Payments Canada responds to consultation on financial sector competition
Read Payments Canada's submission to the Department of Finance's consultation on Strengthening Competition in the Financial Sector.
Payments Canada has responded to the Department of Finance’s public consultation on potential measures that the federal government could take to strengthen competition in Canada’s financial sector. This consultation seeks ideas on how to ensure consumers’ access to a broad range of affordable, innovative and consumer-focused services meet their banking needs. Feedback from this process will be considered in the development of policy, legislative and regulatory proposals.
In previous consultations, Payments Canada has supported changes to the Competition Act and Competition Bureau to enable more competition and innovation in the digital economy. More recently, Payments Canada and Canada’s payment industry actively called for and welcomed proposed amendments to the Canadian Payments Act as well as the finalization of the Retail Payments Activities Act regulations.
Payments Canada’s recommendations are consistent with previous consultations and advocacy. We support the Department of Finance’s commitment to strengthen competition in the financial sector and encourage ongoing collaboration between industry stakeholders and policymakers to ensure regulatory frameworks are adaptive and can accommodate the evolving needs and expectations of Canadians, Canadian businesses and the rapidly evolving Canadian economy.
Submissions to this consultation closed on March 1, 2024.
Read Payment Canada’s full submission below.
Written submission to the Department of Finance’s consultation on Strengthening Competition in the Financial Sector
Payments Canada welcomes the opportunity to provide input to the Department of Finance’s consultation on Strengthening Competition in the Financial Sector, 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 an innovative and thriving Canadian economy.1
Evolving payment ecosystem
The payment landscape is continuously evolving, driven by technological advancements, changing consumer preferences and global trends toward digitalization. To meet the needs of Canadians, Payments Canada is modernizing Canada’s payment systems and the associated by-laws, rules and standards that enable financial transactions to occur efficiently and securely every day. These modernization efforts help enable the Canadian payment ecosystem to remain globally competitive in today’s digital economy.
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 more open, risk-based access to Payments Canada’s systems. This was further emphasized in the Competition 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.
Following the introduction of the Retail Payment Activities Act (RPAA) and the expansion of the Bank of Canada’s mandate to provide oversight of Payment Service Providers (PSPs),2 the federal government announced its intention to amend the Canadian Payments Act (CP Act) in the 2023 Fall Economic Statement. Proposed amendments to the CP Act will allow RPAA-registered PSPs, credit union locals and clearing houses of designated financial market infrastructures to become members of Payments Canada. Members of Payments Canada that meet payment system participant requirements are able to participate directly in our payment systems.
Amendments to the CP Act will enable more regulated entities to actively participate in Payments Canada’s systems and offer new innovative products and services to Canadian businesses and consumers. In addition to improving competition and choice, these changes will ensure a greater line of sight for policymakers and regulators about what is happening within the payment sector, thereby enhancing risk management and supervision.
Moreover, in line with the global migration toward data-rich payments, Payments Canada has been leading the effort in Canada to implement a global messaging standard called ISO 20022.3 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, PSPs, credit unions and small and medium enterprises will be able to provide more personalized, innovative and competitive services to Canadian consumers.
The rise of the digital era has brought significant changes to the payment ecosystem and the Canadian economy. 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.4 Doing so will help ensure that Canadian businesses can compete on a level playing field with their counterparts. In 2023, Payments Canada issued a response to Innovation, Science, and Economic Development’s (ISEDs) consultation on the Future of Competition Policy in Canada. Payments Canada believes that changes are needed to the Canadian Competition Act to address anti-competitive behaviours that are unique to the 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.
Payments Canada’s views on the Department of Finance's consultation
Q5) Measures to support a stronger tier of smaller, disruptive competitors (e.g., small- and medium-sized banks, credit unions, and fintechs).
The digital economy and the increased availability of data present new and unique challenges for smaller competitors in the financial sector. As the financial sector continues to evolve, strong competition policies can ensure that all market participants have an equal opportunity to compete within the digital economy. In line with other G7 countries, Canada must continue to amend its competition policies to address the unique anti-competitive behaviors introduced by the evolving digital economy. Recognizing that the Government of Canada is currently in the initial phase of reviewing and updating competition policies, Payments Canada will continue to actively participate in discussions with the Department of Finance to provide advice on competition policies in Canada.
Payments Canada’s modernization efforts also aim to support small and medium-sized enterprises to remain competitive in the payment ecosystem and broader financial sector. Notably, amendments to the CP Act will expand Payments Canada’s membership eligibility, enabling RPAA-registered PSPs, credit union locals and financial market infrastructures to participate in Payments Canada’s systems and offer new innovative products and services to small and medium-sized businesses and consumers.
The introduction of the Real-Time Rail (RTR) will also increase competition by enabling existing and new entities to enter the market and offer new payment products and solutions. These changes will particularly benefit small and medium-sized enterprises in Canada by broadening their access to financial service providers, promoting innovation, reducing operating costs and improving cash flow management.
Q5.2) How can the federal government’s commitment to deliver Consumer-Driven Banking, also known as open banking, support competition in the financial sector?
Consumer-driven banking will enable consumers and small businesses to share their financial data with a broader range of financial service providers through secure online channels. The introduction of consumer-driven banking will allow financial institutions to increase their service offerings and enable consumers to access new, innovative and consumer-centric services, increasing competition in the financial sector.
In the 2023 Fall Economic Statement, the federal government announced its intention to introduce its legislative framework for consumer-driven banking in Budget 2024.5 This framework will enable consumers to securely and confidently access their financial data and safely use services that can help them improve their financial outcomes.
As the federal government moves forward to codify key elements of the consumer-driven banking framework, Canada should have a cohesive framework with a clear, fair and transparent approach to accreditation to support the security and stability of the financial sector and promote economic growth and international competitiveness.
Additionally, the government should ensure that the framework outlines a clear approach to scope and functionality, specifically as it relates to a write access function. This feature will allow third-party providers to modify a consumer's financial data on a bank's server, enabling financial institutions to offer services such as initiating payments on behalf of a client. The implementation of the write access function in the consumer-driven banking framework could lead to greater service offerings and competition in the financial sector.
Q5.3) How could Real-Time Rail support competition in the financial sector?
Payments Canada has been leading the effort to introduce Canada’s new real-time payment system, the Real-Time Rail (RTR). In addition to enabling faster, data-rich payments, the RTR will increase competition and innovation within the financial sector by enhancing efficiency, reducing costs and enabling the participation of new entrants on the RTR.
According to a recent study conducted by the CD Howe Institute,6 the RTR is expected to support competition in the financial sector by enhancing efficiency and reducing costs. The introduction of the RTR in Canada is expected to displace inefficient payment methods like cheques and cash, leading to a decrease in aggregate operational costs for retail payments. This reduction in costs can create a more competitive landscape among financial service providers, encouraging them to offer more competitive pricing and services to customers. Additionally, by minimizing the delay in payment processing, the RTR will ensure that consumers and businesses have faster access to funds. This increased speed and efficiency can contribute to a more dynamic and competitive financial sector as PSPs can differentiate themselves through improved transaction speed and overall customer experience. Given these benefits, the study argues that the efficiency gains associated with the introduction of the RTR in Canada are estimated to range from $3.24 to $7.01 billion over the first five years after introduction of the system.
Additionally, the RTR will allow existing and new entities to offer new real-time payment products and services to their clients.7 This will increase competition by supporting the introduction of enhanced payment innovations and solutions for Canadian businesses and consumers.
Conclusion
Ensuring fair competition in the financial sector can help provide all market participants with an equal opportunity to compete and innovate both domestically and globally. This includes taking measures to ensure competition policies are clear, fair and transparent to allow for the integration of new market participants and products in the financial sector.
Payments Canada supports the Department of Finance’s commitment to strengthen competition in the financial sector. We encourage ongoing collaboration between industry stakeholders and policymakers to ensure that regulatory frameworks remain adaptive, safe, effective and accommodate the needs of the rapidly evolving Canadian economy.
1 Payments Canada Mandate
2 About retail payments supervision mandate
3 More on ISO 20022
4 More on updates to US Competition Policies
5 2023 Fall Economic Statement: Policy Statement on Consumer-Driven Banking
6 The need for speed: The benefits of faster payments and how to achieve them
7 The need for speed: The benefits of faster payments and how to achieve them
