In April this year, Payments Canada announced that “Canada’s Real-Time Rail (RTR) program resumes with renewed momentum.” With new partners like IBM Canada, CGI, and Interac, this development signifies progress for the payments industry. But what does it really mean? Ask the average Canadian about real-time payments, and many might say they already enjoy them!
“My paycheck comes every two weeks… That e-Transfer is instant… When I buy a new pair of shoes, the money is debited from my account right away.” This feedback, while not entirely accurate regarding how money flows, highlights both the challenge and opportunity the payments industry faces in explaining why RTR is worth the effort.
What is RTR?
The Real-Time Rail (RTR) system in Canada is an upcoming payment infrastructure designed to enable fast, secure, and data-rich transactions across the country. Managed by Payments Canada, RTR will support 24/7/365 availability, allowing individuals and businesses to make irrevocable payments in real-time—i.e., within seconds of a transaction being made.
This represents a step change in payments processing. While current payments technologies can seem fast, the reality is that transactions can sometimes take hours to process, and even longer for settlement and reconciliation. In that time, funds received may not be available to you, and a payment you thought was complete could still be cancelled.
As well, a key feature of RTR will be the incorporation of the ISO 20022 financial messaging standard, which ensures interoperability and rich data transfer with each transaction. This will streamline various payment processes, reduce reliance on paper-based methods, and support innovative financial services by third-party providers.
Why Should Credit Unions and Other Small-to-Medium Sized Financial Institutions Care?
Credit unions and other smaller financial institutions should care about RTR because it has the potential to be a positive game-changer for several reasons:
Enhanced Member Experience: By adopting RTR, credit unions can offer their members faster and more efficient payment options. Real-time payments provide instant access to funds in emergency situations, such as unexpected medical expenses, or in common scenarios like real estate transactions, where timing and certainty are crucial.
Staying Competitive: The RTR system can help credit unions stay competitive with larger financial institutions and fintech companies. Offering state-of-the-art payment solutions can attract and retain members who might otherwise turn to other providers with faster payment services.
Business Benefits: For credit unions that serve business members, RTR can significantly improve cash flow management and financial planning. Small businesses in particular can benefit from immediate payment settlement, reducing the wait time for funds and enabling more agile financial operations.
Operational Efficiency: Greater operational efficiency can be attained by reducing the reliance on outdated payment methods like cheques and traditional electronic funds transfers, which can be slow and cumbersome. This shift can streamline internal processes, reduce manual reconciliation efforts, and lower operational costs.
Risk Reduction: Although the idea of an irrevocable real-time payment might sound risky, it actually minimizes the risk of fraud and chargebacks associated with traditional payment methods. The ISO 20022 standard supports rich, structured, and comprehensive data in payment messages, which includes payment purpose, remittance information, and full beneficiary details. This enhanced data quality aids in better fraud detection and reduces ambiguities, improving transaction accuracy.
It will be important for smaller financial institutions and credit unions to stay engaged in the development of RTR—to ensure the design and regulations underlying Canada’s RTR system help level the playing field in terms of allowing smaller institutions like credit unions to participate and compete with the big banks. Organizations like PPJV, PAA and CCUA are engaged with Payments Canada on this issue.
How will RTR work?
The standards for RTR are being developed by Payments Canada in collaboration with the aforementioned partners and in consultation with financial services companies. RTR will become a basic feature of Canada’s digital payments infrastructure that can be accessed by financial institutions including banks and credit unions who qualify for Payments Canada membership in accordance with the Canadian Payments Act.
While technical and security standards and timelines are still being finalized, financial institutions will need to be prepared. Plugging into this infrastructure will require scalable and flexible core banking systems, based on infrastructure that can handle high transaction loads and seamless availability. Financial institutions will also want to have robust fraud detection, data integration and analytics capabilities—systems that can analyze large amounts of data in real-time.
Organizations like PPJV are working with Canadian credit unions to develop these capabilities in time for the inevitable arrival of RTR in Canada.
What’s next?
An undertaking this significant with implications across the entire Canadian financial sector will take time to get off the ground. In its announcement, Payments Canada suggested that development will proceed in 2024 with testing to occur through 2025 and 2026. Financial institutions can put this time to good use by moving off aging infrastructure to robust server architecture and modernized cloud-based technologies, and paying close attention to further announcements by Payments Canada and its partners.
The renewed momentum for Canada’s RTR system is good news; it represents a significant step forward in the nation’s payment infrastructure. With partners like IBM Canada, CGI, and Interac, RTR is set to transform how Canadians experience financial transactions. While the average person might assume their current payment methods are already instantaneous, the truth is that RTR promises a level of immediacy and security previously unattainable. This will create new opportunities for financial institutions who embrace it.