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15 March 20213 minute read

Payments in Canada update: Interac selected as the exchange solution provider for Canada’s new ‎real-time payments system‎

On March 2, 2021, Payments Canada announced the selection of Interac Corp. (“Interac”) as the exchange solution provider for Canada’s real-time payments system, the Real-Time Rail (“RTR”). The announcement follows a selection process that included participation from the Bank of Canada.

Interac has been described as “a well-suited partner” for the task. The company is set to use the already existing technology behind its Interac e-Transfer service, a service that millions of Canadians use daily to connect to almost 300 financial institutions in the country, to build the exchange component of the RTR.

Canada’s new RTR will provide 24/7/365 payments that are final and irrevocable. Currently, Canada has a near real-time money transfer service for individuals and small businesses that is offered by most financial institutions in Canada. Under the current system, payments are typically received within 30 minutes. With the new RTR system, payments will occur instantaneously and will be secure and irrevocable, ensuring they are final.

The RTR is expected to go live in 2022. While consumers may not notice a major difference, there will be a number of significant changes at the payments level.

Currently, when an individual transfers money to another, it shows up in the receiving account within minutes, but the money does not actually move accounts right away. One bank is effectively loaning money to another.

With the RTR, payment will be settled and finalized within seconds, allowing the dollar limit on those transactions to reflect real-time balances. The RTR will also use the global standard ISO 20022 messaging, which will allow much more information to be attached to a commercial payment.

The RTR will consist of two components, an exchange component, which Interac will now take charge of, and a clearing and settlement component. Mastercard-owned Vocalink was selected last year to operate the settlement component.

What remains unclear is how the choice to work with Interac will affect smaller Canadian FinTechs. The hope among FinTechs is that the RTR will be easily accessible for these companies, providing more opportunities for innovation and competition in the payments space and potentially leading to the launch of new payment products for consumers.

Historically, there have been many barriers to FinTech start-ups accessing the e-transfer rails, while the system has been easily accessible to the traditional incumbent Big Five banks. But Payments Canada, the organization that owns and operates Canada’s payment clearing and settlement infrastructure, has stated that it views that new RTR as an opportunity for players in the payments ecosystem to innovate.

As the launch date for the RTR nears, Payments Canada will likely release more information about the RTR framework, which will provide further insight into how FinTechs will be able to participate in the new payments system. Please stay tuned for more updates from DLA Piper’s Finance team as new information about the RTR is made available to the public.

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