payments Canada has submitted its response to Innovation, Science and Economic Development Canada (ISED) public consultation on the Competition Act and the future of competition policy in Canada.

In today’s globalized economy, competition policy has become increasingly important. As the payment industry evolves and expands rapidly, it is critical that Canada keeps pace with global competition policy advancements. Doing so will help ensure that Canadian businesses can compete on a level playing field, and consumers can benefit from fair, efficient, and innovative competition.

Payments Canada’s submission aligns with efforts to promote changes to the Canadian Payments Act that would broaden Payments Canada membership. Changes to the Canadian Payments Act are required to expand our membership to include RPAA-registered payment service providers, credit union locals, and operators of financial market infrastructures. To gain Payments Canada membership, these entities would need to meet regulatory requirements set by Parliament in legislation, and oversight requirements set by the government in regulations. This will ensure that competition can flourish, and that financial innovation happens within — and not outside — the regulated financial system. Broader access will increase competition and safe innovation in the Canadian payment ecosystem, meaning greater choice, speed and flexibility for Canadians and Canadian businesses in addressing their payment needs.

An effective and up-to-date competition policy, combined with these proposed legislative changes, can ensure that payment market participants have an equal opportunity to compete in today's evolving digital economy.

Read the full submission below:

Written submission to Innovation, Science, and Economic Development Canada’s consultation on the Future of Competition Policy in Canada

Payments Canada welcomes the opportunity to provide input to the Government of Canada’s consultation on the Future of Competition Policy in Canada, specifically as it relates to the payment ecosystem. In fulfilling its mandate as the owner and operator of Canada's national payment clearing and settlement infrastructure, Payments Canada envisions a payment ecosystem that is resilient, inclusive and enables fair competition to support a thriving economy.¹

Evolving payment ecosystem

The Canadian economy depends on the transfer of billions of dollars each day and Payments Canada plays an essential role in the safe and efficient operation of Canada’s payment systems.

Payments Canada is guided by its legislated mandate outlined in the Canadian Payments Act (CP Act) to establish and operate national systems for the clearing and settlement of payments; to facilitate the interaction of its clearing and settlement systems with other systems; and to facilitate the development of new payment methods and technologies. In pursuing this mandate, Payments Canada is required to promote the public policy objectives of efficiency, and safety and soundness of its clearing and settlement systems and take into account the interests of users.² As a public purpose organization, Payments Canada adheres to these public policy objectives and continually strives to provide world class service and value to member institutions.

In 2017, the Competition Bureau of Canada issued a report on Technology-led innovation in the Canadian financial services sector that highlighted the need for a more open, risk-based access model for Payments Canada’s systems. This was further emphasized in the Bureau’s 2018 response to Payments Canada’s consultation on the Modernization Target State, and submission to Finance Canada’s 2018 Consultation on the Review of the Canadian Payments Act.

Given the prevalence of digital payments and the acceleration of this trend over time,³ it is necessary that Canada have a policy toolkit that reflects the evolving payment landscape. It has been more than twenty years since legislative changes were last made, a time long before the proliferation of electronic funds transfers and digital banking.

This is changing, but slowly. Consistent with the introduction of the Retail Payments Activities Act and the expansion of the Bank of Canada’s mandate in this area to provide oversight of payment providers, similar changes are also required to the CP Act that will expand Payments Canada’s membership eligibility.⁴ This will enable broader risk-based access to its national payment clearing and settlement systems and encourage greater competition and functionality in the payment ecosystem.

These changes will enable other regulated financial institutions to more actively participate in the payment system, better reflecting the diversity of how Canadians save and spend. They are critical for the development and launch of subsequent real-time payment infrastructure and bring Canada closer in line with the policy and tools in use in other G7 countries. In addition to improving competition and choice, they will also ensure greater line of sight for policymakers and regulators about what is happening when, in payments, thereby enhancing risk management and supervision.

The United States has been a global leader in advancing competition policy and payment system enhancements,⁵ while maintaining high regulatory standards. In recent years, the United States has implemented measures to promote competition and functionality that have led to a more competitive market which benefits consumers through lower prices and increased access to better products and services. Canada, however, has been slow to implement similar competition policy enhancements.

In today’s globalized economy, competition policy has become increasingly important. As the payment industry continues to rapidly evolve and expand, it is critical that Canada keeps pace with competition policy advancements in the United States and other G7 countries. Doing so will help ensure that Canadian businesses and consumers can compete on a level playing field with their counterparts, and countries can benefit from fair, efficient, and innovative competition.

The United States has been actively updating its competition policy framework in recent years. In 2021, President Biden signed an Executive Order to establish a whole-of-government effort to promote competition in the American economy. The executive order aims to increase competition across all sectors of the economy, including the payment industry, while also maintaining and strengthening regulatory oversight. By promoting competition, the government can ensure that consumers have access to safer and more secure payments. For example, the executive order encourages the Consumer Financial Protection Bureau (CFPB) to issue rules to facilitate consumers’ ability to transfer their financial data to third-party apps. This will enable consumers to easily compare and switch between different payment providers, while being informed and in control of their own data and how it is used. In 2022, the CFPB took a further step by launching the Office of Competition and Innovation to identify obstacles for new market entrants and to promote innovation.

The global economy is being reshaped by digital technology, changing user demands, new entrants and evolving regulatory oversight. The growth of Canada's digital economy and the rise of electronic payments have created a need for more information to travel along with the payment message. Globally, investment is focused on the implementation of real-time payment infrastructure and the adoption of global, data-rich messaging standards.

As part of Payments Canada’s multi-year modernization initiative,⁶ Payments Canada has recently introduced a global messaging standard called ISO 20022.⁷ The adoption of ISO 20022 and the introduction of data-rich payments in Canada are expected to provide several benefits to Canadian businesses and consumers, including improved fraud prevention, enhanced data analytics capabilities, and more efficient payment processing. Additionally, with more data-rich payments, financial institutions, payment service providers (PSPs) and small and medium enterprises (SMEs) will be able to provide more personalized and competitive services to consumers, which will drive competition and innovation in the Canadian economy.⁸

Payments Canada’s views on the Government’s consultation 

Unilateral conduct
The digital economy and the increased availability of data present new and unique challenges under the unilateral conduct provisions of the Competition Act. Ensuring legislation is effective in addressing unilateral conduct is important for Canadians.

Consistent with the objectives outlined by the Government in launching this review, including the need for an adaption of rules to our new digital reality,⁹ changes are needed in the Competition Act to better address the misuse of data and prevent de facto dominant behavior in the rapidly evolving digital economy. The Competition Bureau should have more power to address and prevent dominant or joint dominant behaviors, specifically those that pertain to the use of data and those that are preventing, or could potentially prevent competition in the payment ecosystem. Additionally, to ensure that the Canadian competition framework remains relevant within the digital economy, the Competition Act should be reviewed regularly to better address dominant or joint dominant behaviors in the evolving digital economy.

Admission and enforcement of the law
The rise of the digital economy is reshaping the dynamic of competitive behavior in the Canadian market, which could impact Canada’s payment ecosystem dynamics. Consistent with tools to address digital/data misuse, the Bureau can and should play a more robust role in the enforcement of the Act.

Conclusion

Competition policy can ensure that all market participants have an equal opportunity to compete and innovate. This includes measures to ensure access to necessary infrastructure and data, and preventing anti-competitive practices such as predatory pricing and exclusive agreements. Additionally, providing resources and support for small and medium businesses and new market entrants promotes a level playing field.

Payments Canada supports the Government’s review of the Competition Act to better address areas of unilateral conduct and supports the proposed changes to the Bureau’s administration and enforcement power.

In addition to the legislative updates required to expand participation in Payments Canada systems, a robust competition framework is needed to ensure that financial system players act in a way that delivers the full benefits of payments Modernization to Canadians, and puts Canada on par with the United States and other international peers.

Appendix

ISO 20022 is an international standard designed to simplify global business communication.

The standard enables efficient payment clearing and settlement among financial institutions globally through the use of a common set of messages and language that the institutions agree to use in a consistent way. It allows participants and systems across different financial markets (e.g. payments, securities, foreign exchange, cards) to communicate using consistent terminology or syntax, which supports interoperability and more remittance information within the payment message.

Payments Canada aims to provide businesses and consumers with more efficient and secure payment systems that support real-time processing and settlement. The adoption of ISO 20022, will support the inclusion of additional data such as invoice details, product information, and other transaction-specific data and will also improve fraud prevention, enhanced data analytics capabilities, and allow for more efficient payment processing.

By implementing this new standard, Payments Canada aims to enable faster and more efficient payments and ensure that Canada’s payment systems remain modern, secure, innovative and competitive in today’s global digital economy.

¹ Payments Canada mandate
² Ibid
³ Cash transaction volumes decreased by 62 per cent from 2016 to 2021
⁴ Payments Canada calls for expanded membership eligibility
⁵ Federal Reserve announces July launch of the FedNow service
⁶ Payments Modernization Roadmap
⁷ More on ISO 20022
⁸ See Appendix for more information on ISO 20022
⁹ Minister Champagne maintains the Competition Act’s merger notification threshold to support a dynamic, fair and resilient economy