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Payment modernization in Canada: challenges & coming changes

By 2 November 2021 4 min read

Albertans can expect a very different landscape when it comes to digital payments over the coming years. Large scale efforts are being put in place that promise to deliver a safe, modern, fast, innovative experience that emphasizes the importance of data.

Interviews with experts in payments modernization reveal why leveling up payments technology is an important upgrade from “legacy systems” (outdated technology and methods) and how financial institutions, like us at ATB, can guide business leaders to make the right payment decisions.

The challenges with business payments today

Cost

Current payment processing methods are costing Canadian businesses. According to some reports, cheques, paper invoices, cash, electronic funds transfer, and more cost an estimated $3 to $6.5 billion per year for Canadian businesses.

Convoluted processes

In today’s corporate payment methods, businesses get payment (also called “remittance”) details separately from the payment in print and digitally. They have to manually match the remittance information to the payment they received. This convoluted process means high processing costs, as large teams are needed to tackle this task.

Need to make a guaranteed, time-sensitive payment? Businesses will usually have to send a high-cost wire transfer. Not only are these expansive—wire transfers need more banking information and additional screening. They also lack transparency—the sender won’t receive confirmation when the recipient gets the funds.

Outdated methods

Cheques continue to make up 17% of business payments, according to a recent study by Payments Canada. Even though cheques continue to be widely accepted, increasing scrutiny, fraud and processing costs are driving the need for digital alternatives. The prevalence of cheques and other traditional payments should shift towards a system reflecting the innovation of today.

“Legacy systems can’t do what consumers and businesses expect the [internet] to do with payments,” says Christine Dougan, Managing Director of Payments at ATB. “Payment modernization is about taking this 1970s approach and bringing it up to speed so it can easily operate in our 24/7 cloud-based, always-on world.”

“The modernization of payments in Canada involves changing the fundamental systems that underpin today’s payments. They need to be built on modern technology that supports fast, easy payments, future innovation and an ever-increasing quantity of data.” says Brian Hans, Director of Modernization at ATB.

New payments methods are on the horizon

These changes are already in process with the recent launch of Lynx, the new high-value payment system that supports wire payments. This new system incorporates a new risk model and architecture that prepares for the data-enrichment of wires that’s expected in late 2022.

Interac also launched e-Transfer for Business in summer 2021. This new feature includes the ability to receive and send payments using an account number, rich remittance data using the ISO20022 standard (the internationally recognized terminology ​​​​designed to simplify global business communication) and higher limits.

Payments Canada is also working with its members, Interac and Mastercard®’s Vocalink, to implement the Real Time Rail, a brand new payment system that will provide Canadian consumers and businesses with data-enriched, 24/7/365 real-time payments.

To benefit from payment modernization, prepare smartly

Streamlined payment services could radically simplify payment processes. If payments included more information in each transaction, such as invoice and purchase order numbers, processing could be automated through an integrated accounting system.

“Sophisticated business users want to professionally manage their cash flow and digital payments offer the predictability that they need,” says Dougan.

What Dougan and Hans both recommend to businesses is preparing strategically for the (inevitable) shift to digital payment technology by understanding this future-ready approach of payment modernization and shedding the legacy systems they’re accustomed to.

“We’ve seen how there can be a learning curve to adopting digital payments, but we work with businesses to help them recognize how their operations will be made easier with innovation in this area,” notes Hans.

“One of the key aspects in preparing will be understanding how various vendors, service providers and strategic partners may be planning to leverage the new payments and the data that comes with them.”

Dougan adds how several business sectors can reap the benefits of payment modernization. “We’ve received a lot of feedback on how energy and agriculture need to manage cash flow tightly and can see efficiencies with data-rich and real-time payments. ...In insurance payments they need to extend emergency payments immediately, which digital payments can help make happen. And in contractor-heavy companies, confirmations of payments received can be very important.”

Benefits of payment modernization

Curious about the key advantages of payment modernization? The Deloitte report outlines these five factors:

  • Rich remittance data with payments that streamline reconciliation
  • Greater payment transparency that clarifies payment status and confirmation of receipt
  • Increased flexibility, security and use of business aliases for the purpose of routing payments, leading to greater simplicity for businesses
  • Higher limits to encourage the adoption of real-time payments
  • Greater certainty and better risk management in consumer-to-business receivables

We’re here to help

Next-generation payments will be a major game-changer for Alberta businesses looking to scale their business operations with smoother transactions and a more transparent payments system. Today’s legacy models can’t keep up with the speed of growing businesses. Tomorrow’s approach will empower companies to look ahead with confidence and optimism.

Alberta businesses can be confident they can confront the challenges of payment modernization by talking to an ATB specialist, Dougan says. “We’re deeply involved with other industry leaders in planning the future of payments in Canada. ATB is at the table with policy makers and businesses such as Interac and MasterCard and VISA. Our team is in the weeds to offer our expertise to businesses looking for guidance in payment modernization in Canada.”

Need help?

Our ATB Business Solutions team will be happy to assist.

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