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Payments

i Overview

The Canadian payments system comprises various payment methods to purchase goods and services, under various laws (federal and provincial), procedures and rules, and it is recognised globally as a well-functioning system. Payments Canada operates the clearing and settlement system. Financial institutions have arrangements to exchange and transfer funds on behalf of their customers and on their own behalf. The payments system facilitates transactions involving the exchange of funds in return for goods and services. Technology has evolved the methods used to make payments over the last decade. Payment methods used by Canadians include cash, cheque, prepaid cards, gift cards and electronic payment systems (e.g., e-transfers, PayPal and mobile payments).

ii Recent developments

The Canadian payments landscape continues to evolve, with the introduction of new payment products and services in the marketplace changing basic consumer transactions, including contactless cards, peer-to-peer payments and mobile wallets.

Various studies and consultations have been undertaken to address the modernisation of Canada's payment systems. It is anticipated that, as payment technologies evolve, the payments legal framework will undergo significant change.

A market study was launched by the Competition Bureau on 19 May 2016, to examine the competitive landscape for technology-led innovation and emerging services in the Canadian financial services sector. The Competition Bureau is not examining all consumer financial services related to technological innovations (cryptocurrencies, for instance, are excluded from the study). The results of the study were subsequently published in a draft consultation report on 6 November 2017, which was open for public comment. After the consultation and comment period, the Competition Bureau published its final report on 14 December 2017. The report recognises the significance of innovative technologies that exist in the financial services sector and focuses on the areas of retail payments and retail payment systems, lending and equity crowdfunding, and investment dealing and advice. Ultimately, the Competition Bureau's report provides recommendations and guidance to financial sector regulators and other authorities to ensure that innovation and competition in this area is not impeded by regulation.

In 2016 April, Canada adopted ISO 20022, a global standard for electronic payment messages to facilitate the transition from paper to electronic payments. ISO 20022 uses a global 'language' for payments data, to streamline multi-jurisdictional payments.

In July 2017, the Department of Finance released a consultation paper on the proposed establishment of a retail payments oversight framework. The consultation period has ended, but given the nature of the framework, it is anticipated that there will be ongoing consultation before the framework is anchored in federal legislation. The framework would apply to payment services providers performing any one of five core functions in an electronic funds transfer: (1) provision and maintenance of a payment account; (2) payment initiation; (3) authorisation and transmission; (4) holding of funds; and (5) clearing and settlement. Certain transactions would be excluded. Measures proposed to implement the oversight include requiring payment services providers to segregate end user funds in a trust account, a registration requirement for certain payment services providers, and disclosure and operational requirements.

The Code of Conduct for the Credit and Debit Card Industry in Canada was amended in 2015 to extend to mobile payments. This code applies to credit and debit card networks, and their participants, and provides the disclosure requirements to, and rights of, merchants that accept credit and debit card payments. The update to the code added three elements: (1) no obligation on merchants to accept contactless payments; (2) new disclosure requirements for merchant–acquirer agreements; and (3) mandatory dispute resolution processes for merchant complaints. It also contains new protections for merchants that choose not to accept mobile payments: (1) if the payment processor introduces a new fee, the merchant can cancel the agreement or stop accepting mobile payments; (2) the merchant can cancel contactless payments on 30 days' notice without penalty; and (3) merchants have more flexibility to exit contracts with credit card processors without penalty. In addition, consumers must be allowed to control the settings on their device and mobile wallets to choose either a debit or credit application when making payment.