Financial institutions welcome evolving payments ecosystem

Canada stays at forefront of payments evolution with Lynx high-value payments and Real Time Rail

Financial institutions welcome evolving payments ecosystem

CANADIAN FINANCIAL INSTITUTIONS are preparing for significant changes to the payments system. The “Lynx” high-value payments system integration should launch this fall, and “Real Time Rail” in 2022. RTR will allow Canadians to make and receive irrevocable payments within seconds, day or night, 365 days a year. The new systems are a part of Canada’s payments modernization process, allowing Canada to be competitive in the global digital payments ecosystem.

In addition to processing large-value payments with real-time settlement finality, Lynx will support several outcomes that will benefit Canadian financial institutions and their clients. It will also support flexibility for future technologies, including interfaces and application program interfaces, and enhanced cyber security and resilience capabilities, according to Anne Butler, former chief external relations and legal officer at Payments Canada. The first of a two-part release of Lynx will consist of a new real-time gross settlement system. 

Payments Canada has met several critical project milestones in collaboration with technology partners IBM and SIA, as well as 16 financial institutions which will be participating in Lynx. This process includes the completion of extensive industry testing. 

“In preparation for Lynx and Real Time Rail, legal departments at financial institutions should understand the new rules, the impact of enhanced data moving with payments — both risks and benefits — and collaborate with product teams to help them take full advantage of the new features and functionality to support enhanced customer experience,” says Butler. 

As one of the financial institutions participating in Lynx, CIBC’s legal department played a crucial role in working with industry representatives to address targeted issues that arose throughout the planning process. These issues related to applying rules across jurisdictions, including anti-money laundering requirements and participants’ privacy and contractual obligations. The legal team at CIBC was also a key contributor in mapping out the impacts of Real Time Rail. The team assessed liability, governance and oversight opportunities and the impact of evolving laws such as the proposed Retail Payments Activities Act, or proposed amendments to the Personal Information Protection and Electronic Documents Act. 

“The ability to transmit increasing amounts of data securely with a payment will help business clients build efficient processes to manage their business more easily,” says Kikelomo Lawal, executive vice-president and chief legal officer at CIBC. “We also continue to look to expand on the additional opportunities that immediate funds and payment data provide for consumer clients.”

CIBC is exploring additional services that can come from including data with payments and consulting clients to help the bank better understand how they will use the data and what services will provide the most value to them. 

Canada is recognized as a leader in digital and payments innovation, as a pioneer of chip and pin technology, contactless payments and e-transfers, so the modernization process is expected to enhance that reputation further. 

“A new modernized payment rail that is faster and enables the ability to send much more data with the payment will allow Canada to stay at the forefront of payments innovation,” says Lawal. Ensuring the payments system is grounded in trust and aligned with clients’ rights concerning protecting their personal information is also a critical factor, she says.

Richard Shimoda, senior legal counsel at Scotiabank, has also played an essential role in providing input to Payments Canada’s by-laws and rules governing Lynx and Real Time Rail. He continues to advocate for the bank and monitor and advise the bank on legislative changes, including the proposed Retail Payments Activities Act. 

“Payments modernization, including the acceleration of payments and the standardization of data presentment through ISO 20022, will create tremendous opportunities for us to offer customers faster data-rich payments with the potential for cross-border interoperability,” says Shimoda.

The program will also create other benefits for both personal and business customers, Shimoda says, including enhanced efficiencies through streamlined matching and reconciliation of payments and new value propositions that take advantage of paying and getting paid instantly.

Shimoda plans to continue monitoring a host of legal, compliance and privacy issues accompanying the new payments system. The legal team at Scotiabank will continue to be diligent in monitoring payments and up to date with existing and changing requirements under anti-money laundering legislation while ensuring that supporting technology and operations remain current and robust. 

“The payments modernization program in Canada is acting as a catalyst for a whole new level of changes and innovative products that will deliver value to Canadians while ensuring Canada remains competitive on a global scale,” says Shimoda. Scotiabank is well-positioned to deliver digital payment services that will enable new opportunities for partnerships in the evolving payments ecosystem, he says. 

Butler says Lynx will help provide new services to benefit participants and improve the customer experience through enhanced cybersecurity and resiliency capabilities. Real Time Rail will act as a platform for innovation, allowing financial institutions and payment service providers to develop improved and new ways for all Canadians to pay for goods and services and transfer money, she says. 

“Having modern, flexible payments systems that are aligned with global standards is also a key enabler for improving the cross-border payment experience, which is an area of important focus internationally — for customers, payment service providers, financial institutions and regulators,” adds Butler.

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