Annual Review 2012 Canadian Payments Association · 2012 AT A GLANCE 3 2012 CPA Milestones 4 Key...

Annual Review 2012Canadian Payments Association

Con

tent

s 20

12 A

nnua

l R

evie

w

2012 AT A GLANCE 3

2012 CPA Milestones 4

Key Data Snapshots 5

CPA CORPORATE GOVERNANCE 6

Message from the Chair and the President & CEO 7

CPA Board of Directors 10

Directors—as at Dec 31, 2012 12

The Stakeholder Advisory Council—SAC 14

Stakeholder Advisory Council—as at Dec 31, 2012 16

CPA Members—as at Dec 31, 2012 17

ACHIEVING OUR VISION: KEY ACCOMPLISHMENTS IN 2012 19

Core Business 21

Governance & Oversight 25

Security & Risk Management 27

Dialogue, Consultation & Outreach 28

LOOKING AT OUR STRATEGY IN A GLOBAL CONTEXT 32

Payment Preferences 34

Access, Governance & Oversight 36

Innovation 38

TRENDS & STATISTICS IN THE CANADIAN PAYMENTS LANDSCAPE 41

Large Value Transfer System (LVTS) 42

Automated Clearing Settlement System (ACSS) 46

Definitions 49

2012

at

a G

lanc

e

4 Canadian Payments Association 2012 Annual Review

2012 at a Glance— CPA Milestones

In 2012 the Canadian Payments Association:

• Providedanoutstandinglevelofserviceto

Canada’sfinancialinstitutionsandthecus-

tomerstheyserve,achievinga99.9%system

availabilityratefortheAutomatedClearing

SettlementSystem(ACSS),and99.9%for

theLargeValueTransferSystem(LVTS).

• Clearedandsettledover6.5billionpayment

items,representing$44trillionintransac-

tions.That’scloseto26millionPayments

youCanCountOneachbusinessday.

OnDecember17,2012alone,CPAsystems

clearedandsettledpaymentswortha

record-breaking$313.13billion.

• ContinuedtoimproveCanada’snational

clearingandsettlementsystemsthrough

theimplementationofamulti-yeartechnol-

ogystrategy,andtheintroductionofnew

opportunitiesforincreasedefficiencyin

memberoperations.

• Assessedthemanagementandoperation

ofitssystemicallyimportantLVTSagainst

newinternationalPrinciples for Financial

Market Infrastructures (FMIs), whichpromote

internationalfinancialstability.

• Gatheredstakeholdersfromacrossthe

paymentsvaluechain,inpartnershipwith

InteracandAdvancedCardTechnologies

(ACT)Canada,todiscussguidingprinciples

formobilepaymentsinCanadaatthe2012

MobileForum.

• Facilitatedmoreefficientelectronicalterna-

tivesfortheclearingofpaperpaymentitems

betweenfinancialinstitutionsbyadvancing

theuseofimagetechnologyintheclearing

system.

• Maintainedavigilantapproachtosecurity

andriskmanagement,benchmarkingagainst

industrybestpracticestocontinually

improvesecuritymeasures.

• HostedCanada’spremierepaymentsconfer-

ence,PaymentsPanorama,inQuebecCity,

bringingtogetherover400paymentsexperts

fromaroundtheglobe.

• Contributedexpertisetotheongoinggov-

ernancereviewoftheCanadianpayments

systembythefederalgovernment,and

acceptedmembershiponFinPay,theirnew

paymentsconsultativecommittee.

• Promotedtheinternationalinteroperability

ofCanadianpaymentsbydevelopingand

consultingonaroadmapandtransition

strategyforitsadoptionofinternational

paymentmessagingstandardISO20022;the

long-termgoalforpaymentsclearedand

settledviaCPAsystems.

• Facilitatedadialoguebetweenfinancial

institutionsandcorporateclientsonthe

long-standingissueof“on-us”wirepay-

ments;brokeringanagreementonabest

practicefortheuniformtreatmentofwire

paymentsbothwithinandbetweenCanadian

financialinstitutions.

2012 at a Glance—CPA Milestones

In 2012, CPA facilitated more

efficient electronic alternatives

for the clearing of paper pay-

ment items between financial

institutions by advancing the

use of image technology in the

clearing system.


2012 at a Glance— Key Data Snapshot

2012 at a Glance— Key Data Snapshot

The reliable, secure and efficient exchange of payments is critical to the economy. The Canadian Payments Association operates national infrastructure essential to the movement of hundreds of billions of dollars across the country each day. We lead our member financial institutions, businesses, government and the public in establishing the rules of the payments highway. In a global and digital economy, the CPA provides a strong foundation to support innovation and the evolving needs of all those who depend on payments.

$174.5 billion

6.5 billion26 million

Value Cleared and Settled in 2012 Volume Cleared and Settled in 2012

Average Value Each Business Day Average Volume Each Business Day

$44trillion

Can

adia

n Pa

ymen

ts

Ass

ocia

tion

—C

orpo

rate

G

over

nanc

e


A Message from the Chair and the President & CEO

Message from the Chair and the President & CEO

Each business day in 2012, our national clear-

ing and settlement systems facilitated the

cross-country exchange of close to 26 million

payments—safely, securely and efficiently.

We’ll continue to deliver this outstanding level

of service for years to come as a result of our

ongoing Technology Strategy, a multi-year

plan to modernize key components of the

CPA’s system infrastructure. A great example

of the strategy in action is our 2012 project to

web-enable access to our Large Value Transfer

System. We’re preparing to transition from

dedicated workstations located at individual

financial institutions to a web-enabled inter-

face over secure networks. This new approach

will considerably reduce cost and operational

risk for the financial institutions that rely on

our systems. In addition, by creating more flex-

ible system architecture, we’ll make it faster

and easier to integrate new business require-

ments. This means that we can better support

financial institutions who innovate to meet the

evolving needs of their customers. We made

tremendous progress in 2012, with a focus on

development activities, and are preparing for

testing and implementation in 2013.

We’re confident that our plans for the future

are sound. Early in 2012, we scanned the

global payments landscape to identify new or

emerging trends that might affect Canadian

payments or the operations of the CPA. The

findings confirm that Vision 2020, the long-

term payments strategy we adopted in 2010,

continues to meet the needs of Canadians, and

we will continue to implement these priority

initiatives.

Sound payment systems rest on sound public

policy. There are many components to good

policy-making and dialogue is of particular

importance to the CPA’s mandate. In addition

Canadians depend on the ability to make and receive payments through their financial institutions. As new payment products and service providers enter the highly evolving marketplace, CPA systems anchor Canada’s financial sector. Working with our member financial institutions and the customers they serve, we ensure that the infrastructure for the payments system remains strong and stable.

The findings confirm that Vision

2020, the long-term payments

strategy we adopted in 2010,

continues to meet the needs of

Canadians, and we will continue

to implement these priority

initiatives.


A Message from the Chair & the President & CEO

to financial institutions and industry partners,

we reach out and connect with the customers

they serve: consumers, businesses & govern-

ments, among others.

We worked with Canadian business and

consumer representatives this year to address

their concerns about the uncertain treatment

of wire payments by financial institutions. Wires

sent within Canada are generally processed

through the CPA’s Large Value Transfer System

(LVTS) and are supported by a legal framework

which enables the sending of real-time, final

payments between financial institutions.

But wire payments made between customers

of the same financial institution, known as

“on-us” wire payments, are not processed

through the LVTS. We brought together an

informal group of CPA members and represen-

tatives from our Stakeholder Advisory Council

to discuss the issue. Working together, they

developed a voluntary best practice that can

be endorsed and adopted by any Canadian

financial institution. It assures customers

that a financial institution would treat “on-us”

wire payments in a similar manner as LVTS

wire payments (from the customers’ perspec-

tive). The majority of Canada’s major financial

institutions have already endorsed this best

practice, and we’re currently working with the

Canadian Bankers Association to encourage

endorsement across the industry.

The CPA Board has committed to the adop-

tion of ISO 20022 as the long-term goal for

electronic payments cleared and settled via

CPA systems. This international payments

messaging standard accommodates evolv-

ing remittance requirements and increasing

demands for global interoperability. During

the first half of 2012, the CPA developed a road

map and transition strategy for the standard’s

adoption. Over the summer, we asked our

stakeholder community to share their thoughts

on our plans in a public consultation. The

feedback we received fed into development

of an enhanced strategy and implementation

roadmap for adoption, which fuelled discus-

sion at the CPA Board in late 2012, which will

continue into 2013.

Janet Cosier

Chair, CPA Board

of Directors

Ken Casey

Interim President

& CEO


A Message from the Chair & the President & CEO

Financial institutions are not the only providers of financial services.

Non-financial institution service providers continue to expand their role

in payments, offering innovative and often critical financial services. As a

result of the evolving payments environment, countries around the globe,

including Canada, are examining and evaluating payment system access,

operations and governance. In addition to our ongoing conversations with

the Department of Finance on matters of importance in payments clearing

and settlement, the CPA met with the Department on the broader issue

of industry governance. We have also accepted membership on Finance

Canada’s new Payments Consultative Committee (FinPay), which held its

inaugural meeting in October. We will continue to provide thought leader-

ship and industry expertise throughout Finance’s review of governance in

the Canadian payments system.

CPA initiatives in 2012 called upon on the knowledge and expertise of

staff from across the Association: Corporate Services, Legal, Payment

Operations and Technology, and Policy and Public Affairs. We are very

proud of the work that was accomplished in 2012, and the team of skilled

professionals who made it possible. We’d like to take this opportunity to

thank members of the CPA Board of Directors, Association staff, Committee

members and members of the CPA Stakeholder Advisory Council for their

contributions in 2012. It’s through their efforts that payments cleared and

settled through the CPA are payments you can count on.

We invite you to read on to learn more about the evolving domestic and

international payments environment, and CPA initiatives and key accom-

plishments in 2012.

—Janet Cosier, Ken Casey


CPA Board of Directors

Established by the Canadian Payments

Act, the CPA Board of Directors is

charged with directing and managing

the affairs of the CPA, with a focus on

strategic and policy matters.

The Board identified several key priorities

for the Association in 2012. The major

focus was on core CPA business opera-

tions and related initiatives, such as

the Technology Strategy, payments

standards and remittance information,

and the Image Rule Project. The Board

also identified security management as

a key area of focus, as well as activities

arising from the Department of Finance’s

interest in, and planned review of, the

governance structure of the Canadian

payment system.

COMPOSITION & MEETINGS

The Board is comprised of

• 1 Chair from the Bank of Canada

• 3 Non-member representatives

appointed by the Minister of Finance

• 6 Bank representatives

• 2 Central/Credit Union representatives

• 4 representatives from the remaining

membership classes

Board meeting dates are generally set in

the fall for the following year. Typically,

the Board will hold five meetings a year,

often preceded by a day of informal

strategy or governance sessions. During

2012, eight board meetings and work-

shops were scheduled to support the

CPA Board of Directors in their fiduciary

duties and to consider issues related to

the Department of Finance’s activities in

the area of governance and oversight in

the Canadian payments system.

RESPONSIBILITIES

Strategy, Policy & Budget—Working

within the Association’s legislated

mandate, the Board is responsible for

establishing a strategic planning process

and setting strategic direction and

priorities for the Association. The Board

considers and approves policies that are

consistent with the strategic direction,

ensuring procedures are in place to

implement the policies, and considers

and approves the Association’s budget

in the context of the strategic plan.

Management Oversight—The Board

appoints the President and CEO, adopts

a delegation of authority policy, estab-

lishes a performance evaluation policy,

sets the compensation for the President

and CEO and evaluates the President and

CEO’s performance against goals and

objectives. The Board is also charged

with encouraging a culture of integrity at

the Board and implementing policies to

ensure the culture is disseminated and

maintained throughout the organization.

The Board appoints officers as required

by the Canadian Payments Act (CFO and

Corporate Secretary) and any others

recommended by the President and CEO.

Risk Management—The Board estab-

lishes policies designed to identify

principal risks of the Association’s busi-

ness and ensures the implementation

of appropriate systems to manage these

risks and ensure compliance.

Board Process—The Board is responsible

for establishing and maintaining an

Organizational Framework that sets out

the roles and responsibilities of the Board

and management, as well as approving a

Code of Conduct for directors and officers

and monitoring compliance with it. The

Board is also responsible for establishing

Board committees, criteria for director

qualifications and an education policy

for directors, monitoring the orientation

program, and implementing policies to

ensure appropriate consultation is taking

place with members, stakeholders and

other constituents.

Stakeholder Input—The CPA’s Stake-

holder Advisory Council is a 20 person

council, including 2 Board members,

that is codified in the legislation. Council

members are drawn from, and represent

the views of, the CPA’s broad base

of stakeholders, including consumer

associations, businesses, retailers, and

governments, as well as related service

providers. Under the Act, the Council’s

mandate is to “provide counsel and advice

to the Board on payment and clearing and

settlement matters and any other matter

relating to the objects of the Association.”

Eligibility requirements for Council

membership and the yearly nomination

process are set out in the Association’s

General By-law.




BOARD COMMITTEES

Executive Committee—The Executive

Committee has all the powers of the

Board in respect of the management

and direction of the business and affairs

of the Association, with the exception

of certain enumerated matters. The

Executive Committee acts for the Board

in relation to urgent matters when it is

not possible to convene the whole Board,

and addresses any other matters that

the Board may from time to time deem

expedient to delegate to it.

Finance & Audit Committee—The

Finance and Audit Committee provides

advice to the Board on all matters

relating to financial management and

resources. It oversees the development

of the annual budgets, monitors income

and expenses throughout the year and

liaises with the external auditors to

ensure accurate preparation of the

financial statements and integrity of the

financial reporting processes.

Governance And Nominating

Committee—This committee is respon-

sible for ensuring the good governance

of the organization and is responsible

for the development of the Directors’

Code of Conduct, director qualifications

and nomination process for directors,

orientation and education of directors,

succession planning for the Board, Board

committees and compliance.

Human Resources And Compensation

Committee—This committee addresses

recruitment, evaluation and compen-

sation of the President and CEO for

recommendation to the Board, employee

benefits and human resources policies of

the Association, succession planning for

employees, the pension plan, compensa-

tion policy and the performance manage-

ment program for the Association.

The CPA is also supported by manage-

ment advisory committees which report

directly to the President and CEO:

Management advisory committees

oversee the CPA’s main systems from an

operational/technical perspective; and

also provide policy, legal and regulatory

input on payment, clearing and settle-

ment matters on an ongoing basis.

Project specific committees are special

purpose committees established for a

particular project, issue or matter that

are generally created for a limited period

of time.

(left to right)

Back Row—Peter Burn, Charles

Milne, Kelly Scott, Jeff van

Duynhoven, David Heatherly, David

Cyr, Jason Conant

Middle Row—Christine Margie, Ken

Casey, Nathalie Généreux, Stewart

MacKinnon

Front Row—Penny-Lynn McPherson,

Brenda Clark, Janet Cosier, Ricki

Golick, Ronald Matthews


Directors—as at December 31, 2012

BANK OF CANADA

BANKS

DIRECTORS

Chairperson: Janet Cosier

Adviser

Bank of Canada

David Cyr

Senior Vice President

Royal Bank of Canada

Brenda Clark

Vice President

Distribution Strategy and

Innovation

Canadian Imperial Bank

of Commerce

David Heatherly

Vice President

Payment Products Personal

& Small Business

Bank of Montreal

Jeff van Duynhoven

President

TD Merchant Services

The Toronto Dominion Bank

Ricki Golick


& Treasurer

Canadian Western Bank

Christine Margie

Director

GTS Cash Product Canada

Citibank Canada

ALTERNATES

Deputy Chair: Eric Wolfe

Deputy Chief, Funds

Management & Banking

Bank of Canada

Danny Déry

Vice président

Canaux électroniques

et paiement

Banque Nationale du Canada

Erin Bennett

Senior Vice President &

Head of Payments and Cash

Management

HSBC Bank Canada

Kelly J. Scott

Vice President

Global Client & Solution

Services

The Bank of Nova Scotia

Nathalie Généreux


Operations & Expert Services

Laurentian Bank of Canada

Warren Law


Compliance, Regulatory

& Stakeholder Relations

ICICI Bank Canada

Directors— as at Dec 31, 2012


Board of Directors As of December 31, 2012

CENTRALS

TRUST & LOAN COMPANIES

OTHER FINANCIAL

INSTITUTIONS

DIRECTORS APPOINTED

BY THE MINISTER

DIRECTORS

Jean-Guy Lavoie

Vice président, Centre

d’opérations

La Fédération des caisses

Desjardins du Québec

Charles Milne

Chief Investment Officer

Central 1 Credit Union

Jason Conant

Vice President

Information Services

Peace Hills Trust Company

Curtis Stange

Chief Strategy & Operations

Officer

Alberta Treasury Branches

Ron Matthews

Association for Financial

Professionals of Canada

Stewart MacKinnon

Managing Director

MacKinnon Consulting

Limited

Peter Burn

Counsel

Bennett Jones, LLP

ALTERNATES

Garth Manness

Chief Executive Officer

Credit Union Central of

Manitoba Limited

Dean Ozanne

Vice President

Central Services & Operations



The Stakeholder Advisory Council—SAC

The Stakeholder Advisory Council (SAC) has a

steadfast, established, 16-year track record of

providing advice and counsel to the CPA Board

of Directors on payments clearing and settle-

ment matters. SAC continued to demonstrate

in 2012 that it is as forward-thinking and as

dynamic as it was when it was created under

the Canadian Payments Act in 1996.

After all, with its collective payments system

expertise—payment service providers, con-

sumer groups, governments, billers, retailers

and other businesses—SAC is ideally posi-

tioned to contribute the latest, most insightful

perspective to the initiatives undertaken and

the issues contemplated by the Canadian

Payments Association.

Throughout the past year, SAC worked to

further enhance the way in which it provides

input to the CPA. Among these enhancements,

SAC’s priority-setting exercise, begun in

2011, resulted in even stronger dialogue and

collaborative alignment with the CPA Board of

Directors on key, emerging payments system

matters, both strategic and operational in

nature.

SAC and the CPA Board focused on three

mutual priorities: Promotion of Mobile and

Digital Payments in Canada; EFT Payments

Remittance Data; and, the Reduction of

Cheques in the Payments System in Canada.

As part of its advice and counsel on these

strategic objectives, the Council provided

input on CPA initiatives including the Image

Rule project, the Technology Strategy and

a roadmap for an international payments

standard (ISO 20022). SAC also supported the

CPA’s engagement with the Task Force for

the Payments System Review and Finance

Canada as it continued to examine payments

industry issues and governance.

SAC members play an important role in the

development of policies and strategic initia-

tives within the mandate of the CPA. Yet the

Bill Huzar Chair, CPA

Stakeholder Advisory Council

Ron Matthews Past Chair

Philippe Visintini Vice-Chair,

SAC & Vice-President,

International Money Movement,

ADP Canada


“As we look back proudly on a

year full of accomplishments

by the Stakeholder Advisory

Council, we would like to thank

the CPA Board of Directors for

their spirit of collaboration and

inclusiveness, and CPA staff

for their ongoing support. And

of course, we would like to

thank our fellow SAC members

for their dedication and for

lending their expertise towards

the enhancement of the

payments system in Canada.”



Council also provides stakeholders with

the opportunity to bring to the attention

of the CPA Board issues that might be

overshadowed by other priorities or that

are not within the mandate of CPA but

which are nevertheless of concern to

stakeholders.

As an example of this, the Council views

one of its more significant accomplish-

ments in 2012 to be the endorsement by

Canada’s financial institutions of a best

practice for “on-us” wire payments.

While these payments made between

customers of the same financial insti-

tution are not governed by the CPA,

concerns about on-us wire transactions

were brought forward by SAC members.

Given the relevance of the issue to the

CPA’s member financial institutions (FIs)

and its importance to stakeholders, the

CPA assembled a small working group of

stakeholders and members to facilitate

a solution in the public interest.

A further demonstration of the success

that this collaboration can achieve was

realized later in the year by yet another

stakeholder-FI working group whose work

led to a Policy Statement on Bill Payment

Error Corrections. SAC will continue to

contribute throughout 2013 to the CPA’s

development of a new rule surrounding

bill payment error corrections that better

serves the needs of consumers, billers

and FIs.

2012 also brought about a significant

change in the leadership of SAC. After 13

years as Chair, Ron Matthews decided to

step down and offer another SAC mem-

ber the opportunity to steer the Council.

Ron’s announcement coincided with his

retirement from Imperial Oil after 31 years

of service. Ron continues to represent the

Association for Financial Professionals of

Canada (AFP Canada) on SAC.

At its October meeting, SAC members

endorsed Philippe Visintini, representing

ADP Canada, to continue as Vice Chair

of the Council, and selected Bill Huzar,

who has represented the Consumers

Council of Canada on SAC of for the past

four years, to be the new Chair.

(LEFT TO RIGHT)

Ron Matthews, past Chair,

SAC; Ian Shelley, KPMG;

Ken Morrison, Retail

Council of Canada; Caroline

Hubberstey, Interac.


Stakeholder Advisory Council as at Dec 31, 2012

Stakeholder Advisory Council— as at Dec 31, 2012

CHAIR

Bill Huzar

Chair, Consumer Protection

Consumers Council

of Canada Foundation

VICE CHAIR

Philippe Visintini

Vice President, Banking

ADP Canada

CPA BOARD OF DIRECTORS

Jeff van Duynhoven

President, TD Merchant

Services

Toronto Dominion Bank (The)

Jean-Guy Lavoie

Vice President, Operations

Centre

Caisse centrale Desjardins du

Quebec (La)

MEMBERS

Murielle Boucher

Director General, Banking and

Cash Management

Public Works and Government

Services Canada

David Farnes

Chief Operating Officer

Canadian Wireless

Telecommunications

Association

Caroline Hubberstey

Head, External Affairs

Interac Association

Luc Lalonde

Director, Corporate Treasury

Operations, Canada Post

Corporation

Ronald Matthews

Association for Financial

Professionals of Canada

Brent Mizzen

Director, Policy Development

Canadian Life and Health

Insurance Association

Ken Morrison

Banking and Payments

Consultant

Retail Council of Canada

Steve Nogalo

VP & General Manager,

Payments, Mobility and

Converged Channels

NCR Corporation

Lynn Parrington

Manager, Billing Services

Enbridge Canadian Gas

Association

Karen Redwood

Director, North American

Markets, Paypal Inc.

Ian Shelley Partner—Advisory

KPMG LLP

Jacques St Amant

Consultant, Public Interest

Advocacy Centre

Peter Thom

Director—Treasury

Operations/Assistant

Treasurer, Bell Canada

Ingrid Vincent

Manager, Banking Capital

Markets Treasury Division

Ontario Financing Authority

Steve Zucker Independent


CPA Members— as at Dec 31, 2012

Bank of Canada

Bank of Canada

Banks

Amex Bank of Canada

B2B Bank

Bank of China (Canada)

Bank of Montreal

Bank of Nova Scotia

Bank of Tokyo-Mitsubishi UFJ

(Canada)

Bank West

BNP Paribas (Canada)

BofA Canada Bank

Bridgewater Bank

Canadian Imperial Bank of

Commerce

Canadian Tire Bank

Canadian Western Bank

Citco Bank Canada

Citibank Canada

Citizens Bank of Canada

CS Alterna Bank

CTC Bank of Canada

DirectCash Bank

Dundee Bank of Canada

First Nations Bank of Canada

General Bank of Canada

Habib Canadian Bank

HomEquity Bank

HSBC Bank Canada

ICICI Bank Canada

Industrial and Commercial

Bank of China (Canada)

ING Bank of Canada

J.P. Morgan Bank Canada

Jameson Bank

Korea Exchange Bank of

Canada

Banque Laurentienne du

Canada

Manulife Bank of Canada

Mega International

Commercial Bank (Canada)

MonCana Bank of Canada

Banque Nationale du Canada

Pacific & Western Bank

of Canada

President’s Choice Bank

Royal Bank of Canada

Shinhan Bank Canada

Société Générale (Canada)

State Bank of India (Canada)

Sumitomo Mitsui Banking

Corporation of Canada

The Toronto-Dominion Bank

UBS Bank (Canada)

Walmart Canada Bank

Centrals and Cooperative

Credit Unions

L’Alliance des caisses

populaires de l’Ontario,

Ltée.

Atlantic Central

La Caisse centrale Desjardins

du Québec

Central 1 Credit Union

Concentra Financial Services

Association

Credit Union Central Alberta

Limited


Canada


Manitoba Limited


Saskatchewan


Desjardins du Québec


populaires Acadiennes

Limitée


populaires de l’Ontario Inc.


populaires du Manitoba Inc.

Trust Companies and Loan

Companies

AGF Trust Company

Canada Trust Company (The)

CIBC Trust Corporation

Community Trust Company

Effort Trust Company

The Equitable Trust Company

Household Trust Company

HSBC Mortgage Corporation

(Canada)

Industrielle Alliance,

Fiducie inc.

Investors Group Trust Co. Ltd.

Trust La Laurentienne du

Canada Inc.

Manulife Trust Company

Montreal Trust Company

of Canada

National Trust Company

Peace Hills Trust Company

Peoples Trust Company

ResMor Trust Company




Royal Bank Mortgage

Corporation

Royal Trust Company (The)

Royal Trust Corporation of

Canada

Scotia Mortgage Corporation

Sun Life Financial Trust Inc.

TD Mortgage Corporation

TD Pacific Mortgage

Corporation

Other Financial Institutions

Airline Financial Credit Union

Limited


All Trans Financial Services

Credit Union Limited

Arnstein Community Credit

Union Limited

Communication Technologies

Credit Union Limited

Dundalk District Credit Union

Limited

Goderich Community Credit

Union Limited

Golden Horseshoe Credit

Union Limited

Latvian Credit Union Limited

Ontario Civil Service Credit

Union Limited

Securities Dealers

Edward Jones

Authorized Foreign Banks

Bank of America, National

Association

The Bank of New York Mellon

Barclays Bank PLC, Canada

Branch

Capital One Bank (Canada

Branch)

Citibank, N.A.

Comerica Bank

Deutsche Bank AG

Fifth Third Bank

First Commercial Bank

HSBC Bank USA, National

Association

JPMorgan Chase Bank,

National Association

M&T Bank

Maple Bank

Mizuho Corporate Bank, Ltd.,

Canada Branch

Rabobank Nederland

The Royal Bank of Scotland

N.V., (Canada) Branch

Société Générale (Canada

Branch)

State Street

The Northern Trust Company,

Canada Branch

U.S. Bank National

Association

UBS AG Canada Branch

United Overseas Bank Limited

Achi

evin

g ou

r Vi

sion

: Key

Ac

com

plis

hmen

ts

in 2

012

20

Financial Institutions

File—FIF

CPA Services Network—CSN

Corporate Creditor

Identification Number—CCIN

Canadian Payments Association 2012 Annual Review

Achieving our Vision: Key Accomplishments in 2012

The trends identified in the 2012 scan, which we share further on

in this Annual Review, have validated the continuing relevance

of Vision 2020 in the current payments environment, and we will

continue to carry out its initiatives.

One primary focus of these initiatives in 2012 was strengthening

and modernizing our systems and technical infrastructure. We

also worked to make our clearing and settlement operations more

efficient; adapting our rules and standards to meet tomorrow’s

payment needs.

Security management, governance, leadership and people

were also key priorities; along with activities arising from the

Department of Finance’s planned review of the governance

structure of the Canadian payment system.

Two years ago, the CPA Board formally approved our payments strategy, Vision 2020. In this strategy, we established strategic priorities for the Association, together with a roadmap of initiatives necessary for us to attain our goals. Early in 2012, we conducted an environmental scan of the global payments landscape to identify key trends that could affect the operations of the Association, and renew our strategy as required. This is a key tool in ensuring the strategy’s continued relevance.

Large Value Transfer

System—LVTS

Automated Clearing

Settlement System—ACSS

US Dollar Bulk

Exchange—USBE

Achieving our Vision: Key Accomplishments in 2012


Achieving Our Vision— Core Business

The Canadian payments landscape is con-

stantly evolving, requiring the CPA to be nimble

and flexible as we fulfill our legislated mandate.

The changing needs of their clients continue to

create market demand for new payment prod-

ucts and services from CPA member financial

institutions. In turn, our members look to us

to facilitate the clearing and settlement of new

products and services to meet their clients’

needs. All the while, we are mindful of our duty

to ensure the continued safety and soundness

of Canada’s clearing and settlement systems.

Initiatives closely tied to our core operations,

geared to enhance the efficiency of the valu-

able services we provide to our members, were

a key focus for the Association in 2012.

CPA TECHNOLOGY STRATEGY REFRESH

The CPA’s Technology Strategy was officially

launched in 2010. It presents a long-term

approach for managing the renewal and

modernization of the hardware and software

that supports CPA payment systems (LVTS,

ACSS, USBE), as well as supporting databases

and infrastructure maintained by the CPA (the

FIF, CCIN and CSN). In 2012, the CPA reviewed

the strategy to ensure its continued relevancy

in the evolving payments environment. The

review validated that the CPA’s “Technology

Architecture Principles” which provide

guidance for the design of CPA systems, remain

aligned with global and domestic payment

developments. The Association’s five-year

implementation plan for future system

enhancements ensures that CPA systems will

continue to meet the evolving needs of

Canadian financial institutions and the

payment system during and throughout the

transition period.


The core business of the CPA is the operation of systems and network infrastructure critical to Canada’s financial system, and putting in place the rules and policies that govern the $174.5 billion worth of payments our systems clear and settle on average each business day. On December 17, 2012 alone, CPA systems cleared and settled payments worth a record-breaking $313.1 billion.



LVTS WEB ENABLEMENT

In 2012, work began to modernize the

major technology components of the

Large Value Transfer System (LVTS)

and refresh its infrastructure technol-

ogy to support web-based application

architecture. This is one of the largest

projects ever undertaken by the CPA. The

transition to web-enabled access calls

for a complete refresh of CPA’s applica-

tion development and support tools. It

also requires replacement of the legacy

network used by financial institutions

to connect to the LVTS with current

technology.

The LVTS is Canada’s national system for

the sending of wire payments. Owned and

operated by the CPA, it is a critical com-

ponent of the Canadian payment system,

designated as systemically important by

the Bank of Canada under the Payments

Clearing and Settlement Act.

LVTS contributes to the growth and

stability of the Canadian and international

financial sectors in many ways. In addi-

tion to providing wire payment services

that support critical and time-sensitive

payments for Canadian financial institu-

tions and their customers, LVTS plays an

important role in three of Canada’s other

systemically important clearing and

settlement systems. LVTS provides the

link that enables Canadian financial insti-

tutions to participate in the Continuous

Linked Settlement System (or CLS), a

global settlement system for foreign

exchange transactions.

LVTS also supports the CDSX, Canada’s

clearing and settlement system for debt

and equity securities. In CDSX, securities

are not physically exchanged between

the buyer and the seller. The transfer

of ownership is recorded electronically,

and the securities are “frozen” in the

system, which allows for efficient and

cost-effective processing. A secure funds

exchange takes place at the end of the

day via LVTS and the CDSX account at

the Bank of Canada. LVTS also provides

settlement for the third system, the

Canadian Derivatives Clearing System

(CDCS). This is the system operated by

Canada’s central clearing counterparty

for exchange-traded derivative products,

such as options and futures.

Web-enablement will reduce operational

costs and risks while increasing ongoing

operational efficiencies. Participating

financial institutions will no longer need

to establish a costly dedicated worksta-

tion to send LVTS payments or generate

reports. In turn, the CPA will no longer

need to replace or upgrade these work-

stations every four years. Centralized

architecture and support will also sim-

plify future application upgrades. 2013

will see the conclusion of the project.

NEW LVTS PARTICIPANT

In 2012, Manulife Bank of Canada applied

to the CPA to directly participate in

the LVTS. Their effective transition to

the new role of LVTS Direct Participant

required direction, training, tools and

support from the CPA. The Association

guided Manulife through implementation

and testing of the required LVTS techni-

cal infrastructure (circuits, routers,

and workstations) and also provided

LVTS business and technical training

to Manulife staff. The CPA also led

certification testing, and the coordina-

tion of a Production Acceptance Test, to

ensure that Manulife was well-prepared

for the transition. The addition of

Manulife brought the number of Direct

Participants in LVTS to seventeen.

In CDSX, securities are not physically

exchanged between the buyer and

the seller. The transfer of ownership

is recorded electronically, and the

securities are “frozen” in the system,

which allows for efficient and cost-

effective processing.



FIF WEB ENABLEMENT

The CPA’s Financial Institutions File (FIF)

is an electronic directory containing

information to facilitate the routing of

payments to the appropriate branches

of CPA members, as well as other

deposit-taking institutions in Canada.

The FIF is essential in processing and

routing millions of cheques, direct

deposit payments and other payment

items to their destinations each day,

functioning like a “GPS” for the payments

that travel across the country. The CPA

updates the FIF weekly to reflect addi-

tions of new institutions or branches,

closing of branches, and other changes

in banking arrangements that affect the

routing of payment items.

CPA member financial institutions

subscribe to the FIF directly through the

Association. For an annual fee and asso-

ciated delivery charges, other organiza-

tions may also subscribe to FIF services,

provided they’re sponsored by a CPA

member. Since FIF data can be integrated

with various applications, businesses use

the FIF to validate routing information for

payments such as payroll. Currently, over

400 Canadian and international busi-

nesses subscribe to the FIF.

In 2012, the CPA transitioned to web-

enabled access for the FIF. Immediate

benefits for financial institutions and

businesses include significantly faster

online reporting and the capacity to

export data to multiple formats, which

dramatically reduces the time required

to process data and create output files.

The design and development of web-

enabled access to the FIF system in 2012

laid the technical groundwork for the

future development of additional web-

based multi-client access to centralized

applications and services. This approach

reduces maintenance and support

costs while providing a more flexible

architecture that allows the Association

to more efficiently and easily develop and

integrate new business requirements.

IMAGE RULE PROJECT

The Canadian Payments Association

leads its member financial institutions,

businesses, government and the public

in establishing the rules of Canada’s pay-

ments highway. And cheques are about

to move into the fast lane.

Leveraging new technology, and respond-

ing to customer demands and expecta-

tions in a digital economy, financial

institutions continue to implement and

enhance image technology and image-

based services for their clients. These

digital offerings integrate with computers,

smart phones and other devices to create

new and innovative channels for financial

institutions to meet customer needs. The

CPA continues to enhance and evolve the

clearing and settlement framework to

support these new products and services

and offer improved operational efficiency

to its members. The Association made

significant progress on its multi-year

Image Rule Project during 2012.

CLEARING REPLACEMENT DOCUMENTS

(CRDS)

On October 1, 2012, in the third phase of

the Image Rule Project, the Association

provided members with the option to use

Clearing Replacement Documents (CRDs)

to speed the forward presentment of

some payment items.

Paper payment items like cheques

need to be “presented” to the financial

institution that holds the account on

which the item is drawn. That financial

institution (known as the Drawee) then

decides whether to honour the item or

dishonour it. If the item is dishonoured,

the Drawee can return the item unpaid to

the financial institution that collected it,

for reasons such as insufficient funds

in the account.

The CRD framework permits members

to replace paper payment items with an

electronic image for part of the payment’s

presentment journey. For example, an

image of a cheque could be captured

at a remotely located branch, ATM or

Corporate Client. Moving forward on

its presentment journey, the financial

institution that collected the image

could electronically transmit the image

to its data centre, rather than physically

shipping the paper item. At the data

centre, the image would be printed as

a paper CRD and cleared as a paper item

to the Drawee.

The electronic transmission of these

images shortens the journey to the

data centre, and contributes to faster

presentment to the Drawee financial

institution, particularly for out of region

items. Phase 3 also provides financial

institutions with the opportunity to

develop and offer remote deposit capture

services to their corporate customers if

they choose to do so—allowing custom-

ers to transmit deposit data directly to

their financial institutions.

The Phase 3 framework does permit

the exchange of images between two

CPA member financial institutions,

which offers additional efficiencies in

inter-member payment processing. This

exchange is currently subject to propri-

etary bilateral agreements and is not yet

supported by detailed CPA rules. However,

a robust CPA framework for inter-member

image exchange is on the horizon.



ELECTRONIC CLEARING EXCHANGE (ECE)

During 2012, the CPA also began work on Phase

4 of the Image Rule Project, and undertook

development of a rules and standards frame-

work to fully support the electronic exchange

of images (forward presentment and returns)

between financial institutions.

Although Phase 3 does allow for the electronic

exchange of images between two financial

institutions, it requires the establishment

of bilateral agreements between the two

financial institutions involved in the exchange.

Phase 4 of the Image Rule Project, Electronic

Clearing Exchange (ECE), will eliminate this

need for lengthy bilateral agreements and

allow members that choose to participate in

ECE to rely on a robust supporting framework

of CPA rules and standards. The framework

includes specific requirements around par-

ticipation, testing, file creation, file exchange

procedures, returns, presentment, disaster

recovery and security. The implementation of

this common framework will create opportuni-

ties for financial institutions to streamline

operations, reduce costs and offer a broader

range of image based services to their

customers.

A targeted consultation on the draft ECE

framework was publicly released in January of

2013. Pending Board approval, the new frame-

work is anticipated to enter the implementa-

tion phase later in the fall.

ACSS/USBE STREAMS I & R

Two new payment streams were added to ACSS

and USBE to provide for, and uniquely identify,

imaged items in the clearing system. Streams

I (for forward presentment of imaged paper

items) and Stream R (for returns of imaged

paper items) were successfully added to both

systems in October 2012.

ACSS/USBE VERSIONS 12.0, 12.1

To facilitate the electronic exchange of payment

information and straight through processing of

government items, the CPA introduced several

modifications to the ACSS. Four new payment

streams were created for government items,

replacing existing processes. The next phase

will include further refinements and enhanced

reporting capabilities, and is scheduled for

implementation in 2013.

The core business of the CPA

is the operation of systems and

network infrastructure critical

to Canada’s financial system,

and putting in place the rules and

policies that govern the $174.5

billion worth of payments our

systems clear and settle on aver-

age each business day.

STREAMS I

Forward Presentment of Imaged

Paper Items

STREAMS R

Returns of Imaged Paper Items


Achieving Our Vision— Governance & Oversight

We meet regularly with the Bank of Canada,

as well as the Department of Finance to share

industry expertise on payment-related initia-

tives and provide thought leadership on emerg-

ing issues in payments clearing and settlement.

During 2012, in addition to maintaining these

ongoing relationships, we undertook two key

initiatives concerning governance and

oversight of the Canadian payments system.

CONTRIBUTIONS TO THE CANADIAN PAYMENT

SYSTEM GOVERNANCE REVIEW

The Government of Canada continues to

show strong interest in the payments sector.

Following the release of the final report of the

Task Force for the Payments System Review

in the spring of 2012, the Minister of Finance

announced that the Government would:

• Review the application of existing card

codes to emerging mobile products;

• Create a Senior Advisory Committee on

emerging payments issues; and

• Review the governance structure for the

payments sector, including the CPA.

During 2012, the government fulfilled the first

two of these commitments, announcing that

the Code of Conduct for the Credit and Debit

Card Industry in Canada would be expanded

to include mobile payments, and creating a

senior-level, industry-wide payments advisory

committee, on which the Canadian Payments

Association was invited to participate. Minister

of Finance Jim Flaherty announced the cre-

ation of the committee (FinPay) at Payments

Panorama (the CPA conference) in June, and

the CPA accepted the invitation to become

Achieving our Vision—Governance & Oversight

Given the criticality and importance of our operations to Canada’s economy, assuring good governance is essential. We strive to emulate best practices in governance and regularly review and assess our governance practices. As stewards of Canada’s national clearing and settlement systems, we are subject to oversight by the Minister of Finance and by the Governor of the Bank of Canada, in respect of the LVTS which has been designated as a sys-temically important payment system.


Achieving Our Vision— Governance & Oversight

a member. The committee held its inaugural

meeting in October. FinPay will provide the

Department of Finance with perspectives

on emerging payments issues, and keep the

Department up to date on industry develop-

ments as it proceeds with its review of the gov-

ernance structure of the Canadian payments

system. The continuing safety and soundness

of the system is a paramount consideration

in the CPA’s contributions to this review.

SELF-ASSESSMENT OF LVTS COMPLIANCE

WITH THE NEW FMI PRINCIPLES

The Bank for International Settlements (BIS)

coordinates regulations of financial services

world-wide to promote international financial

stability. In April 2012, the BIS Committee

on Payment and Settlement Systems

(CPSS) and the Technical Committee of the

International Organization of Securities

Commissions (IOSCO) published the final

version of new Principles for Financial Market

Infrastructures (FMIs). They also published

two companion documents: an Assessment

Methodology and a Disclosure Framework.

FMIs are expected to observe the principles

as soon as possible, and it is expected that

the International Monetary Fund (IMF) will

conduct its next Financial Sector Assessment

to evaluate Canada’s observance of the new

principles in 2018.

The FMI Principles apply to the operation and

management of the CPA’s Large Value Transfer

System. They replace the Core Principles for

Systemically Important Payment Systems,

which were published by the CPSS in 2001. As

the LVTS is designated a systemically impor-

tant system by the Bank of Canada, it is subject

to the new requirements, and the principles will

be applied by the CPA in managing and operat-

ing the system.

Over the course of 2012, working with the Bank

of Canada, the CPA conducted a self-assess-

ment of the LVTS’ compliance with the new

principles, and commenced the development

of an implementation plan to address and

prioritize any identified gaps in the areas of:

• Governance of the FMI and Risk Management

• Participant Default Rules and Procedures

• Business Risk, Operational Risk and Liquidity

Risk Management

• Access and Tiered Participation

Arrangements

Critical issues of concern, and those that can

be addressed quickly, will be the focus of

efforts in 2013. The Association will also work

to identify ongoing activities to close any

remaining gaps over the longer term.


Achieving our Vision— Security & Risk Management

The CPA Security Program, which comprises

Risk and Security Management initiatives, is

a top priority for the CPA. Financial institu-

tions and their customers rely on us to provide

an outstanding level of system availability

and information security in our systems and

operations.

Because of the criticality of our systems to the

Canadian economy, we take a vigilant approach

to risk and security management. We strive to

continually enhance and improve our security

measures; benchmarking against industry best

practices. This constant diligence protects

CPA systems and minimizes the risk of service

disruptions or compromise of information.

We continued to implement this rigorous

approach to security in 2012. The Association

conducted the following exercises, designed

to assess and enhance the effectiveness of our

current approaches by identifying any poten-

tial areas of concern and developing plans to

address them.

JOINT OPERATIONAL RESILIENCE MANAGEMENT

(JORM) PROGRAM

The LVTS is a key component of Canada’s

critical financial infrastructure. As such, it is

designated by the Bank of Canada as a system-

ically important system. The Joint Operational

Resilience Management (JORM)1 Program, led

by the Bank of Canada, ensures that appropri-

ate arrangements are in place to assure the

continuity of operations of Canada’s critical

payment, clearing and settlement systems.

In 2012, JORM participants, including the CPA,

successfully conducted a focused Threat and

Risk Assessment of their systems, analyzed

the findings, and developed recommendations

to address any areas of potential concern.

MASTER RECOVERY TESTING

In February of 2012, the Association success-

fully completed the development of a Master

IT Recovery Plan and supporting system

recovery plans. These plans were developed

to ensure continuity of the CPA’s Critical IT

Systems (corporate systems—those main-

tained in-house by the CPA, some of which are

used to administer the payment systems) in

the event of a major business disruption. As

part of this achievement, the CPA conducted a

focused assessment of the gaps in its require-

ments for IT continuity against its current

capabilities. Leveraging the results of the

assessment, the Association crafted an action

plan to address identified gaps or opportuni-

ties for future enhancements.

REVIEW AND UPDATE OF CPA RISK PROFILE

To maximize resilience against business

disruptions, and to ensure that the CPA uses

its business continuity resources effectively,

the CPA reviewed and updated its Business

Impact Assessment (BIA) and Enterprise

Threat Risk Assessment (TRA) over the sum-

mer of 2012. These exercises were completed

successfully with positive outcomes, and a

high-level action plan was developed to

close any gaps.

Achieving our Vision—Security & Risk Management

1—JORM participants include

Bank of Canada, Canadian

Depository for Securities (CDS),

Canadian leg of Continuous Linked

Settlement (CLS), Canadian

Derivative Clearing Corporation

(CDCC), the Canadian Payments

Association, Bank of Montreal,

National Bank of Canada,

Desjardins, Toronto Dominion

Bank, Royal Bank of Canada,

Alberta Treasury Branches,

Laurentian Bank of Canada, Bank

of Nova Scotia, Canadian Imperial

Bank of Commerce.


Achieving our Vision— Dialogue, Consultation & Outreach

Achieving our Vision—Dialogue, Consultation & Outreach

Dialogue, consultation and outreach are essential to the work of the CPA. We connect on an ongoing basis with our member financial institutions, international and domestic industry partners and other stakeholders to the pay-ments system, including businesses, governments and consumer groups.

Through consultation on our plans, projects and initiatives, we seek to

identify and respond to member and stakeholder concerns during the

policy development process. Our participation in global industry forums

supports our collaborative approach to setting the strategic direction

for payments in Canada and contributes to ensuring that our strategy

remains aligned with global developments.

Working together, the CPA, international counterparties, member finan-

cial institutions and other industry stakeholders brought about positive

change for Canada’s payment system in 2012.



KNOWLEDGE-SHARING

The global payments environment is a vast, interconnected ecosystem. As

a Canadian centre of excellence in payments clearing and settlement, the

CPA maintains strong relationships with industry experts in other countries.

The Association strongly supports the exchange of industry expertise on

an international level, and Association staff regularly participates at global

payments events as industry experts.

This collaboration with our industry partners is also supported through

participation in global organizations, such as the International Council

of Payment Association Chief Executives (ICPACE), of which the CPA is

a founding member, active involvement and leadership in the Global

Payments Forum (GPF), membership in the International Payments

Framework Association (IPFA), and a strategic partnership with SWIFT, the

Society for Worldwide Interbank Financial Telecommunication.

International Council of Payment

Association Chief Executives (ICPACE)

MEMBERS—Chief Executives from

seven payment associations around the

globe. MISSION—To strengthen relation-

ships between payment organizations,

increase each organization’s knowledge

base, identify strategic issues of con-

cern and discuss possible solutions or

approaches to resolve them.

International Payments Framework

Association (IPFA)

MEMBERS—Leading banks, clearing

houses and associated payment service

providers. MISSION—Simplifying inter-

national credit transfers through global

standards consisting of a framework of

rules, operating procedures and guide-

lines established by members.

Global Payments Forum (GPF)

MEMBERS—Senior payment executives

representing banks, businesses and

financial service providers. During 2012,

the Forum was chaired by the CPA.

MISSION—To lead innovative global pay-

ment advancements through effective

information exchange, innovative think-

ing, and strong member collaboration.

Society for Worldwide Interbank

Financial Telecommunication (SWIFT)

MEMBERS—International banking

organizations, securities institutions and

corporate customers. MISSION—Enabling

users to exchange automated, standard-

ized financial information securely and

reliably, thereby lowering costs, reducing

operational risk and eliminating opera-

tional inefficiencies. SWIFT also brings

the financial community together to work

collaboratively to shape market practice,

define standards and debate issues of

mutual interest. SWIFT and the CPA have

established a strategic partnership to

jointly promote educational opportuni-

ties, such as standards workshops at the

CPA Conference, Payments Panorama,

to their respective members and

stakeholders.



VOLUNTARY BEST PRACTICE: UNIFORM

TREATMENT OF WIRE PAYMENTS

During 2012, the CPA worked with an informal

group of CPA member financial institution

representatives and SAC members to facilitate

a dialogue around the consistent treatment

of wire payments and broker a consensus on

the treatment of these items by CPA member

financial institutions.

Wire payments sent by financial institutions

in Canada are generally processed through

the CPA’s Large Value Transfer System (LVTS).

These payments are supported by a strong

legal framework which enables the sending of

real-time, irrevocable payments. This certainty

allows recipients to use the funds the moment

they become available, with full confidence

that the payment will not be reversed for

any reason. However, wire payments made

between customers of the same financial

institution, known in the industry as on-us wire

payments, are not processed through the LVTS.

CPA stakeholders raised their concerns about

the uncertainty surrounding the treatment

of on-us wire payments by financial institu-

tions through the CPA’s Stakeholder Advisory

Council (SAC).

Through this committee, the CPA facilitated

the development of a voluntary best practice

that can be endorsed by Canadian financial

institutions to provide assurance to their

customers that they will treat “on-us” wire pay-

ments in a similar manner as LVTS payments

(from the customers’ perspective). A consulta-

tion on the proposed approach was held during

the summer, to ensure that member and

stakeholder concerns were addressed during

the development process. Feedback collected

during the consultation fed into the finalized

best practice statement, which was published

in November of 2012.

The CPA and the Canadian Bankers’ Association

continue to work with their respective mem-

bers to facilitate the advancement of this best

practice.

INTER-MEMBER DEBITS AND BILL PAYMENTS

Online payments offer many advantages, and

plenty of Canadians now use online or mobile

banking interfaces to pay their bills. But what

happens when a customer makes a mistake?

Under the current CPA framework, all bill pay-

ment remittances are final, which requires a

customer to seek reimbursement directly from

their biller when they’ve made an error.

Conceptually, correcting customer bill pay-

ment errors should be as easy as making a

payment. Over a period of several months, the

CPA worked with Canadian billers and CPA

member financial institutions to develop a

policy statement supporting a new framework

for the correction of customer bill payment

errors. The CPA published the policy statement

supporting the new framework in November,

and will begin work on the required CPA Rule

amendments in 2013.

With a biller’s authorization, the new frame-

work will allow a customer’s own financial

institution to correct errors in payments made

to that biller. The customer’s financial institu-

tion will debit the biller’s account and return

the funds to the customer’s account. This will

create efficiencies in the bill payment error

correction process for customers, billers, and

their financial institutions. The framework will

provide assurance to billers that industry best

practices and standards will be applied by

financial institutions when making bill payment

error correction debits through the clearings,

including proper authorization and recourse.

Financial institutions will have an additional

customer service tool they can leverage

to assist their clients more quickly and easily.

With a biller’s authorization,

the new framework will allow

a customer’s own financial

institution to correct errors

in payments made to that

biller. The customer’s financial

institution will debit the biller’s

account and return the funds

to the customer’s account.



CPA CONFERENCE—PAYMENTS PANORAMA 2012

Rapid evolution in the payments industry has increasingly focused

Canadians’ attention on the future of payments and clearing and settle-

ment systems. This means it is more important than ever for those of

us keen to sustain and improve those systems to collaborate, exchange

ideas, and explore the potential, the risks, and the questions surrounding

payments, both domestically and internationally.

Every two years, the CPA hosts Payments Panorama, Canada’s premiere

payments conference. With the generous support of industry spon-

sors, the Association creates an international melting pot of payments

expertise. This provides an outstanding opportunity for payments

professionals from all over the world to engage in dialogue and debate on

current and emerging payments issues.

The theme of Payments Panorama 2012 was “embracing a digital

economy.” Held June 6–8 in Quebec City, the conference had a record-

breaking turnout, attracting 463 payment professionals. Sessions ranged

from electronic invoicing to the Task Force for the Payments System

Review, from consumer protection to payments fraud, and addressed

many other hot payments topics. Delegates benefitted from the insight

of keynote speakers including Finance Minister Jim Flaherty, renowned

demographer David Foot, Macleans magazine’s Paul Wells and CIBC’s

Senior Executive Vice President and Vice Chairman, Jim Prentice. An

overwhelming majority (95%) of surveyed 2012 attendees will consider

attending the next Payments Panorama in 2014 in Charlottetown, and will

recommend this conference to colleagues.

Look

ing

at

Our

Str

ateg

y in

a

Glo

bal C

onte

xt


Looking at our Strategy in a Global Context

Vision 2020 was drafted based on the findings of international research

and benchmarking studies conducted between 2008 and 2010. It also

incorporates feedback received during cross-country consultations

involving a broad community of users of the payment system. Participants

represented more than 100 organizations, including corporate stakehold-

ers, payment service providers, consumer organizations and member

financial institutions, along with other interested parties. Vision 2020 was

formally adopted by the Association in March of 2010. We annually review

and update the strategy to ensure its continuing relevancy in the evolving

payments environment.

In 2012, we scanned the global payments environment to ensure that these

priorities remain relevant in the evolving payments environment, and our

continued strategic alignment with global developments.

As we continue to carry out initiatives contained in our Vision 2020 road-

map, we are mindful of the following trends identified in our scan of the

global payments landscape.

Support the

Growth of Electronic

Payments

Drive

Efficiencies in

Payments

Modernize

CPA

Legal Framework

Enhance CPA Exchange,

Clearing and

Settlement Technology

Expand

Value-Added

Services

As Canada’s centre of excellence in payments clearing and settlement, we actively monitor and research new and emerging developments in the global payments landscape via intensive environmental scans. This vigilance enables us to proactively identify trends that may affect Canadian payments and the operations of CPA systems. This is integral to ensuring that our payments strategy, Vision 2020, remains aligned with global developments.


FIVE STRATEGIC PILLARS OF VISION 2020



Key Trends in Global Payments: Payment PreferencesConsumer-originated payments generate the largest volume of payments

globally. And, as consumers become more familiar with electronic payment

technologies, their payment preferences are changing.

Indeed, the most popular non-cash payments globally are electronic-

based. Efforts to increase user convenience and efficiency while reducing

costs have spelled success for debit and credit cards, which now lead

growth in transaction volume. Consumer-facing technologies in the web

and mobile channels are also growing rapidly. According to industry

analysts, there were 22.5 billion global electronic and mobile payment

transactions in 2010, and an estimated 28.3 billion in 2011.2 The declining

use of telephone banking is another trend linked to widespread migration

to electronic payments and more convenient delivery channels such as

mobile devices and the internet.

Paper-based payments continue to decline in volume. Although cheque

use has continued to trend slowly downward in countries around the world,

cheques are a particularly “sticky” payment method. Remaining cheque

users are reluctant or slow to adopt electronic payments. Many countries

are considering strategies for managing cheque decline and substitution.

Some have chosen to lead by example, phasing out Government cheques,

while other countries are focusing on the development of more practical

electronic alternatives.

Electronic Payment Volumes Globally of Non-Cash Payments3

EUROPE

BRIC—BRAZIL, RUSSIA, INDIA, CHINA

ASIA PACIFIC

NORTH AMERICA

2—World Payments Report (WPR)

2012, Capgemini, The Royal Bank

of Scotland (RBS), and Efma.

3—Capgemini and The Royal Bank

of Scotland, plc., World Payments

Report 2011, p. 9.

2001 83%

2009 93%

2001 48%

2009 77%

2001 80%

2009 94%

2001 56%

2009 84%

0 20 6040 80 100



CANADA The Canadian Government

has recently announced that it will

increase the use of direct deposit by

slowly phasing out federal government

cheques by April 2016.4 The Canadian

Payments Association’s Image Rule

Project has offered incremental efficien-

cies in Canada’s inter-FI cheque clearing

process, culminating in the proposed

Electronic Clearing Exchange framework

under consideration today.

UNITED STATES Improving the efficiency

of cheque processing through the

electronic presentment of cheques and

the consolidation of processing infra-

structures continues to be a key strategy

to manage the general shift away from

the use of paper cheques. In 2010, the

U.S. Federal Reserve Banks completed

the reduction in the paper cheque

processing infrastructure, moving from

45 processing sites to a single processing

centre for paper cheques.5 Since the

introduction of Check 21 in 2004, the

Reserve Banks have effectively converted

or imaged 99% of all cheques.6

AUSTRALIA & NEW ZEALAND The Australian

Payments Clearing Association (APCA)

and Payments NZ, respectively, have

launched broad public consultations

on the future of cheques as a payment

instrument, seeking input on the best

way to manage their decline and ensure

the payments system continues to be

efficient and meet the needs of users.

IRELAND One of the core priorities of the

National Payments Implementation

Programme (established by the Irish

Payment Services Organisation and the

Irish government) is the elimination of

cheques.7 To drive this outcome, the

Government also increased the stamp

duty (i.e. user fees) on cheques.

UNITED KINGDOM In July 2011, the U.K.

Payments Council cancelled its 2018

target date for ceasing the operation

of the U.K.’s national cheque clearing

system. In response to government and

end-user pressure, the Council has

announced that cheques will continue for

as long as customers need them,8 but is

now focused on encouraging innovation

to develop efficient electronic payment

alternatives to cheques, such as Faster

Payments.

Recent Reviews into Cheque Usage & Managing Cheque Decline

4—Public Works and Government

Services Canada, Press Release:

Government of Canada Increasing

Use of Direct Debits: Security,

Reliability & Efficiency, 11.04.12.

5—All paper cheque processing

is now handled at a single site (in

Cleveland) and electronic cheque

processing is handled at another

site (in Atlanta). See the Federal

Reserve’s Financial Services

Policy Committee press release

on March 2, 2010: Federal Reserve

Banks Complete Check Processing

Infrastructure Changes at www.

frbservices.org/files/communica-

tions/pdf/press/030210_check_

infrastructure.pdf.

6—Note that the Federal Reserve

does not process all inter-bank

cheque transactions. For example,

some cheque image processing in

the U.S. is handled by SVPCO (The

Clearing House).

7—See the Irish Payment Services

Organisation’s website at

www.ipso.ie/section/National

PaymentsImplementation

Programme (accessed 20.03.12).

8—See the Payments Council’s

press release at www.pay-

mentscouncil.org.uk/media_cen-

tre/press_releases/-/page/1575/

(sourced on 27.02.12).



Key Trends in Global Payments: Access, Governance & Oversight

Non-financial institution (non-FI) service

providers are playing an increasing role in retail

payments; offering innovative and often critical,

services. The evolving marketplace is prompting

a re-examination of barriers to payment system

access and competition in some payment

services markets, and regulatory review of

possible anti-competitive behaviours in a rising

number of countries.

Public authorities concerned with both user

protection and payment service market devel-

opment have also begun to focus more atten-

tion on the fee structure (i.e. cost to users)

of various payment schemes, which impact

system participants and ultimately, their

customers. Authorities are also examining the

transparency of rights, obligations and risks to

system participants. China and the U.S. have

already introduced regulations and licensing

requirements for a wide range of non-FI retail

payment service providers that impose basic

operational, financial and service standards

on the service providers. These regulations are

designed to even the competitive playing field

and help to better protect customers.

Payment systems across the globe are increas-

ingly being asked to enhance their governance

arrangements, ensuring that they meet key

public policy objectives such as safety and

soundness, as well as competition and innova-

tion. This focus on good governance and public

policy objectives is also supported by the new

Principles for Financial Market Infrastructures

(FMIs), which were recently released by the

BIS Committee on Payment and Settlement

Systems (CPSS) and the Technical Committee

of the International Organization of Securities

Commissions (IOSCO). FMIs include systemi-

cally important payment systems9, central

securities depositories, securities settlement

systems, central counterparties and trade

repositories. The new Principles support

initiatives by central banks and those of the

Financial Stability Board (FSB) to strengthen

core financial infrastructures and markets. All

members of CPSS and IOSCO intend to adopt

and apply the new FMI Principles to the fullest

extent possible.10

9—The FMI Principles apply

to the operation and management

of the CPA’s Large Value Transfer

System, which is designated

as systemically important by

the Bank of Canada under the

Payments Clearing & Settlement

Act.

10—CPSS–IOSCO Principles

for financial market

infrastructures (April 2012,

section 1.1, page 5).



EUROPEAN UNION IMPLEMENTS

REQUIREMENTS FOR ELECTRONIC MONEY

By April 2011, all European Union

countries were required to implement

a new E-Money Directive (2009/110/EC).

The Directive aims to provide a clear,

balanced legal framework, removing

unnecessary barriers to market entry

while at the same time maintaining high

standards of consumer protection. The

Directive also aims to ensure greater

consistency between prudential require-

ments of electronic money institutions

and payment institutions.

U.S. STATE-BY-STATE

MONEY TRANSMITTER REQUIREMENTS

Most U.S. states have licensing require-

ments for non-FIs. California, for example,

recently implemented the Money

Transmission Act, requiring companies

that sell/issue stored value, receive

money for transmission or sell/issue pay-

ment instruments obtain a state license.

QUEBEC REGULATES MONEY SERVICES

BUSINESSES

In April 2012, Quebec’s Money-Services

Businesses Act came into effect. The

provincial legislation requires entities

operating ATMs or offering services such

as funds transfers, the issue or redemp-

tion of travellers’ cheques, money orders

or bank drafts, or cheque cashing, to

obtain a license from Quebec’s financial

markets authority.

TASK FORCE FOR PAYMENTS SYSTEM

REVIEW (CANADA)

The Task Force for Payments System

Review recommended the Government

implement a new payments legislation

to encompass the payments industry,

including non-FIs. The Minister of

Finance has not proceeded with legisla-

tive amendments but opted instead for

further study.

Examples of Regulatory Initiatives Related to Non-FIs

CHINA REGULATES PAYMENT

SERVICE PROVIDERS

In September 2011, the People’s Bank

of China required that all payment

service providers be licensed in accor-

dance with the Bank’s Administrative

Measures on Payment Services Provided

by Non-financial Institutions. These

require non-FIs providing payment

services (i.e. on-line payments, issuance/

acceptance of prepaid cards, acquisition

of bank cards) to obtain a license. In

order to obtain and maintain a license,

non-FIs must meet requirements related

to capital, anti-money laundering, risk

management and security.



Innovation in payments has resulted in the

development of a multitude of new products

and channels. New products and schemes

globally focus on mobile and on-line payments,

followed by innovations in the card space.11

Innovation in consumer-facing front-end

infrastructure is occurring largely in the on-line

and mobile payment environments. While

banks are involved in the majority of Internet

innovations, the role of non-banks is signifi-

cantly increasing, and most mobile payment

innovations are owned by non-payment service

providers.13

Key players in advertising (Google) and social

media (Facebook), as well as key sellers

(such as Amazon and Apple) have developed

consumer-facing business models to compete

with PayPal’s dominance in the online environ-

ment. These new platforms are increasingly

involved in the payment process.

While innovative mobile payments technolo-

gies continue to change the way payments are

made, complexities, fragmentation and com-

petition between new and traditional industry

participants are creating challenges that must

be overcome to result in widespread adoption.

However, a resulting lack of standardization

and fragmentation of the payment value chain

is inhibiting interoperability.

The rate of adoption of emerging payments

varies from country to country. Some have a

stronger business case for adoption or have

the required supporting infrastructure already

in place. Others are experiencing initial barri-

ers such as information security concerns, an

unproven legal and regulatory framework and

the established use of competing payment

products and services.

11—Dirk Schrade, “Innovation

in Retail Payments: Activities

of the CPSS Working Group on

Innovation,” CPSS-World Bank

Retail Forum, Miami, February

27–28, 2012 and ECB Report on

the Results of the E-SEPA

Survey on Payment Innovations

in 2010, October 2011, p.16.

12—Schrade, A Closer Look at

Innovation in Retail Payments,

July 2011.

13—Schrade, A Closer Look at

Innovation in Retail Payments,

July 2011 and European Central

Bank.

Key Trends in Global Payments: Innovation

TOP DRIVERS OF

INNOVATION12

New Technologies

Trend toward the

Real-Time Processing of

Payments

Efforts of Government

to Include

the Under-Banked

NFC & Increasing Use

of Cards in

Public Transportation

High Internet

Usage & Strong Growth

in E-Commerce



Several major payment systems around the

world have either introduced, or are examin-

ing, faster payments. “Faster payments” can

simply mean increasing the speed of the pay-

ments. More specifically, it refers to same-day,

intra-day, or near immediate processing and

settlement, which supports faster confirma-

tion of payment and access to funds.

There is a great variation in the approach to

clearing and settlement in various faster pay-

ment schemes. From the customer’s perspec-

tive, the major concern is the faster posting and

availability of funds. Regulators and financial

institutions however, need to consider the risk

assumed in various settlement schemes. From

a risk reduction perspective, moving to a more

frequent settlement model can be advanta-

geous to a financial institution and the system,

as it enables faster posting of transactions

without increased risk incurred by the exten-

sion of provisional credit. This is especially true

of countries which leverage bilateral clearing

systems, including Ireland, New Zealand, South

Africa, and Australia.14

Ireland and New Zealand have recently

initiated settlement processes similar to the

Netherlands (Equens), which requires settle-

ment before the exchange or “outputting” of

files to participants. This process is referred

to as “settlement before interchange” and

prevents the posting of payment items prior to

settlement, which eliminates settlement risk.15.

Faster Payments

The maturity of interactive, web-based browser models and technologies is contributing to consumer expectations of faster payments. Consumers who “see” funds deducted from their account instantaneously may soon come to expect equally quick delivery to the intended recipient of the funds. In turn, recipients may also come to expect instantaneous account postings.

14—Lipis and Lipis, Global

Payment System Analysis, August,

2012.

15—Global Comparison Report,

Canadian Payments Association

(CPA), 2012.

CLEARING is the process

through which financial institu-

tions exchange and reconcile

payment items made by clients,

and includes the calculation

of net balances due to or from

each financial institution prior

to settlement.

SETTLEMENT is the process

through which financial institu-

tions fulfill their net clearing

obligations by transferring funds

between accounts held at the

Central Bank, based on amounts

owed to each other as calculated

in the clearing process.



Interdependencies highlighted by the recent

global financial crisis are driving new and

stronger oversight policies and standards

for Large Value Payment Systems and other

systemically important financial market

infrastructures. In fact, systemic risk reduction

is identified in the World Payments Report 2011

as one of the top five industry transforma-

tion trends driving change in the payments

landscape.16

Another trend in risk management is increasing

liquidity efficiency in Large Value Payment

Systems. Financial stability-based proposals

are increasing the cost of capital and

availability of intra-day liquidity, requiring

financial institutions to manage their liquidity-

asset liability positions more prudently17 and

driving clearing and settlement mechanisms

to ensure that their systems are designed for

“liquidity-efficient” operations.18

Risk Management

16—Capgemini, p.31. Standard-

ization, a drive for higher levels of

transparency, Convergence and

Innovation are also identified as

industry transformation trends.

17—Tamara Gomes and Natasha

Khan, Strengthening Bank

Management of Liquidity Risk:

The Basel III liquidity standards,

Bank of Canada Financial System

Review, December, 2011, p.35,

World Payments Report, p.30.

18—European Payments Council

(EPC) Newsletter, July 18, 2011.

Tren

ds &

Sta

tist

ics

in

the

Can

adia

n

Paym

ents

Lan

dsca

pe


Trends & Statistics in the Canadian Payments Landscape

The CPA’s Large Value Transfer System (LVTS) is an elec-tronic wire system introduced in February 1999 to facili-tate the transfer of irrevocable payments in Canadian dollars across the country. Through LVTS, funds can be transferred between participating financial institutions virtually instantaneously.

Large Value Transfer System (LVTS)

The LVTS has two payments types: MT 103 and

MT 205. The majority of transactions are MT

103 (as designated by the 103 message code)

which include business and wire payments,

while MT 205 transactions are used for settle-

ment purposes between FIs. MT 205 transac-

tions are used to settle positions between FIs

for a variety of purposes including settlement

amongst credit card companies, securities

settlement, and payment transfers between

FIs to settle ACSS positions. MT 205 transac-

tions account for about 37% of the volume but

80% of the value of LVTS transactions.

LVTS PROCESSING MORE ITEMS

THAN EVER BEFORE

A record-breaking seven million transactions

were processed through the system by the

end of 2012, up from 6.6 million in 2011 for an

increase of 6.3%. This rate of growth in volume

is in line with recent years; LVTS volume

growth has averaged 8% since 2009.

The LVTS also surpassed the previous monthly

volume record of 594,000 transactions—which

was set in June 2011—seven times in 2012,

and reached a new monthly volume record of

623,000 in October.

On June 28, 2012 LVTS volume hit a new

one-day volume record of 42,000 transactions

and the next business day (July 3) saw volumes

climb even higher to 49,900. Although the

end of June is typically a busy time for LVTS

transactions (as it is the end of the fiscal

year for many organizations, the Canada Day

holiday and normal end-of-the-month transac-

tions), the volumes seen on these two record-

breaking days were unprecedented.

MORE LOWER-VALUE ITEMS

So what is driving all the growth in volume? It

turns out that many using the LVTS are starting

to think “smaller.”

Although the LVTS was designed for large value

transactions—as the name implies—nearly

90% of the volume growth in 2012 can be

attributed to items under $50,000 (when

assessing both MT 103 and 205 transactions).

About 43% of all transactions in 2012—or

nearly three million transactions—were under

$10,000 in value. This compares to 2005 when

only 36% of transactions were under $10,000

(see Figure 1 and 2).

Figure 1

2005 LVTS Transaction Size as a

Percent of Total LVTS Payments

Figure 2

2012 LVTS Transaction Sizes as a

Percent of Total LVTS Payments

43% Under $10K

18% $10–50K

23% $50–750K

9% $750–5 Million

7% Over $5 Million

36% Under $10K

15% $10–50K

23% $50–750K

15% $750–5 Million

11% Over $5 Million



Despite the volume growth observed, the total

value of LVTS transactions in 2012 decreased

by nearly 4% to $38.1 trillion and has remained

below its historic peak of $46.1 trillion in 2007

(see Figure 3). This coupled with the growth in

the number of lower-value items has helped

drive the average LVTS transaction size down

by 26%, from $8 million in 2009 to about

$6 million in 2012. About 90% of the LVTS

value decrease in 2012 was attributable to a

reduction in the value MT 205 transactions.

Lower-value MT 205 transactions related to

Bank of Canada activities (e.g. cash note and

bond sales) and lower-value settlement and

collateral-related transactions have contrib-

uted to the overall system-value decrease.

NEW PEAK VALUE DAY

Despite this dip in value overall, the LVTS saw

a new peak-value day record on December

17, when a total of $279.4 billion was settled.

This was far above the daily average value for

2012 of $151.5 billion and beat the previous

peak-value day of $268.6 billion, which was set

on September 4, 2007. This new record can be

attributed to several events occurring on the

same day including mortgage-backed security

entitlement payments, Canada Housing Trust

Bonds reaching maturity and the acquisition

of Calgary’s Progress Energy Resources Corp.

by Malaysian oil and gas company Petronas for

$5.5 billion.

Figure 3

Annual LVTS Value and Volume Trend Lines (Since 2005)

$ 48.0 trillion 7.0

$ 46.0

$ 44.0

$ 42.0

$ 40.0

6.0

$ 38.0

$ 36.0

$ 34.0

$ 32.0

5.0

Volume (million)

Value ($ trillion)

2005 2006 2007 2008 2009 2010 2011 2012

VolumeValue



A CLOSER LOOK AT LVTS MT 205 TRANSACTIONS

There were a total of 2.6 million LVTS MT 205 transactions worth close to

$31 trillion in 2012.There are two main types of MT 205 transactions which

flow through LVTS each day: FI-to-FI transfers and transactions to and

from the Bank of Canada.

A full 96% (nearly 2.5 million) of MT 205 transactions are attributable to

FI-to-FI transfers. These transactions include inter-FI settlement pay-

ments (e.g. for credit card products, or Interac e-transfers), and other

LVTS transactions and payments made between FIs (see Figure 4).

The Bank of Canada is involved in many MT 205 transactions due to its role

in oversight and facilitating settlement. While these transactions repre-

sent only 4% of the volume of MT 205 transactions, they represent about

19.6% of the total value. These transactions mostly consist of: foreign

exchange clearing and settlement; settlement arising from derivative

and securities transactions (CDCC and CDSX); and other Bank of Canada

transactions, including the sale of government bonds and bank notes.

Based on the time of day which the MT 205 transactions occur with the

Bank of Canada, the CPA is able to approximate the value that each key MT

205 transaction type represents (see Figure 5).

100 %

80

60

40

20

0

Figure 4

The Two Main Types of MT 205

Volumes in the LVTS

4 % Total BoC related

96% Transactions &

Settlement Activities

FI to FI transfers

Figure 5

Percentage of MT 205

Transactions Value by Type

(figures rounded)

4% Foreign Exchange

Clearing and Settlement

9% CDC/CDSX Settlement

6% Other BoC

80% Transactions FI to

FI transfers

100 %

80

60

40

20

0



Figure 6

LVTS Daily Average Volume by Month

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC

MARCH

First month to break monthly volume record.

AUGUST

Dip in volume.

DECEMBER

Record volume month.

30K

28K

26K

24K

22K

2012

2011

Daily averages remove fluc-

tuations that occur in monthly

volume data due to more

or fewer LVTS operational

business days occurring in a

given month.

NOTABLE MONTHS

March: The spike in LVTS average daily volume in March may be attributed

to fiscal quarter-end and year-end for many organizations. There is also

additional CLS payment flow due to foreign exchange activity around

futures contract expirations (this is true for March, June, September and

December).

August: LVTS daily average volume is lower in August, primarily due to the

Civic holiday, when volume is just over 5,100 transactions for a total value

of $7 billion (compared to a daily average volume of about 26,500 transac-

tions and daily average value of $138 billion for the rest of August).

December: The spike in December volume may be attributed to quarter

and fiscal year-end for many organizations. There is also additional activity

for CLS around foreign exchange, futures contract expirations and bond

maturity.



The volume of payments cleared through the

ACSS system grew by 4% in 2012, to over 6.5

billion items, while value grew by 6% to almost

$5.8 trillion. This growth can be attributed

to three main factors: more accurate reporting

of Government Items by ACSS participants

starting in April 2012; the growing number

of electronic payments being cleared and

reported by the CPA; and continued modest

growth in the Canadian economy leading to

more and higher-value transactions.

NEW REPORTING PROTOCOL FOR GOVERNMENT

ITEMS RESULTING FROM ACSS VERSION 12

The single biggest impact to the ACSS statis-

tics in 2012 was the implementation of ACSS

Version 12, which changed the way Government

Items are cleared starting in April 2012. The

Government Items stream represents cheques,

bonds, treasury bills and direct deposits

issued by the government.

Before ACSS Version 12, Government Items

were entered with a value of “zero” as these

items were cleared outside the CPA’s systems.

ACSS Government Items do not represent all

of the government payments in Canada, and

are not attributable to any single level of

government. The items are only a certain

cross-section of government disbursements,

which clear through the Bank of Canada and

result in an ACSS entry.

The new Government Item categorization

accounted for two-thirds of the total ACSS

value increase in 2012. So, although ACSS

value grew by about $328 billion, more than

60% of this growth, or over $200 billion, may

be attributed to the change in reporting, not

actual growth in payments values (see Figure

7). AFT Credits made up almost all (88%) the

remaining ACSS year-over-year growth.

Because of the high value of Government

Items, that data has been removed from the

year-over-year comparison of ACSS volume

and value by stream shown in Figure 8 to

permit more accurate trend analysis.

Figure 7

ACSS Annual Value ($ trillions)

$ 6.0 trillion

$ 5.6

$ 5.2

2010

2011

2012

$ 4.8

Automated Clearing Settlement System (ACSS)

The Automated Clearing Settlement System (ACSS) is the system through which the vast majority of CPA pay-ment items are cleared. The ACSS is used for clearing both paper-based payment items and electronic items through various “streams.”



CONSUMER ELECTRONIC PAYMENTS

LEAD ACSS GROWTH

Debit Payments used widely by consum-

ers (which include Online and Point-of-

Service payments) lead most of the

ACSS volume growth in 2012, increasing

by a combined rate of 5% (see Figure 8).

Businesses-oriented electronic payments

also grew at accelerated rates during

2012, with Electronic Funds Transfers

(which include AFT-based payments, EDI

and Electronic Remittances) growing at

a combined rate of 5% in 2012 in terms

of volume and 6% in terms of value (see

Figure 8).

Taking a closer look, Online Debits lead

all ACSS stream growth, continuing a

trend. The payment stream increased by

43% in volume in 2012 (compared to 55%

in 2011) and 51% in value (compared to

110% in 2011) (see Figure 9).

However, Online Debit still accounts for

less than .2% of all ACSS values, under-

scoring the fact that it remains a fairly

new payment method.

EDI was the second-fastest growing

stream in 2012, with both volumes and

values increasing by 11% (see Figure 9).

The total value of EDI payments was

almost $180 billion in 2012, with almost

2.8 million transactions. Despite the

growth, EDI is used by a relatively small

proportion of corporations; most notably

the auto industry due to the industry’s

supply chain and its need to send and

receive large amounts of inventory data to

and from suppliers. EDI transactions tend

to rise and fall in tandem with the health

of the industries that use the systems.

Figure 8

Select ACSS Payment Streams

(Grouped) Percentage Year-over-year

Growth in 2012

8 %

2 %

4 %

6 %

0 %

-2 %

-6 %

-4 %

-8 %

Che

ques

and

Pap

er

Deb

it P

aym

ents

EF

T P

aym

ents

Figure 9

Select ACSS Payment

Streams’ Percentage Year-

over-year Growth in 2012

Sm

all C

hequ

es

Pap

er R

emit

tanc

es

Larg

e C

hequ

es

AF

T C

redi

ts

AF

T D

ebit

s

Onl

ine

Deb

it

Poi

nt o

f Ser

vice

Deb

it

ED

I

Ele

ctro

nic

Rem

itta

nces

0

20 %

-20 %

40 %

60 %

Government item value was

not included in the ACSS

statistics in 2011, so they

have been removed from

the 2012 data for compari-

son purposes in developing

the ACSS stream growth

rates only for this purpose.

Value

Volume



AFT Credit growth was also strong in

2012, accounting for about 88% of the

total ACSS value growth for the year

after Government Items are removed.

AFT credits are widely used by both

businesses and consumers for a variety

of payments and transactions (such as

payroll, direct deposit, one-off account

transfers and bill payments) which now

represent a full 30% of all the value in

ACSS (see Figure 10).

ACSS CHEQUE & PAPER PAYMENTS

BOLSTERED BY BUSINESSES

The volume of paper-based items

(Small and Large Cheques and Paper

Remittances) cleared through the ACSS

continued to slide in 2012; Paper Items

fell 6% in volume and 1% in value in 2012

(see Figure 8).

Despite this decline, Paper Items still

accounted for more than 51% of the

total value of ACSS transactions in 2012

(see Figure 10). Large Cheques (between

$50,000 and $25 million) accounted for

32% of the total ACSS value and had the

highest average transaction size of all

streams at $267,821, as they continue to

be widely used in business-to-business

transactions.

In general, cheques remain prevalent in

the Canadian payment landscape. The

CPA estimates that there were nearly 1.1

billion cheques and paper payment items

exchanged in Canada in 2012 (including

on-us cheques). The total value of cheque

and Paper Item payments (including

on-us) was estimated to be nearly $3.8

trillion in 2012.

When accounting for the fact that more

than one in 10 of all CPA payments

representing roughly 20% of all CPA

payments value has been attributed to

cheques and paper items for several

years (see Figures 11 and 12), it appears

that many businesses in Canada still find

cheques a convenient payment method.

This trend is backed up by data from the

August 2011 Payments Survey of Small

and Medium Sized Enterprises from Price

Waterhouse Coopers showing that 63%

of surveyed businesses use cheques in

business-to-business transactions.

Figure 11

Total CPA Volume of

Electronic & Paper Payments

(LVTS & ACSS)

20

40

60

80

100 %

0

2010

2011

2012

Figure 12

Total CPA Value of

Electronic & Paper Payments

(LVTS & ACSS)

20

40

60

80

100 %

0

Figure 10

2012 ACSS Stream Values

(excludes streams

under 0.2% value)

30 % AFT Credits

10 % AFT Debits

19 % Small Cheques

0.2 % Paper Remittances

32% Large Cheques

0.5 % Shared ABM

3 % POS—Debit

3 % EDI

2 % E-Remittances

2010

2011

2012

Paper

Electronic

Paper

Electronic



DEFINITIONS

ELECTRONIC PAYMENT ITEMS

AFT Debits: Pre-authorized debits to an

account held at a financial institution (FI).

Most commonly used for mortgage and other

bill payments, as well as funds transfer and

corporate cash management payments. Often

recurring, but can also be sporadic. Does not

include debits to credit cards.

AFT Credits: Direct deposits to an account held

at an FI. Commonly used for payroll. Before

changes introduced in April 2012, this category

also included some Government Items.

Point of Service (POS): Debits or credits initi-

ated by merchants in payments for goods or

services and withdrawals from ABMs.

Electronic Data Interchange (EDI): Business-

to-business credits carried out electronically

that can be integrated with some business’s

inventory systems. Most often used by large

corporations, notably many in the auto indus-

try due to the industry’s supply chain and its

need to send large amounts of inventory data

to suppliers.

Electronic (EDI) Remittances: Bill payments

to businesses that include data related to that

business’s Corporate Creditor Identification

Number (CCIN) for credit to a corporation.

Includes bill payments initiated via telephone

and Internet banking and may include some

paper-based bill payment remit-tances

converted to EDI format by FIs.

Online Payments: Payments initiated by a

customer online for the purchase of goods

or services in accordance with CPA Rule E2

that result in a credit from the customer’s FI

account to a merchant.

PAPER-BASED PAYMENT ITEMS

Small Cheques: Paper-initiated payment items

valued at less than $50,000. These are mostly

cheques, but also include travellers’ cheques,

gift certificates and money orders. Before

changes introduced in April 2012, this category


Large Cheques: Paper-initiated payment

items valued at $50,000 to $25 million. Before

changes introduced in April 2012 this category


Paper-Based Remittances: Payments accom-

panied by a paper remittance (bill stub), MICR-

encoded with a CCIN, for credit to a business,

generally initiated via an ABM or FI branch.

Annual Review 2012 Canadian Payments Association · 2012 AT A GLANCE 3 2012 CPA Milestones 4 Key...

Documents

Transcript of Annual Review 2012 Canadian Payments Association · 2012 AT A GLANCE 3 2012 CPA Milestones 4 Key...