While Europe and the U.K. move forward with open banking initiatives, and the U.S. makes progress on faster payments, Canada is in the midst of its own payments evolution. Payments Canada, the organization that operates the nation's payments clearing and settlement system, has commenced a modernization initiative aimed at efficiency and speed of transactions.
Though Payments Canada first announced its plans to enhance Canada's payments infrastructure in December 2016, the nation's financial services industry has just made its first concrete move as part of the modernization initiative. This week, banks across the country added a third exchange window for companies making electronic funds transfer (EFT) payments in the Canadian dollar.
What that means is business customers of banks now have another opportunity to submit payment files to complete a transaction. It's one step toward faster payments and, according to Rania Llewellyn, EVP of Global Business Payments at Scotiabank (one of the Canadian financial institutions [FIs] implementing the third exchange window), it's also a step toward delivering a better overall payment experience for businesses.
In an interview with PYMNTS, Llewellyn explained how this first industry deliverable for Canada's Payments Modernization efforts will impact company cash flows.
"It impacts all business clients, if they want to do payroll or vendor payments," she said. "The industry, as a whole, we currently only have two exchange windows — it's a specific cut-off time by which we need to receive a payment file in order for us to process it."
The third exchange window offers small businesses (SMBs) and corporates a chance to submit their payment files later in the day if they missed those first two windows, she continued, noting that this is particularly useful to west coast companies operating in a later time zone.
"It will help them get quicker access to working capital," said Llewellyn.
While the underlying infrastructure of EFTs will not accelerate, allowing businesses another opportunity to initiate a payment can limit restrictions for firms that have to wait until the next day to submit a payment file. Still, accelerated payments remain one of several focal points for Payments Canada.
The industry is working to implement a real-time payments (RTP) system, currently dubbed the Real-Time Rail, which will facilitate real-time delivery of low-value payments. The project is currently in the building and testing phase, with plans for a full market launch sometime in 2019 or 2020. Since the Real-Time Rail will not facilitate real-time, large-value payments (at first, anyway), it's unclear how the project might affect B2B payments.
However, recent reports in IT World Canada highlighted part of the RTP push that may have a broader impact on corporate transactions. The industry will be working to establish data messaging standards and implementing ISO 20022, allowing FIs to exchange key data about a payment and funds as they move.
In addition to speed and transmission of data, other key components of the modernization project include features that businesses have been calling for, including greater efficiencies and choice. A survey released in March from Payments Canada's "Payments Pulse: Small Business Survey Edition" revealed the majority of entrepreneurs agree that evolution of the nation's payments industry is important. Most noted, they spend too much time processing payments, with the majority wanting to move away from cash and checks in favor of digital payment rails and other payment technologies.
"There appears to be a higher demand for faster alternative methods as most business owners are willing to move away from cash and checks — that is, once they have other options," said Payments Canada President and CEO Gerry Gaetz in a statement at the time.
In an earlier report, Payments Canada and Ernst & Young researchers found that companies of all sizes spend more than $5 billion on payment processing every year. Analysts pointed to both a lack of transparency and payment data availability preventing businesses from more efficient reconciliation and stronger cash flow management capabilities — highlighting more points of business payments friction that modernization efforts will aim to address.
According to Llewellyn, the opening of a third exchange window for EFT payments bolsters businesses' ability to put the cash that they have to good use.
"It will give them quicker access to working capital," she said. "At the end of the day, cash is king, and making sure you can improve your working capital is not just important to us as a bank, in terms of providing service to our customers; it's crucial to the survival of our customers."
She added that Scotiabank, along with the rest of the FIs across Canada working with Payments Canada, will continue to collaborate to target more pain points of business clients moving forward — including treasury management, vendor payments and business relationships.
"It's about how we position ourselves to be a value-added advisor to customers," said Llewellyn. "Clients are excited to see what's next to come."