December 14, 2023 – Canada is lagging behind peer countries in implementing fast payments for transactions that involve consumers, merchants and financial service providers, says a new report from the C.D. Howe Institute. According to the study, the introduction of the Real-Time Rail (RTR) Fast Payment System in Canada will add over $3 billion to the Canadian economy over the first five years, with consumers reaping significant rewards.
In “The Need for Speed: The Benefits of Faster Payments and How to Achieve Them,” authors Jeremy M. Kronick and Thorsten Koeppl analyze the current state of Canada’s retail payments landscape and describe how Canada will benefit from moving towards faster payments, which means that payments will be made in real time so that they’re cleared and settled immediately. Additionally, immediate confirmation of funds transfer and settlement gives payees certainty about having received the funds in a secure manner.
“These [economic] gains will arise mainly from the displacement of inefficient means of payments such as cheques and cash, as well as the reduction of float, which arises because of a delay in payments processing,” said the authors. “One can view building the RTR as a catalyst in modernizing the Canadian retail payments landscape and bringing it inline with other real-time payments architecture found in many advanced economies.”
The introduction of real-time payments will affect how Canadians pay for goods and services. Funds will move faster between payors and payees, with funds being exchanged and settled within seconds.
In order to ensure that the implementation of RTR moves forward and becomes a success, the authors look at the effects of technology, economics, and regulation. On the technology side, the authors argue that Canada must operationalize the settlement engine. Similarly, on both the economics and regulation, the overall success of the RTR will depend on how well it can compete against other retail payment systems. Here, absent increased transparency by merchants in the pricing of different payment methods, the government should look at the possibility of regulating interchange fees, and, alongside, develop a holistic regulatory approach to retail payment systems that takes into consideration non-bank payment service providers.
The RTR is a unique opportunity not only for building a modern foundation for retail payments, but also for rethinking parts of the infrastructure of the entire Canadian financial system.
“It is time for the federal government, together with Payments Canada, to bring the RTR, with its broader agenda, finally to life.”
For more information, please contact: Jeremy Kronick, Associate Vice President and Director of the Centre on Financial and Monetary Policy, C.D. Howe Institute; Thorsten Koeppl, Professor of Economics at Queen’s University, where he is a Robert McIntosh Fellow and RBC Fellow and Fellow-in-Residence, C.D. Howe Institute; and Gillian Campbell, Communications Officer, C.D. Howe Institute at gcampbell@cdhowe.org.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.