By Kellie Johnson
Instant payments are on the horizon for Canada, with industry testing for Canada’s Real-Time Rail set for 2026. Kellie Johnson, SVP of Payments in the Americas at RedCompass Labs, offers insights on how Canadian banks can prepare for the launch of the Real-Time Rail.
The global race to instant payments is already well underway, with India and Brazil taking the lead. 300 million people now use India’s instant payment system, UPI, monthly, and over 160 million use Brazil’s platform, PIX.
Canada is playing catch-up, as around 100 countries are already covered by an instant payment scheme. However, after multiple setbacks, Canada’s Real-Time Rail (RTR) will be completed imminently.
Canadian banks must now ready themselves for the launch of the RTR, drawing valuable lessons from others who are further ahead in their instant payments journey.
Customers push for instant payments
Demand for instant payments is skyrocketing around the world. Research by RedCompass Labs recently has shown both the EU and the US are seeing a huge surge in interest, with 89 percent of European bankers saying there is growing demand for instant payment products and services.
In the US, 99 percent of bankers surveyed say they feel some level of expectation for instant payments from their customers. This is despite less than a third of US banks currently having the ability to offer instant payments to their corporate clients.
Modernizing their existing payments infrastructure to meet this demand is proving to be a key challenge. Banks need to not only modernize the core payment systems but also upgrade client channels, core banking, fraud and middleware, which is no small feat.
Banks will also need to cover downtime and system outages while continuing to record and synchronize data accurately, in real-time, across various channels. The systems also need to be scalable, interoperable, and secure.
Both EU and US banks are concerned about what this means in practice, and Canadian banks should be weary too. Processing more volumes and scaling throughput, updating legacy infrastructure, 24/7 availability, and fraud are among bankers’ top concerns.
Meeting the demand
In Canada, there were more than one billion e-transfer transactions in 2022. Online transfers have grown 328 percent in the past five years, according to Payments Canada’s Canadian Payment Methods and Trends Report 2023.
These will move to the RTR when it goes live and unlike other countries that have seen a gradual ramp-up, Canada will have ubiquity from day one. Banks that receive bulk instant payment files must prepare for a potentially higher number of payments per second to ensure they can meet peak demand.
Canadian banks must also consider a possible migration of transactions from other rails. For example, Lynx transactions under CAD $10,000 are a natural fit for the RTR.
Earned wage access (EWA) is also gaining momentum globally, use cases like this may result in a natural migration from systems like ACSS. For example, Walmart, Burger King, Uber and others are enabling instant access to pay daily for its US workers via an EWA scheme.
Instant access to wages can be a lifeline, especially for those on low incomes with rent due before their paycheck, or those who need to foot the bill for an unexpected cost. Corporates are using these schemes to attract and retain staff whilst managing their cash flow.
Banks can use instant payments to attract and retain corporate clients, so this is a key input into a business case to implement instant payment solutions. EWA also benefits the economy since the increased payment velocity helps the markets to move, and businesses to grow.
The fight against fraud
Instant payments are immediate and irrevocable, but an instant payment can also mean instant fraud. Every major market that introduced an instant payment scheme has experienced a spike in authorized push payment (APP) fraud.
Confirmation of Payee (CoP) has proven to be an effective tool to reduce fraud, by verifying the name and account against the details held by the recipient’s banks. This allows the payer to be notified if the payee’s name does not match the corresponding bank details.
Dutch banks saw an 81 percent reduction in fraud after introducing SurePay, a fraud solution, in 2017. However, the implementation of SurePay also led to scammers avoiding banks that offered CoP and moving to those that did not offer the service in neighbouring countries.
Cross-border fraud increased, demonstrating that every bank needs a CoP solution in place for it to be effective. The EU is mandating that all banks performing euro credit transfers offer a Verification of Payee (VoP) service but implementing such a scheme will not be easy.
Canada is yet to decide if a CoP solution will be mandatory, but Payments Canada did announce a centralized fraud utility service would be included as part of their commitment to provide a safe and secure foundation for Canada.
Banks need to prepare now
Learning from markets with an already live instant payment scheme, Canadian banks have the unique advantage of implementing a well-rounded, mature instant payments system from the outset.
Fraud prevention remains a key focus area. Drawing from international experiences, Canadian banks must prioritize implementing robust verification systems, like CoP, to safeguard against fraud.
With industry testing slated for 2026, the time for Canadian banks to act is now. By 2025, banks should be fully prepared, not just to meet the RTR’s requirements but to leverage this opportunity to become leaders in global instant payments.
Kellie Johnson is SVP of Payments in the Americas at RedCompass Labs.
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