The CEO of the Canadian payment systems supervisor on revamping the country’s payment rails and how the ISO 20022 standard will drive future innovation.

Tracey Black

Tracey Black

In 2015 Canada embarked on a “very audacious” multi-year programme to modernise all its payment rails at the same time, according to Tracey Black, president and CEO of Payments Canada, which oversees the national payment systems. “We opted to upgrade or replace our existing payment systems, and build a new real-time system,” she says.

The programme began with a revamp of the retail batch payment system, introducing a new risk model and adding a third settlement window. Payments Canada also relaxed participation requirements to allow direct access to a wider group of members.

Career history: Tracey Black  

2020 Payments Canada, president and CEO

2018 Payments Canada, executive director of modernisation

2015 McKinsey & Company, management consultant and external advisor

2007 GFH Group, president

In addition, its high-value payment system upgrade is “ticking along”. The new system, Lynx, will go live in mid-2021. “We’re replacing our homegrown system with an application from [Italian technology infrastructure company] SIA and its subsidiary Perago, with IBM acting as our lead technology partner,” says Ms Black. “As part of this upgrade, we’re changing the risk model and moving to a real-time gross settlement system.”

ISO 20022 is an important part of the upgrade, and Payments Canada was ready to support the messaging standard at Lynx’s launch next year. However, in March Swift decided to delay the ISO migration date until the end of 2022, which means Lynx will launch with Swift MT messages and upgrade to MX in 2022.

Settlement in seconds

Payments Canada is also building an instant payment system, called the Real-Time Rail (RTR), which will launch in 2022. “We thought originally that we would implement the RTR in phases, but then we realised that it was more efficient for us to wait until the high-value payment system was in place and go with a bigger release,” says Ms Black.

RTR will move money 24/7/365, irrevocably and in seconds, as opposed to minutes or hours, which is a whole different paradigm, she says. It is a pre-funded risk model with line-by-line settlement, which reduces much of the risk in the payment. This model will allow Payments Canada to provide access to a broader range of participants including payment service providers (PSPs).

The computing power that is required to support higher transaction volumes makes blockchain a challenging solution for a retail system

Tracey Black

To mitigate the risk of incorporating new participants, Payments Canada split out exchange and clearing and settlement. As such, there is a tiered participation structure: a Payments Canada member can be a direct participant into the exchange with the ability to initiate a payment; a member can also be a direct or an indirect participant to settle a payment. To qualify for an RTR settlement account, participants will need to meet stringent requirements defined by the Bank of Canada (BoC).

Ms Black believes that broader access will help to drive innovation. “We will see increased competition and the introduction of new products, not only by our traditional members, which are financial institutions, but also by PSPs once they are permitted to be Payments Canada members,” she says. “We hope to see innovative products and services implemented to support business payments, not just retail payments.”

The RTR will support ISO 20022 at launch, which is essential for several reasons, according to Ms Black. “Obviously, we need a domestic system that can communicate and support cross-border payments. Any system that’s being launched today is going to speak ISO,” she says. “But there are many other benefits of ISO 20022, such as the ability to have the transaction data travel with the payment. This will provide greater efficiencies for Canadians and Canadian businesses, such as immediate reconciliation.” She expects to see some transaction types migrating from the retail batch system to the RTR following its launch.

Blockchain deliberation

Payments Canada looked at blockchain technology for its high-value payment system and ran three ‘Project Jaspers’ with several partners to understand whether blockchain was mature enough to support settlement. The short answer is “not in the foreseeable future”, particularly for the high-volume RTR.

“The computing power that is required to support higher transaction volumes makes blockchain a challenging solution for a retail system,” says Ms Black. “But we’ll keep our eye on it for our high-value system. And if it looks like it’s reaching a level of maturity where it becomes a viable solution then, of course, we would look at it again. Could we evolve to it? Absolutely, and we would figure out how to do that if it was the right choice.”

Payments Canada is keeping a close eye on the developments around central bank digital currencies (CBDCs). The BoC published a paper in February and deputy governor Timothy Lane has spoken publicly on the possibility of issuing a CBDC. “We’re watching the CBDC space to gauge the impact or any interoperability considerations that might be relevant,” she says.

Cloud technology is another area under close scrutiny. Ms Black says: “Everyone knows that the days of on-premise hardware are numbered. So, again, we are watching the maturity of cloud, monitoring the efficiency and cost savings that are possible, and ensuring that the security we require can be delivered.”



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