Written Submission to Pre-Budget Consultations in Advance of Budget 2022 - 25 February 2022 - PayTechs ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Written Submission to Pre-
Budget Consultations in Advance
of Budget 2022
25 February 2022
p ay
y techs.caThe Hon. Chrystia Freeland, P.C. M.P.
Deputy Prime Minister and Minister of Finance
The Hon. Randy Boissonnault, P.C. M.P.
Minister of Tourism and Associate Minister of Finance
Department of Finance Canada
90 Elgin Street Ottawa,
Ontario K1A 0G5
Dear Minister Freeland and Associate Minister Boissonnault,
Thank you for the opportunity to participate in the government’s pre-budget consultation in
advance of the 2022 budget. As you work to make Canada’s economy more prosperous,
resilient, and inclusive, I hope you will consider our proposals for how to lower costs for Ca-
nadians, make financial services more inclusive, and modernize oversight of the movement of
money in Canada.
About Us
Paytechs of Canada is a not-for-profit association that provides a harmonized voice for tech-
nology companies that move money.
Our mission is to make Canada’s financial sector more competitive and innovative, without
compromising its safety and stability. Our members empower Canadians to participate in the
digital economy, helping them meet their financial goals. However, outdated policy and infra-
structure gets in the way, limiting the choices of consumers and businesses, as well as raising
costs across the Canadian economy.
Serving millions of Canadians across the country, our membership includes payment proces-
sors, financial technology companies, and financial institutions, among others.
Summary of Recommendations
1. Amend the Canadian Payments Act via Budget 2022 to let payment service providers
regulated by the Bank of Canada access the payment systems our economy runs on.
2. Support Payments Canada’s consensus-building to secure the buy-in of its big bank mem-
bers to launch a Real-Time Rail (RTR) system in 2023.
3. Appoint an open banking lead in 2022 and clarify the government’s commitment to imple-
menting both phases of the open banking advisory committee’s report.
4. Commit in 2022 to doing a comprehensive review of Payments Canada’s governance in
the near future.
p ay
y techs.ca 1When it comes to ushering in the future of financial services, Canada is lagging. As a re-
port commissioned by the U.K. government recently said, “fintech” is the future of financial
services. Fintech refers to financial services that are distributed by technology. Historically,
financial services have been provided almost exclusively by federally regulated financial
institutions, such as banks. Now, millions of Canadians rely on fintechs for payments, lending,
portfolio management, identity verification, and other services to manage their financial lives.
Canada has its own fintech ecosystem, which has quickly grown over the years as Canadians
and businesses have gone digital. According to a recent Accenture report, there were almost
700 fintechs in Canada in 2020. While just over half of them were located in Ontario, the
remainder were spread across Canada, which brings investment and high-skilled jobs to all of
Canada, not just Bay Street.
Canadian fintechs have a lot of promise. They raised about $1.75 billion in capital over 54
Source: Collaborating to win in Canada’s fintech ecosystem, by Accenture (2021)
deals in the first half of 2021. Some Canadian fintechs have already reached unicorn status,
with others on track to do the same. CB Insights’ 2020 Fintech 250 list featured 7 Canadian
companies. Canada’s promise has put us on the radar of the world’s financial superpowers.
For example, a 2021 report commissioned by the U.K. government noted Canada as an up-
and-coming competitor for fintech capital and talent.
Though Canadian fintechs have a lot of promise, Canadian fintechs are disadvantaged be-
cause public policy hasn’t kept up with their rise. Fintechs have promise because they are
developing innovative ways for Canadians to pay and businesses to accept payment, com-
peting with credit cards and putting competitive pressure on interchange fees. But it’s chal-
lenging to make the economics work because fintechs don’t have access to the national
payments systems our economy runs on. Instead, fintechs access the payment systems by
going through a handful of banks, who resell that access at a price, which is passed on to
p ay
y techs.ca 2consumers and businesses. It’s not unlike telecommunications, where smaller internet service
providers access critical infrastructure through larger ones.
This also hurts consumers and businesses. According to the Bank of Canada and EY, the
Canadian payments system costs Canadians anywhere between $89 and $107 billion every 5
years.
Fintechs are also developing more progressive ways to assess the creditworthiness of bor-
rowers, whether new Canadians or small businesses without long and rich domestic credit
histories. But it’s challenging to fully deliver on the value proposition without an open banking
framework that would empower new Canadians and small businesses to share their financial
information with fintechs. Under the status quo, banks prevent their customers from sharing
financial information with fintechs.
This also hurts Canadians and businesses by making Canada less competitive for capital and
talent. In the U.K., for example, where fintechs have access to payment systems and open
banking, capital and talent are pouring in. In the first half of 2021 alone, British fintechs at-
tracted £5.7 billion in funding – compared to Canada’s 1.75 billion over the same period. And
roughly 42% of the U.K.’s fintech industry is made up from people who came from abroad.
Canada has what it takes to build a fintech industry that is on par with—if not better than—the
U.K.’s. But we won’t stand a chance unless we get serious about modernizing our approach
to financial services policy by giving fintechs access to payment systems and implementing
an open banking framework. Failing this, our talent and capital may take itself elsewhere, like
how Element AI took itself from Montreal to Silicon Valley because of a lack of federal gov-
ernment support.
We’ve already seen this happen in Canada’s fintech ecosystem. For one, we’re seeing less
fintech start-up formation. Our dynamism is on the wane because entrepreneurs are losing
faith.
Source: Collaborating to win in Canada’s fintech ecosystem, by Accenture (2021)
p ay
y techs.ca 3That our dynamism is on the wane is no surprise when you consider the following:
• Canada still lacks a real-time payment system. Meanwhile, other advanced economies –
including the United Kingdom and Australia – are leading the way. According to Payments
Canada’s timelines, Canada’s real-time payments system was set to launch in 2019. That
timeline later changed to 2022, then again to 2023. As of today, Payments Canada’s time-
lines are aspirational.
• Fintechs still aren’t allowed to access Canada’s payments system. This prevents them
from better serving Canadian consumers and business owners. The federal government is
currently reviewing the Canadian Payments Act, which dictates who can access the pay-
ments systems that our economy runs on. The Competition Bureau has already recom-
mended that the federal government should let fintechs gain access. This modernization
initiative is long overdue, having already been realized by authorities in other advanced
economies.
• Back in 2021, the federal government committed to bringing open banking to Canada
by January 2023. In 2017, the Competition Bureau also recommended that policymakers
make progress on this front. But as is the case with payments modernization, we’re al-
ready far behind other advanced economies. More than six months after the government
released its final report on the matter, Canadians are still waiting for the appointment of an
open banking lead.
• To make real progress, Canada needs more than an open banking lead. Canada needs a
combination of federal legislation and industry standards. New federal privacy legislation
is expected to give Canadians a data-mobility right, as the federal government’s last at-
tempt to overhaul privacy law would have. The government’s own open banking advisory
committee identified the necessary steps for the federal government to take to make that
data-mobility right exercisable in the financial sector.
The challenging and uncertain Canadian market has forced many fintechs to pack it up and
leave. One notable example is Revolut, an international fintech giant that couldn’t make it
work in Canada and announced its departure in March of last year. Paytm is another example
of a fintech giant giving up on the Canadian market. If the Canadian market is inhospitable to
international fintech giants worth billions of dollars, and active in many other jurisdictions, it’s
even more inhospitable to fintech start-ups and scale-ups in Canada.
Recent events also show why the policy changes fintechs have been advocating for are im-
portant.
Since payment service providers are excluded from Canada’s payments systems, the gov-
ernment can’t oversee payment service providers like it oversees banks in payments. If the
federal government included payment service providers in the national payments systems,
payment service providers would be subject to the rules and regulations under the Canadian
Payments Act. These rules and regulations manage risks to our financial system, as well as
set the conditions under which a payment system participant can have their ability to send
and receive payments suspended or revoked.
p ay
y techs.ca 4The federal government took an important step to oversee payment service providers with
the passing of the Retail Payment Activities Act in 2021, but the work can’t stop there. The
government should continue working to stand up the retail payments oversight regime, under
the Retail Payment Activities Act, as soon as possible. The Bank of Canada’s appointment of
Ron Morrow to oversee this crucial work, as well as the Bank of Canada’s consultation with
the industry through its Retail Payments Advisory Committee, are encouraing signs of prog-
ress.
By continuing to exclude payment service providers from our national payment systems, the
federal government keeps them operating in the shadows and has fewer business-as-usual
policy levers to pull if it needs to intervene.
This is why we recommend the following:
1. Amend the Canadian Payments Act via Budget 2022 to let payment service providers
regulated by the Bank of Canada access the payment systems our economy runs on.
2. Support Payments Canada’s consensus-building to secure the buy-in of its big bank mem-
bers to launch a Real-Time Rail (RTR) system in 2023.
3. Appoint an open banking lead in 2022 and clarify the government’s commitment to imple-
menting both phases of the open banking advisory committee’s report.
4. Commit in 2022 to doing a comprehensive review of Payments Canada’s governance in
the near future.
Sincerely,
Alex Vronces
Executive Director
Paytechs of Canada
p ay
y techs.ca 5You can also read
