2025 may prove to be a year of significant change to the Canadian payments landscape due to the expansion of Payments Canada membership and further development of the Real-Time Rail (RTR) payment system.
Payments Canada is the member-funded organization that owns and operates two core Canadian payment systems: Lynx and the Automated Clearing Settlement System (ACSS). It also establishes the by-laws, rules and standards that support these systems.
Under the Canadian Payments Act (CPA), Payments Canada also has a mandate to facilitate the development of new payment methods and technologies and a duty to promote the efficiency, safety and soundness of its payment systems. Banks, authorized foreign banks and the Bank of Canada are mandatory Payments Canada members, while certain other entities, including credit union centrals, trust and loan companies and securities dealers, are eligible for membership.
It is anticipated that the expansion of Payments Canada membership and changes to the RTR system will spur innovation in the payments space and increase competition. However, new entrants must be prepared to meet the compliance obligations that Payments Canada membership and RTR participation will bring. For its part, to preserve trust in Canada’s payment systems, Payments Canada will have to contend with issues related to this more open, risk-based access to payment systems while addressing the inevitable operational challenges a real-time payment system will bring.
Implementation of Amendments to the Canadian Payments Act
In June 2024, amendments to the CPA through Bill C-59 received Royal Assent. These amendments expanded Payments Canada membership eligibility to include payment service providers (PSPs) as defined in the Retail Payment Activities Act (RPAA), credit union locals that are members of a central or cooperative credit association, and clearing houses designated under the Payment Clearing and Settlement Act.
As part of broader policy reforms to support more open, risk-based membership, Payments Canada is proposing amendments to its by-laws and rules, including:
- Restricting membership eligibility to PSPs that have registered with the Bank of Canada under the RPAA.
- Permitting eligible PSPs that have elected not to become members of Payments Canada to sit on the Stakeholder Advisory Council (SAC) to ensure that the Council remains representative of users and payment service providers. The SAC’s purpose is to provide counsel and advice to the Board on payment and clearing and settlement matters and any other matter relating to Payments Canada’s objects.
- Not imposing entity-based restrictions on applying to participate in Payments Canada’s systems, provided such entities meet system access and participation requirements already set out in the rules. For instance, direct participants must meet the stringent requirements to obtain a settlement account from the Bank of Canada.
- Amending the compliance by-law (By-law No. 6) to introduce processes to expedite investigations in situations involving alleged contraventions that are considered straightforward or that are uncontested. The current approach in By-law No. 6 for conducting a compliance investigation can be burdensome and time-consuming by imposing a uniform process for both simple and complex contraventions.
- Increasing penalties for non-compliance for the first time since 2003, from C$250,000 to C$1-million per contravention.
Payments Canada completed a consultation on these proposed policy changes on March 6, 2025. As statutory instruments, amendments to the by-laws must proceed through the regulatory approval process, including drafting with the Department of Justice, approval from the Minister of Finance and publication in the Canada Gazette. The Department of Finance has not provided a timeline for this process. However, it is unlikely that these changes will come into force before the RPAA transition period ends in September 2025, as the Bank of Canada works to approve PSP registration applications.
Development of the Real Time Rail Payment System
Among Payments Canada’s top priorities for 2025 is the further development of the RTR and RTR fraud control measures. First announced in 2016, the RTR was proposed as a key component in modernizing Canada’s payment system. By leveraging ISO 20022, the RTR would also implement data standards in line with other international systems The system will enable Canadians to send funds through real-time digital payments, 24/7 and 365 days a year.
In June 2023, Payments Canada completed the build of the RTR exchange with Interac. As explained by Payments Canada in the Real-Time Rail Quarterly Update, the focus of 2025 is the second phase of development, which involves the continued build of the real-time clearing and settlement component followed by industry testing. This work effort will include finalizing the test strategy and onboarding test participants. Additionally, Payments Canada has stated that it will engage publicly on the RTR rules and by-law in 2025.
Payments Canada has also made progress on developing an integrated fraud solution that will be in place when the RTR system launches. Nearly immediate clearing and settlement means that real-time payment systems present significant challenges for participants in identifying, investigating and responding to fraud. Notably, other jurisdictions that have introduced real-time payment systems have experienced a sharp uptick in fraud undertaken through identity theft, social engineering and phishing. This marked increase has resulted in significant losses for financial institutions in other jurisdictions. In response, regulators and system operators have explored a range of possible solutions, including different reimbursement models and identity verification methods.
These fraud trends are evident in a recent Payments Canada study, released on February 18, 2025, which concluded that concerns around security and lack of familiarity lower the appeal of newer payment innovations to Canadians. This study’s findings suggest that fraud mitigation tools used across the real-time ecosystem are critical to ensure public trust in the RTR system.
For more information on navigating these changes, please contact the authors or any member of our Financial Services group.
