Mod Blog: Charting the future for cross-border payments

Gerry Gaetz, President and Chief Executive Officer, Payments Canada

You can send an email pretty much anywhere in the world within a few seconds, engage in social media across borders but you can’t easily make payments to individuals or businesses in other countries. It doesn’t make sense and it’s a significant point of friction. We know this needs to change.

A recent study shows cross-border payments accounted for over $206 billion[1] in payment service provider revenues globally, the bulk of which consisted of corporate payments. In Canada about 17 per cent[2] of Canadian consumers have transferred funds internationally in the past six months, with the United States (U.S.) being the top destination for transfers. Within this count, close to one in four Canadians making these transfers are sending less than $100 per month.[3]

At present most cross-border payments are made through a network of correspondent banks and can involve multiple intermediaries during the transaction process. As a workaround to this reality many large corporations maintain foreign bank accounts for urgent payments because international wires or other payment methods can take several days to process. Governments that need to pay citizens living outside of Canada either partner with a financial institution or issue foreign currency cheques. Further, recipients of cheques or other forms of payments sent from Canada in Canadian dollars often pay significant foreign exchange fees.

At Payments Canada, working with our partners, our Vision for a modernized payments system includes addressing these pain points to enable faster and more seamless cross-border payments. While there are recognized obstacles to this Vision – like aligning ecosystems, fraud, privacy, legal and regulatory – few would disagree with the aspiration.

However, before we address cross border real-time payments, we need to get our domestic house in order first. We need to implement faster, real-time account-to-account payments here in Canada before tackling the challenge of sending a payment from a Canadian bank account to let’s say a U.S. bank account, in real-time. Moreover we need to be able to connect to other payments systems using the same standards and operating parameters. We also need to devote time to exploring the required changes in our regulatory and legal environment, which is one of the most critical and complex aspects, and will take the longest to address.

Standardizing, learning from others and building regulatory requirements

In modernizing Canada’s payments landscape, we’ve gone about our work with a strong focus on being able to interoperate with other countries. Our adoption of ISO 20022, the global payments message standard, for our modernized payments systems is a prime example of this effort, knowing that wider adoption of the standard and overall harmonization of ISO 20022 implementation will be key to realizing the full benefits. Besides ISO 20022, however, we must not lose sight of the other cross-border standardizations  that need to be considered. This includes the operating hours of global payments systems owned by central banks and financial market infrastructure operators. Challenging? Yes, but among these challenges is one key advantage, specifically the repetition in the suppliers helping the over 50 countries that have implemented or are close to implementing real-time systems. What this means is that across the globe we’re seeing consistency in the build of new systems, allowing potentially for an easier path for system-to-system interaction.

Learning from others and looking south of the border

Keep in mind, Canada doesn’t have to solve global cross-border challenges all at once. There are examples of leadership that we can learn from, including the ambitious P27[4] project which aims to harmonize payments standards across the Nordics to enable instant (real-time) payments, both domestic and cross-border for Nordic currencies. For us, I believe the realization of cross-border payments needs to start with our most important trading partner, the U.S. Our border partner already has a real-time payments system (operated by The Clearing House) and the Federal Reserve recently announced that they will create a second national system, anticipated to go live in 2023 or 2024. With a shared focus on real-time capabilities, now is the time to explore the business model, legal and regulatory issues so that when Canada’s new real-time system is operational (targeted for 2022) we can be ready to connect to the U.S., and eventually the rest of the world.

If you’re looking for more on this topic, I encourage you to read this informative overview from our Payments Canada Research team, Payments Perspectives: How cross-border payments are evolving.


[1] Global payments 2018: A dynamic industry continues to break new ground, McKinsey & Company.
[2] [3] RFi Group’s Canada Payments Council 2019.
[4] The P27 name derives from the project’s aim to improve payments for the 27 million inhabitants in the four Nordic countries.