1. CONTENTS

EXECUTIVE SUMMARY .................................................................................................................. I

1. INTRODUCTION ..................................................................................................... 1

1.1 METHODOLOGY .................................................................................................... 1

2. DRIVERS AND GENERAL TRENDS IN GLOBAL PAYMENTS, CLEARING AND SETTLEMENT ........... 2

2.1 DRIVERS OF CHANGE .............................................................................................. 2

2.2 GENERAL TRENDS IN PAYMENTS, CLEARING AND SETTLEMENT ......................................... 7

3. NOTABLE INFRASTRUCTURE RENEWAL DEVELOPMENTS .................................................. 9

3.1 CONVERGENCE TOWARDS A GLOBAL PAYMENTS STANDARD ........................................... 9

3.2 THE MOVE TO INCREASE THE SPEED OF PAYMENT PROCESSES ........................................ 11

3.3 ENHANCEMENTS TO LARGE-VALUE PAYMENT SYSTEMS ................................................ 14

4. GENERAL OPPORTUNITIES AND CHALLENGES ............................................................ 18

4.1 RISK MANAGEMENT ............................................................................................ 18

4.2 INNOVATION – THE CHOICE BETWEEN OLD AND NEW PAYMENT SYSTEMS AND THE CASE TO

FUND INFRASTRUCTURE RENEWAL.......................................................................... 19

5. THE CANADIAN CONTEXT – CHALLENGES AND OPPORTUNITIES .................................... 20

5.1 A SNAPSHOT OF DEVELOPMENTS IN CANADA ............................................................. 20

5.2 CHALLENGES AND OPPORTUNITIES IN CANADA ........................................................... 21

6. APPENDICES ...................................................................................................... 22

6.1 LIST OF ABBREVIATIONS ........................................................................................ 22

6.2 BIBLIOGRAPHY .................................................................................................... 25

i

EXECUTIVE SUMMARY

The global payments sector is undergoing transformation, with the modernization of retail and large-

value systems playing a prominent role in the financial reform agenda of many jurisdictions. As part of

its role to promote the safety and efficiency of its national systems for clearing and settlement, the

Canadian Payments Association (CPA) continually takes stock of this rapidly changing landscape. The

CPA’s 2014 Environmental Scan provides an overview of the drivers and trends in payments, clearing

and settlement globally and comments on high-level challenges and opportunities presented by these

developments (internationally and in Canada).

Drivers and General Trends

Globalization, technological advancements and new industry participants, as well as risk management,

efficiency, and user interest considerations are drivers shaping five key trends in payments:

1. The digitization of payments – the replacement of cash and paper-based transactions with

electronic – is transforming payment choices available to consumers and businesses;

2. The move to increase the speed of payment processes continues to accelerate;

3. There is convergence towards a global standard for payment messages – ISO 20022;

4. Interdependencies among financial market infrastructures and systemic risk issues as a result of the global financial crisis are driving more stringent regulations and standards on risk management. These more stringent standards, in addition to regulations in relation to anti-money laundering, data privacy, security, consumer protection and competition policy, are impacting the design and use of both retail and large-value payment systems; and

5. Public authorities in many countries are continuing to examine and, where appropriate, revise governance structures and oversight frameworks for payment systems.

Notable Infrastructure Renewal Developments

Increasingly, there is a global consensus forming around key attributes of the next wave of clearing and

settlement systems. National payments infrastructures of the future are expected to:

Have a capacity to carry data-rich remittance information along with payments. This

functionality will facilitate both domestic and international growth in electronic payments,

promote payments related innovation, and benefit consumers and businesses. For efficiency

reasons, the payment messaging standard used to make this possible will conform to a global

standard and today there is a convergence towards ISO 20022 as that global standard;

Utilize a combination of infrastructures to meet the varying needs of end-users. As either

standalone or integrated, these systems will enable payments to be made between users

ii

around the clock. The systems will be cost effective for participants and users alike, while

maintaining a robust enterprise risk framework; and

Be flexible and built around the expectation that future changes are highly probable. Their

evolution will be guided by an informed and diverse stakeholder base that will take on an

increasingly collaborative approach to accommodating future changes.

Challenges, Opportunities and Impact on Canada

Building payments systems with these attributes to support the evolving marketplace will not be

without its challenges. Two global challenges are presented in this report, namely: effective risk

management (i.e. the emerging notion of cyber risk and its impact on operational resilience); and the

choice between old and new payments systems and the case to fund infrastructure renewal.

Drivers and global trends will also present a number of opportunities and challenges for Canada in the

coming years, including:

Strengthening end-user protection for Canadians in an increasingly digital age while promoting competitive markets (both domestic and international);

Collaborative strategy setting for the Canadian payments system. This includes planning for a next generation clearing and settlement system for Canada, anchored to the public policy objectives of increasing efficiency, enhancing risk management and responding to end-user needs;

Contributing to the harmonization of international payment standards with broad adoption of ISO 20022‐based messages across the Canadian payments ecosystem; and

Embracing governance reform in Canada, including transitioning to a changing governance structure and oversight framework for the CPA.

Canada must embrace the dynamic state of the payments ecosystem and forge ahead with a

collaborative direction for its national payment systems; one that will continue to support the country’s

financial stability, economic development and international competitiveness.

1

1. INTRODUCTION

The global payments sector is undergoing transformation, with the modernization of retail and large-

value systems playing a prominent role in the financial reform agenda of many jurisdictions. 1 As part of

its role to promote the safety and efficiency of its national systems for clearing and settlement, the

Canadian Payments Association (CPA) continually takes stock of this rapidly changing global landscape.

This is because payment systems around the world are interconnected; each designed to facilitate

commerce both domestically and globally. With increased globalization, this interconnectedness and

interdependence has never been greater. As a result, developments in payments systems across the

globe can influence Canada.

The CPA’s 2014 Environmental Scan (hereinafter, “report”) identifies drivers and general trends in global

payments (Section 2); examines some of the more notable clearing and settlement-related

developments in more depth (Section 3); comments on high-level challenges and opportunities

presented by these developments (Section 4); and provides a snapshot of the Canadian context, honing

in on a select number of issues for Canada and the CPA (Section 5).

1.1 METHODOLOGY

To capture important developments and to accurately reflect the motivations and drivers behind them,

the methodology for this report included:

A review of payment industry sources, including: central bank publications and Red Book statistical

updates, research reports, industry publications, conference presentations, news releases, and

annual reports. Information was collected on twenty countries: Australia, Belgium, Brazil, Canada,

China, Germany, Ireland, Japan, Mexico, Netherlands, New Zealand, Poland, India, Russia, Saudi

Arabia, Singapore, South Africa, Sweden, the United Kingdom (U.K.), and the United States (U.S.);

A scan of CPA committee discussions, including the Stakeholder Advisory Council’s 2014 Priorities;

and

An external review of global developments by an independent payments consulting firm to

supplement desk research and complement the CPA’s analysis.2

1A variety of terms are used in payments literature to describe the spectrum of systems that comprise the payments landscape (i.e. low value or high-value; retail or wholesale; prominently important or systemically important; urgent or non-urgent). In this report, we use the categorization of retail payment systems and large-value payment systems, although we recognize that the differentiation between these systems is beginning to blur. 2Payments consulting firm Radix Consulting was retained to provide research support.

2

2. DRIVERS AND GENERAL TRENDS IN GLOBAL PAYMENTS,

CLEARING AND SETTLEMENT

Payments systems are evolving in response to market and regulatory forces. This includes strong

guidance from public authorities that payment, clearing and settlement systems should serve the public

interest.3

There are wider forces affecting the financial system as a whole that have implications for payments

systems; globalization and technological advancements are two of the most pervasive of these wider or

indirect forces.4 Promoting safety, enhancing efficiency and user interest considerations, as well as new

industry participants are direct drivers for change, which are strongly tied to achieving public policy

objectives for payment systems. When these broad objectives are not being met (or perceived as such),

oversight, regulation and supervision serve as a catalyst for change.

This section elaborates on these change drivers and then briefly describes the resulting general trends in

payments, clearing and settlement.

2.1 DRIVERS OF CHANGE

2.1.1 Globalization

Increased globalization can have a knock-on impact on a country’s payments system. Exhibit 1 shows

one measure of globalization: the relationship between economic growth in a given country with growth

around the world.5 The positive correlation shown in

Exhibit 1 illustrates that no major economy in the world

is immune from activities outside its borders.

Financial institutions and their services have also

become increasingly globalized.6 This globalization is

influencing the use of both retail and large-value

payment systems. For example, multinational

businesses with operations in many countries

increasingly expect their payments’ experience to be

jurisdiction agnostic. Companies and consumers are

3We use “public authority” to mean any public entity that has been given authority to intervene in the payment system. It includes central banks, market or competition authorities, legislators or other government bodies. 4Direct drivers are those that have an impact that is isolated to payments systems, while the indirect drivers, such as globalization and emerging technologies impact industries beyond payments. This classification is not meant to be exhaustive or mutually exclusive. 5For Canada the figure shows a r-squared value of 0.86 implying that 86% of variation in Canada’s GDP growth can be explained by global GDP growth. 6Morten L. Bech, Christine Preisig, and Kimmo Soramäki, “Global Trends in Large-Value Payment,” Economic Policy Review (September 2008): 60. www.newyorkfed.org/research

Exhibit 1: Economic integration of world

economies

3

now engaged in commerce around the world creating a need for around the clock commerce. To

facilitate 24 hours a day, seven days a week (24/7) commerce, payments systems are under increasing

pressure to process payments on a 24/7 basis. Globalization is also sustaining growth of cross border

payments resulting in payments systems operating across boundaries and legal regimes.7

2.1.2 Technological Advancements8

Technology is a key driving force impacting the payments landscape, creating opportunities to enhance

the safety and efficiency of payments systems, while at the same time enabling new payment types,

new competitors and new customer expectations.

The proliferation of mobile devices has enabled consumers to make regular use of all available channels

in their shopping experience9 (e.g. mobile, computer, brick and mortar etc.), converging e-commerce

and physical commerce.10 Mobile technology has facilitated access to information on an anywhere, any

device, and anytime basis, which has been a transformational experience for consumers.11 Consumers

can now bank from virtually anywhere, check their account balances and pay their bills.

Mobile phone ownership and social and business networking (e.g. Facebook, LinkedIn) are important

factors influencing payment processing platforms around the world.12 Mobile technology expands the

reach of the internet, provides opportunities for cloud payments, and a greater demand for cloud

computing applications.13 Advancements in computing power are making computers more mobile on

the front-end, and more powerful and smarter on the back-end, where improved data processing power

can improve fraud mitigation and risk management controls.14

Technological advancements are also facilitating developments in large-value payment systems.

Increased computing power and sophisticated software have enabled more advanced queuing and

7The global volume of cross-border transactions will rise at a projected CAGR of 8 percent from 2012 to 2022. Stefan Dab et al., Global Payments 2013 – Getting Business Models and Execution Right (Boston, MA: The Boston Consulting Group, Inc., 2013), 8. 8In general terms, technological advancement or progress takes place in two phases: innovation and maturation. Committee on Payment and Settlement Systems (CPSS), New developments in large-value payment systems, (Switzerland: BIS, 2005), 23. 9The term omni-channel or omni-commerce is used to explain the seamless end-user experience across all platforms. 10Vantiv, Top 10 Payment Trends to Watch in 2013 (Vantiv,2013), www.vantiv.com; Capgemini, World Payments Report 2013 (Capgemini and the Royal Bank of Scotland plc, 2013), 41.

Committee on Payment and Settlement Systems (CPSS), Innovations in Retail Payments: Report of the Working Group on Innovations in Retail Payments (Bank for International Settlements, 2012), 2 and 49. 11FIS, Real-time Payments Resonate with Consumers (FIS, April 2013); VISA, “Payments and Technology,” The Future of Technology and Payments. 2nd edition (April 2013), 1-58. 12Financial Services Club, The Changing Face of Payments: A Review of Current Payments Infrastructure, Drivers for Change and Implications for the Future (Cognizant and VocaLink, 2013), 5. 13 Cloud technology enables any computer application or service to be delivered over a network (via the Internet), with minimal or no local software or processing power required. Mckinsey Global Institute, Disruptive Technologies: Advances that will Transform Life, Business, and the Global Economy (Mckinsey Global Institute, May 2013), 5-6. Financial Services Club, The Changing Face of Payments: A Review of Current Payments Infrastructures, Drivers for Changes and Implications for the Future, 24. 14 VISA, The Future of Technology and Payments, 5.

4

liquidity management tools for participants, achieving a better tradeoff between liquidity and risk

management.15

2.1.3 Safety (Risk Management)

Safety has always been a prominent concern for public authorities and financial market infrastructures.

The overall safety of payments, clearing and settlement depends on how well risks (e.g. liquidity, credit,

legal, operational, etc.) are understood, measured and controlled. With the most recent global financial

crisis highlighting the importance of resilient financial infrastructure, the regulatory landscape for

payments is experiencing unprecedented change, focusing increased attention on effective risk

management in both retail and large-value payment systems.

As payment systems play a crucial role in a stable functioning financial market and economy, the risk

reduction priorities of public authorities, including most notably central banks, continue to act as a key

driver for change in the way these systems are designed, operated and used. For example, reducing

tiering in wholesale payment systems was a key priority area of the Bank of England in 2012 and 2013.16

In accordance with this priority, the large-value payment system in the U.K., CHAPS, implemented rules

in 2012 that give its Board authority to preclude indirect relationships that present unacceptable

systemic risk. Reducing the likelihood of operational risk, including cyber, is also a key priority of central

banks across the globe.17

2.1.4 Enhancing Payments System Efficiency

Promoting efficiency is a key policy objective for clearing and settlement systems around the world.

Efficiency, which is a broad concept, is determined by many factors, including the functional design of

the system (e.g. gross, net, hybrid settlement; real time or batch processing, etc.), the technology it

uses, the scope of products/services handled, the reliability of its services, as well as the direct and

indirect costs of providing those services.18

15For a general discussion of how technological advancements are facilitating developments in large-value payment systems please refer to: CPSS, New Developments in Large-Value Payment Systems, 1-58; Morten L. Bech, Christine Preisig, and Kimmo Soramaki, “Global Trends in Large-Value Payment,” 59-81; Ben Norman, “Liquidity Saving in Real-time Gross Settlement Systems: An Overview,” Journal of Payments Strategy & System 4 (September 2010): 1-11. 16 Bank of England, Payment Systems Oversight Report 2012, (Bank of England, 2013), www.bankofengland.co.uk/publications 17See discussion in Section 4.1 of this Report. 18For general discussion of efficiency, see Committee on Payment and Settlement Systems - Technical Committee of the International Organization of Securities Commissions, Principles for Financial Market Infrastructures (Switzerland: Bank for International Settlements and International Organization of Securities Commissions, 2012); Bruce J. Summers, “Payment system design and public policy,” in Payment Systems: Design, Governance and Oversight, ed. Bruce J. Summer (Great Britain: Central Banking Publications, 2012), 3-16; Lawrence Sweet, “Purpose of oversight”, in Payment Systems: Design, Governance and Oversight, ed. Bruce J. Summer (Great Britain: Central Banking Publications, 2012), 241.

5

Key developments in payments systems globally are certainly driven by the need to improve efficiency.

As discussed later in this report, payment systems are enhancing efficiency by introducing liquidity

saving mechanisms and facilitating interoperability across domestic and international systems.

The examination of enhancing “end-to-end” efficiency in payments systems is also gaining momentum.19

Industry experts explain that improving end-to-end efficiency means moving business-to-business and

person-to-person payments from paper to electronic; bringing down the end-to-end cost of initiating

and receiving payments; and that innovation in payments origination and receipt passes through risk

controls and the payments infrastructure with speed and relatively low cost.20

2.1.5 New Industry Participants

The involvement of non-banks in retail payments systems has increased substantially in recent years,

with these entities introducing highly impactful payment innovations.21 New players such as Amazon

Payment, Google Checkout, PayPal and Square are using technology to transform the experience for

both consumers and businesses.

Indeed, there is growing sentiment amongst public authorities that allowing new industry participants to

compete on equitable terms with large incumbent financial institutions will result in increased

competition, lower prices and greater choices for the end-users of payments services. To stimulate

additional competition, some countries are revising access conditions to their payments systems to be

more open, fair and transparent. Recent examples of this include Australia, New Zealand and the Single

Euro Payments Area (SEPA) countries.22

While presenting many opportunities, changing market participation also introduces new risks that

require careful examination, particularly in terms of possible regulations.

2.1.6 User Demand/Interests

Fuelling a number of changes in the payments landscape is the end-user. In retail payment systems, user

demand/behaviour is one of the most important drivers of innovation.23 The growing desire of end-users

19 The US Federal Reserve Banks’ new vision emphasizes the importance of improving the speed and efficiency of U.S. payment system from end-to-end. See: Payment System Improvement – Public Consultation Paper, September 10, 2013, pp.2. 20Jeffs, Jennifer, and the Canadian International Council, The Payments Revolution (November 11, 2013), www.opencanada.org/features/the-think-tank 21Committee on Payment and Settlement Systems (CPSS), Innovation in Retail Payments, 16. 22The New Payments Platform (NPP) in Australia will allow new entrants such as PayPal to directly participate. In New Zealand, new access rules to retail systems were introduced based on objective risk-based criteria. Similarly, as a result of the Payments Systems Directive, all payments systems in the eurozone will have to reassess their access criteria to make it more objective and non-discriminatory for all payments service providers. 23Committee on Payment and Settlement Systems (CPSS), Innovation in Retail Payments, 25.

6

to make payments as quickly and securely as possible, at any time and from any device is being coined

by some as the “payments revolution”; that is, a “global transformation in the way we pay”.24

While payment system operators are responsible for the effectiveness of their respective systems (in

addition to their safety and efficiency), 25 public authorities in a number of countries are increasingly

looking to ensure that the payment system is appropriately responsive to changing user needs, and

intervening to address what they perceive as market failures in this regard.26 To support public interest

objectives, public authorities, industry bodies and payment system operators are placing an increased

level of importance on the need for collaboration and engagement to sustain strategic change for the

long-term.

Recent examples of this global push toward collaboration are seen in the United Kingdom, the United

States, Australia and Finland:

Australia – The Reserve Bank of Australia’s conclusion of its Strategic Review of Payments

Innovation in the Payments System presented the Australian Payments Clearing Association

(APCA) with an opportunity to broker consensus on an industry-wide program to design an

entirely new payments platform for the economy.27 APCA and the Reserve Bank have also

developed a proposal for a new, high-level Payments Council to support the central bank’s

Payment System Board on the strategic direction of the Payments System;

Finland – The Bank of Finland recently established a Payments Council to encourage cooperation

between public authorities, users and providers of payment services on future payment

solutions;

United Kingdom – The U.K. Payments Council has issued a payments roadmap encouraging

broad thinking on future collaborative payments infrastructure; and

United States – The Federal Reserve Banks recently launched a consultation seeking industry

collaboration and engagement on strategic improvements to the U.S. payment system.

24Jennifer Jeffs, and the Canadian International Council, The Payments Revolution (November 11, 2013), www.opencanada.org/features/the-think-tank 25A payment system’s effectiveness is determined by “the extent to which it meets stakeholder needs and the needs of the public in general”. See, Bruce J. Summers, “Payment system design and public policy”, in Payment Systems: Design, Governance and Oversight, 12. 26Interchange fees in payments systems and the resulting intervention by public authorities is one illustration of this point, with the Federal Reserve Board in the U.S. regulating debit card interchange fees and the Reserve Bank in Australia regulating credit card interchange, as examples. In July 2013, the European Commission proposed caps on both credit and debit card acceptance fees, initially for cross-border transactions, and in two years’ time, for domestic transactions within the European Union. 27APCA, Annual Review 2013 – Collaboration for a Better Payments System (Sydney: Australian Payments Clearing Association Limited, 2013).

7

2.2 GENERAL TRENDS IN PAYMENTS, CLEARING AND SETTLEMENT

Globalization, technological advancements and new industry participants, as well as risk management,

efficiency, and user interest considerations are shaping five key trends in payments. These trends are

identified briefly below, with two more notable developments related to clearing and settlement

identified in italics and discussed in more depth in section 3:

1. The digitization of payments – the replacement of cash and paper-based transactions with

electronic – is transforming payment choices available to consumers and businesses. This drive to digital is at mature stages in most developed economies and is gaining momentum in the developing ones.28 Consumers are increasingly willing to transact electronically using both traditional electronic methods (e.g. credit or debit cards) and alternative one (e.g. e-wallets, virtual currencies like BitCoin).

2. The move to increase the speed of payment processes continues to accelerate. More countries are implementing same-day settlement for bulk retail payment systems and/or creating new systems or services to provide a faster payment option for individual payments.

3. There is convergence towards a global payments standard for payment messages. ISO 20022

is gaining significant momentum with adoption or planned adoption in many parts of the world

for retail and large-value payment systems.

4. Interdependencies among financial market infrastructures and systemic risk issues as a result

of the global financial crisis are driving more stringent regulations and standards on risk

management. These more stringent standards, in addition to regulations in relation to anti-

money laundering, data privacy, security, consumer protection and competition policy, are

impacting the design and use of both retail and large-value payment systems.29

Regulatory initiatives include, Basel III and liquidity monitoring tools,30 the Dodd-Frank Act31 and

the CPSS-IOSCO risk management standards for financial market infrastructures.32 The impact of

28As an example, in Belgium, France and Canada, over 90% of retail payments are now cashless. Electronic payment methods such as direct debits and credit transfers are also on the rise. See MasterCard’s Global Journey from Cash to Cashless September, 2013. Direct debit and credit transfer trends are noted in Lipis & Lipis, Global Payments Systems Analysis Report 2012 (Berlin: Lipis & Lipis, 2012). 29For example, the results of assessments may point to the need for a system to make changes; some minor and some more significant depending on the level of observance with the regulation and standards. 30In April, 2013, the Basel Committee on Banking Supervision published a set of quantitative tools that would allow a bank oversight body to effectively monitor banks’ intraday liquidity risk and its ability to meet payment and settlement obligations on a timely basis under both normal and stressed conditions. 31A new regulatory framework governing cross-border electronic transfer payments originated by U.S. consumers was established with section 1073 of the Dodd Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank 1073), which came into effect on February 2013. The intent of Dodd-Frank 1073 is to protect and inform consumers by providing greater transparency related to the cost and delivery on international payments. 32Committee on Payment and Settlement Systems (CPSS) - Technical Committee of the International Organization of Securities Commissions, Principles for Financial Market Infrastructures (Switzerland: BIS and International Organization of Securities Commissions, 2012), www.bis.org

8

these regulatory initiatives are numerous, including: more costly intra-day liquidity, higher

collateral requirements for financial institutions, changes to clearing rules and, in some cases, a

complete revamping of risk management practices by financial market infrastructures.33

5. Public authorities in many countries are continuing to examine and, where appropriate, revise

governance structures and oversight frameworks. Governance reform of payment systems is

continuing, as evidenced by the planned or adopted changes in the governance structures for

payment systems across the globe. In addition to Canada (as discussed in section 5), the most

recent example is in the U.K., with the establishment of a new payments system regulator,

removing the formal strategy role of the U.K. Payments Council. In accordance with the new

CPSS-IOSCO risk management standards, a number of financial market infrastructures are taking

measures to strengthen their governance with the inclusion of independent Board members.

Also, central banks in many jurisdictions are strengthening their powers and broadening their

scope of oversight to include systems of financial or prominent importance (i.e. systems whose

failure can have a major economic effect and undermine public confidence).

These risk management standards are considerably more stringent than the previous ones, placing a stronger emphasis on the governance of risk and requiring financial market infrastructures to have comprehensive risk management frameworks in place. 33Citibank, Citibank’s Payments Prospectus 2013: A Look at the Payments Market Around the World (Citi, 2013), www.citibank.com; Capgemini, World Payments Report 2013 (Capgemini and the Royal Bank of Scotland plc, 2013), www.capgemini.com/wpr13

9

3. NOTABLE INFRASTRUCTURE RENEWAL DEVELOPMENTS

Globally, countries are bringing about reforms to their payment systems to support public interest

objectives, take advantage of technological advancements and address challenges presented by

globalization. 34 This section takes a closer look at three of the more notable developments in clearing

and settlement systems:

Convergence towards a global payments standard;

Move to increase the speed of payment processes; and

Enhancements to large-value payment systems, including extension in operating hours and the

introduction of liquidity saving mechanisms.

3.1 CONVERGENCE TOWARDS A GLOBAL PAYMENTS STANDARD

One of the most significant and recent developments in payment systems has been a convergence

towards ISO 20022 as a global standard for payment messaging. With a multi-pronged promise of

enhancing interoperability, efficiency, competition, and addressing user needs for richer remittance

information, many countries are now either implementing the ISO 20022 standard across various

domestic payment schemes or have committed to doing so. Exhibit 2 (next page) provides the ISO

20022 adoption status for the twenty countries reviewed for this report.

The combined effect of SEPA regulations that require the use of ISO 2002235 in euro-zone countries for

SEPA payments, along with standard initiatives taking place in other countries suggest that more than

half of all electronic payments globally will be using the ISO 20022 standard within the next decade.36

The following are the key observations found from analyzing ISO 20022 standards adoption globally:

The scope of adoption varies across geographies. As a result, the realized benefits will vary from one

jurisdiction to another;

34In many countries, elements of retail and large-value payment systems, as well as foreign exchange and securities settlement systems are undergoing reforms. A survey by the World Bank in 2010 shows that amongst the developed economies, which includes 34 countries and is collectively referred as OECD, 19 countries were undergoing some form of reform; most often the national retail payments system. World Bank, Payment Systems Worldwide Global Payments Systems Survey 2010 (Washington: World Bank, 2011), www.worldbank.org 35SEPA regulations require the use of ISO 20022 standard in the eurozone countries for SEPA payment instruments. To minimize any possible risk of disruption to payments for consumers and businesses, the European Parliament approved an extension of the SEPA migration deadline for processing SEPA-compliant payment transfers by six months (from February 1, 2014 to August 2014).The mandatory migration date is October 31, 2016. 36Gareth Lodge and Neil Burton, ISO 20022 Payments Standard: A Hero for Our Times? (Celent, 2013), 2, www.earthport.com

10

Many jurisdictions are adopting the standard for their next generation retail and large-value RTGS

systems;

Typically, countries are taking a phased approach to adoption starting with either a single payment

type (e.g. Direct Debit (DD) or Direct Credit (DC)) and/or system; and

Regulation is playing an important role in many jurisdictions by mandating the adoption of the

standard.37

Exhibit 2 ISO 20022 adoption status

COUNTRY ISO ADOPTION PAYENT TYPES USING STANDARD

(DC & DD = Direct Credits & Direct Debit)

AUSTRALIA Planned Expedited retail

BELGIUM Yes DC & DD, expedited retail, card, RTGS

BRAZIL Yes Cross-border (IPFA)

CANADA Yes (Planned) Cross-border (IPFA), DC, DD and LVPS (planned)

CHINA Planned RTGS and DC & DD

GERMANY Yes DC & DD, expedited retail, card, RTGS

IRELAND Yes DC & DD, expedited retail, card, RTGS

JAPAN Yes RTGS, DC & DD

MEXICO No N/A

NETHERLANDS Yes DC & DD, expedited retail, card, RTGS

NEW ZEALAND Yes DC & DD

POLAND Yes DC & DD, expedited retail, card, RTGS

INDIA Yes RTGS

RUSSIA Planned Debit card

SAUDI ARABIA Planned Cross-border, DC & DD

SINGAPORE Yes Expedited retail

SOUTH AFRICA Yes Cross-border, DC & DD

SWEDEN Yes Expedited retail, DC & DD, RTGS

U.K38. No N/A

U.S. Yes Cross-border (IPFA)

37For example, as a result of SEPA regulations, the ISO 20022 standard is being implemented across multiple jurisdictions. In Australia, the central bank explicitly included the standard as a core criterion for any retail faster payments solution proposed by the industry. 38 In the UK, the development of new ISO 20022 account switching messages for Current Account Switch Service will make it easier for customers to switch their retail banks. This service platform uses the ISO 20022 standard for exchanging financial information.

11

3.2 THE MOVE TO INCREASE THE SPEED OF PAYMENT PROCESSES

The end-to-end payments process involves origination, exchange, clearing, settlement, posting, and

funds availability. The move to increase the speed of payments focuses on one or more of these steps

and is being driven by risk management, user interests, and efficiency concerns.39 The result has been

the emergence of two significant trends in retail payment systems: 40 (i) more systems with same-day or

more frequent intra-day settlement for bulk exchange electronic payments; and ii) the creation of new

payment systems to provide a faster payment option for individual retail payments.41

3.2.1 Same Day Settlement for Bulk Electronic Retail Payments

As shown in Exhibit 3, a number of countries have now moved to same-day settlement for their bulk

exchange retail payment systems. Australia, Ireland and New Zealand are examples of countries that

have more recently implemented same-day settlement as part of clearing and settlement system

modernization.

Exhibit 3 Countries with same day settlement for bulk electronic payment exchange

COUNTRY WITH SAME DAY SETTLEMENT*

INTRA-DAY SETTLEMENTS

CENTRAL HUB ARCHITECTURE

SETTLEMENT BEFORE EXCHANGE

AUSTRALIA (BECS) × × BELGIUM (STET) CHINA (CNAPS) ×GERMANY (STEP2) IRELAND (STEP2) ×

JAPAN (Zengin DNS) × ×NETHERLANDS (EQUENS ACH) NEW ZEALAND (BECS via SBI) POLAND (ELIXIR) RUSSIA (VER) SINGAPORE (IBG) ×S. AFRICA (EFT) ×SWEDEN (BGC) ×

* Brazil (CIP-SILOC), Canada (ACSS), India (NECS), U.S. (ACH), and U.K. (BACS) settle most bulk electronic payments on the business day following exchange (T+1), so are not included in the table. *Mexico and Saudi Arabia currently use their LVPS directly for processing most direct payments, so have not been included.

39Internal research conducted by the Canadian Payments Association. 40Committee on Payment and Settlement Systems (CPSS), Innovation in Retail Payments, 30. 41In Mexico however, a single ‘hybrid’ system (SPEI) handles both retail and large value payments. SPEI settles payments in batches but has the ability to settle these batches in quick succession (i.e. as soon as there are 300 new payment instructions or if 20 seconds have passed since the last settlement cycle and at least one new payment instruction has been received).

12

In the wake of the 2008 financial crisis, counter-party risk concerns have driven countries to consider the

merits of faster bulk payment settlement. Additionally, faster settlement contributes to a faster overall

payment process and can help with faster funds availability for end users. By moving to faster

settlement, system operators are able to better meet their public policy objectives of efficiency, reduce

risk, and end-user considerations.

While most bulk systems utilize a deferred net settlement process, more countries are employing a

settlement process that requires settlement before exchange or “outputting” of payment files to

participants (e.g. Russia, Germany, Ireland, Netherlands and New Zealand).42 This prevents the posting

of payment items prior to settlement, which eliminates counter-party settlement risk. While same-day

settlement timeframes vary across the systems (from settlement once per day to settlement every few

hours), multiple intra-day settlements are more typical in settlement before exchange models.

Many countries still perform settlement after payment files are exchanged. Examples include Australia,

China, Japan and South Africa.43

The following are the key observations found from analyzing same-day settlement systems globally:

There is a risk and efficiency tradeoff between the settlement models. Settlement before exchange

models place greater liquidity strain on participants than others; and

It is becoming increasingly common to use central hub44 architecture as better risk management is

pursued through models such as settlement before exchange.45

3.2.2 Expedited (Near-immediate) Retail Payment Systems for Individual Payments

Most countries employ two main types of national payment clearing and settlement systems: a bulk

exchange system for retail transactions and a large-value payment system for wholesale. In an

increasing number of countries, a separate payment system or service is being added to provide a faster,

almost-immediate, payment option for individual retail payments. The U.K.’s Faster Payment Service

(FPS) was created in 2008 to enable users to obtain access to funds within hours of payments being

initiated. Since then, countries such as China, Brazil, Poland, and India have added expedited or near-

42This process is also referred to as “settlement before interchange”. 43Whether settlement occurs before or after exchange is not in all cases indicative of whether the end-users have funds availability. In Canada, for example, files are exchanged and payments are posted to client accounts before settlement occurs, resulting in provisional credit. 44Payments systems that utilize network designs with a central node for file processing. A central node provides opportunities for file processes beyond exchange, such as for validation and archiving. 45Australia and Canada are the only two examples amongst the countries researched for this report that do not use central hub architecture.

13

immediate payments systems. Globally, the number of these systems is expected to grow to 25

countries in a decade and 75 countries in 20 years.46

Today, systems in Sweden, South Africa, China, and India give payees near real-time access to funds.

Other countries, including Saudi Arabia and Australia, are developing systems or services with near-

immediate funds availability requirements. Some important attributes of these expedited systems are

presented in Exhibit 4.

Exhibit 4: Attributes of Expedited (Near-Immediate) Retail Payment Systems

COUNTRY

SAME DAY POSTING TO

PAYEE ACCOUNTS1

USE OF ISO 20022

24/7 PAYMENT PROCESSING2

BUSINESS PAYMENTS AND DISBURSEMENTS

AUSTRALIA* NEAR REAL-TIME

BRAZIL (TED) WITHIN HOURS × ×

CANADA (e-TRANSFER)

WITHIN HOURS × ×

CHINA (IBPS) NEAR REAL-TIME ×

INDIA (NEFT) NEAR REAL-TIME × ×

NETHERLANDS (TNS) WITHIN HOURS × ×

POLAND (EXPRESS ELIXIR)

WITHIN HOURS

SAUDI ARABIA* NEAR REAL-TIME

SINGAPORE (FAST) NEAR REAL-TIME

S. AFRICA (RTC) NEAR REAL-TIME ×

SWEDEN (BIR) NEAR REAL-TIME

UK (FPS) WITHIN HOURS ×

Belgium, Germany, Ireland, Japan, New Zealand, Russia, and U.S. do not have nationally-scoped expedited retail payment systems. Mexico’s SPEI system has been excluded as it is categorized as LVPS for this report. *Australia and Saudi Arabia systems are in development, hence, system features may change. 1Refers to the amount of time the system takes, once payments are exchanged, to give payees access to their funds.

224/7 Payment Processing distinguishes systems in which payees may receive funds any time 7 days/week.

The following are the key observations found from analyzing faster, near-immediate systems globally:

Most are established as distinct national payment systems, with separate participation and

settlement processes;

46Fundtech, Immediate Payments: Innovation is Knocking - White Paper (Fundtech, 2014), www.fundtech.com/library/white-papers/

14

Many are leveraging international standards (e.g. ISO 20022) enabling rich payment information and

integration with modernized core clearing and settlement systems;

Most process payments and enable funds access for beneficiaries on a 24/7 basis to meet end user

demands for rapid funds availability.47 Examples of 24/7 systems currently in place include UK (FPS),

India (IMPS), Sweden (BiR), Singapore (FAST) and Poland (ELIXIR). Additionally new systems in

Australia (2016) and Saudi Arabia are currently under development;

Challenges include a need for system participants to develop a capacity for timely posting of funds;

As the velocity of faster or near-immediate payments increases so does the potential for risk,

including

o Counter-party risks: A general approach to mitigate these risks is to limit transactions to the

available funds in dedicated accounts (e.g. escrow accounts or central bank “prefunded”

accounts);

o Payments fraud and cyber security threats: All systems identified utilize a central hub

architecture, where payment validation and fraud detection can be performed (prior to

payments exchange);

Expedited or near-immediate systems vary by scope of service. Most are built to facilitate consumer

payments (P2P and P2B) and a growing number are being designed to facilitate business payments

(B2B and B2C). For example, systems in the U.K. (FPS), China (IBPS), S. Africa (RTC), and Sweden

(BiR) provide expedited payment options for both businesses and consumers.

3.3 ENHANCEMENTS TO LARGE-VALUE PAYMENT SYSTEMS

3.3.1 Better Liquidity Management

As reported in the CPA’s 2012 report on Key Developments in Payments, liquidity efficiency is a primary

characteristic of next generation large-value payment systems. 48 Regulatory initiatives such as Basel III

are increasing the cost of capital and availability of intra-day liquidity, requiring financial institutions to

manage their liquidity more prudently.49 These initiatives are also pressuring payment operators to

47For the purpose of this research, a retail payment system is considered to have 24/7 availability if it can exchange, clear and post payments to a beneficiary account 24 hours a day, 7 days a week. 48Canadian Payments Association, Key Developments in Payments (Ottawa: CPA, 2012), 22. 49Tamara Gomes and Natasha Khan, “Strengthening Bank Management of Liquidity Risk: The Basel III Liquidity Standards

Financial System Review,” Financial System Review, December 2011 (2011): 35;Capgemini, World Payments Report, 30.

15

ensure that their clearing and settlement systems are designed to operate in “liquidity efficient” ways,

deploying the latest liquidity saving techniques and strategies.50

A clear trend for large-value payment systems, particularly real-time gross settlement (RTGS) systems, is

the introduction of liquidity saving mechanisms (LSMs) to make more efficient use of participant

liquidity. In 2013, India, the U.K., Australia, and Sweden made LSMs part of their system modernization.

Today, a pervasive approach to liquidity saving is the incorporation of transaction queuing and netting,51

which reduces liquidity requirements with as much as 30% liquidity savings over a RTGS system, while

minimizing interbank credit risk.52 Please refer to Exhibit 5 for examples of large-value payment systems

that are using liquidity saving mechanisms.

Exhibit 5 Large-value payment systems with LSMs

COUNTRY SYSTEM NAME &

YEAR OF LSM INTRODUCTION

ALGORITHM FOR OFFSETTING PAYMENTS

CENTRAL QUEUING OF

RTGS

PRIORITY DESIGNATION

AUSTRALIA RITS (2013)

INDIA RTGS (2013)

SWEDEN RIX (2013)

U.K. CHAPS (2013)

JAPAN BOJ-NET (2008) × EUROPE* TARGET2 (2007) RUSSIA BESP (2007)

SINGAPORE MEPS+ (2006) ×

CHINA HVPS (2005) × ×MEXICO SPEI (2004)

U.S. CHIPS (2001)

BRAZIL SITRAF (2001)

CANADA** LVTS (1999)

NEW ZEALAND ESAS (1998) ×*Europe includes Belgium, Germany, Ireland, Netherlands, and Poland as TARGET2 participants **LVTS makes use of algorithms and queuing for very large transactions, referred to as “jumbo” transactions.

50Ruth Wandhofer, “Get Ready for More – Basel III marks only the beginning of increased regulatory scrutiny of the payments market,” EPC Newsletter, no.11 (July 18, 2011). 51These processes use advanced centralized queuing and algorithms to match payments from different participants. Similar sized payments can be matched and offset bilaterally or multilaterally, so the net balance of each participant is mostly negated. 52Ben Norman, “Liquidity Saving in Real-Time Gross Settlement Systems – An Overview,” Journal of Payments Strategy & System 4 (September 2010): 1-11.

16

The following are the key observations found when global developments around LSMs were analyzed

For large-value payment systems with LSMs, settlement can vary from real-time to several hours

depending on transaction priority and participants’ available liquidity;53

As a result of recent implementations of LSMs, large-value payment systems are becoming

increasingly liquidity efficient across the globe; and

The new tools (such as advanced algorithms for transaction matching) found with the most recently

implemented LSMs set a higher benchmark for liquidity efficiency and will influence other countries

as they seek to modernize their large-value payment systems.

3.3.2 Extension in Operating Hours

Over the past decade, increased globalization of financial markets has resulted in the need to extend the

operating hours of large-value payment systems. Two “waves” of operating hour extensions between

1997 and 2005 are attributable to such globalization; the first in 1998 and 1999 to coincide with

TARGET’s business hours, and the second in 2002, coinciding with the launch of Continuous Link

Settlement (CLS).54

Today, almost all large-value payment systems operate beyond domestic business hours, and most

operate 5 days per week. Of these, a growing number operate at least 20 hours per day, with just a few

with weekend hours (e.g. India and South Africa). See Exhibit 6 (next page).

Recently, Mexico and Australia extended the operating hours of SPEI and RITS, respectively; and the

central banks in the U.K. and Japan are considering doing the same for their large-value payment

systems. 55 There are a number of considerations involved in increasing the operating hours and number

days of operation of large-value payment systems, including increased operating expense, staffing

requirements, operational risk, and the provision of hardware and software to enable extended

operations that run at 99.995 percent availability.

53Prioritization is a queue management tool where participants assign codes (e.g. “high”, “normal”, “low”) to each transaction. Generally, higher priority transactions are processed before lower priority transactions, which gives participants control in managing their queue of transactions and their liquidity. 54Moten L. Bech, Christine Preisig, and Kimmo Soramäki, “Global Trends in Large-Value Payment,” 72. 55The Bank of England is considering an extension to the operating hours of CHAPS motivated in part by risk management changes to the Faster Payments System. SeeChris Salmon, “The UK Payments Landscape,”Remarks Given at the CD Howe Institute Special Policy Conference: Canadian Payment Systems (Toronto, November 4, 2013), www.bankofengland.co.uk/publications. The Bank of Japan recently reconfirmed its plans to extend the hours for BOJ-Net to better facilitate cross-border payments from other time-zones. Bank of Japan, Payment and Settlement System Report: 2012-2013 (Tokyo: Bank of Japan, 2013), 42, www.boj.or.jp/en/research/

17

Supporting the emerging demands of peripheral payment systems (e.g. wholesale or retail payment

systems) and operating with greater overlap with major markets in other time zones continue to

motivate an examination of operating hour extensions in large-value payment systems.

Exhibit 6 Large-value payment systems hours of operation comparison

COUNTRY DAILY HOURS OF

OPERATION DAYS PER WEEK

AUSTRALIA (RITS) 14.5 5

BELGIUM (TARGET2-BE) 11 5

BRAZIL (STR) 12 5

BRAZIL (SITRAF) 10.9 5

CANADA (LVTS) 19 5

CHINA (CNAPS-HVPS) 9.5 5

GERMANY (TARGET2-BBK) 11 5

INDIA (RTGS) 9 (5 on Sat.) 6

IRELAND (TARGET2-IE) 11 5

JAPAN (BOJ-NET) 10 5

MEXICO (SPEI) 23.5 5

NETHERLANDS (TARGET2- NE) 11 5

NEW ZEALAND (ESAS) 23.5 5

POLAND (TARGET2-NBP) 11 5

RUSSIA (BESP) 19 5

SAUDI ARABIA (SARIE) 7 5

SINGAPORE (MEPS+) 14 5

SOUTH AFRICA (SAMOS) 24 7

SWEDEN (RIX) 10 5

USA (FEDWIRE) 21.5 5

USA (CHIPS) 20 5

18

4. GENERAL OPPORTUNITIES AND CHALLENGES

While certain industry and regulatory initiatives may be initiated in a particular country, they have an

impact on individual payments markets around the world. For example, although “faster payments” for

retail consumers originated in the U.K., this service is now being replicated by other countries. The

World Payments 2013 report refers to this replication as the “cascading effects” of geographic

overlaps.56 There are also competing effects, where various global initiatives or regulatory requirements

compete with each other. Using the same example, while the move to increase the speed of payments

processes creates innovative platforms that better serve end-user needs, it also creates challenges for

financial institutions as they seek to comply with intra-day liquidity requirements.

This section comments on two specific challenges presented by the developments outlined in sections 2

and 3 of this report, namely: risk management; and the choice between old and new payment systems

and the case to fund infrastructure renewal.

4.1 RISK MANAGEMENT

While many change drivers (e.g. technological innovation and the entry of new industry participants)

create opportunities in payments, clearing and settlement, they also present new risks to assess and

fully understand. The emerging risk of cyber and its impact on operational resilience is discussed below.

Operational Resilience and Cyber Risk:57

As a result of the increasing threat landscape (e.g. multiplicity of entry points; disruption that can extend

beyond expectations) and sophistication of cyber-attacks, public authorities across the globe are giving

significant attention to the overall level of preparedness against such attacks. The U.K., Canada, the U.S.,

and Europe are just a few jurisdictions that have recently adopted strategies, including a greater role for

government oversight for cyber security. The increased risk to financial institutions as a result of cyber

threats was recognized by Canada’s Office of the Superintendent of Financial Institutions. In 2013, it

introduced a Cyber Security Self-Assessment Guidance that will assist regulated financial institutions in

meeting related regulatory requirements.58

In the realm of payments, cyber risk brings a new dimension to the safety and integrity of payment

systems. Central banks, system operators and financial institutions are increasingly reviewing

operational risk management frameworks to determine how best to adapt to this risk; in particular, how

systems can better monitor, report and adapt to cyber threats and vulnerabilities. For example, the

Committee on Payment and Settlement Systems (CPSS) set up a working group in June 2012 to identify

56Capgemini, World Payments Report 2013, 32. 57Cyber risk refers to the specific risks that relate to the use of computers, information technology and virtual reality. Cyber security focuses on protecting computers, networks, programs and data from unintended or unauthorized access, change or destruction. 58 OSFI, Memorandum to Federally Regulated Finance Institutions, Cyber Security Self-Assessment Guidance, October 28, 2013.

19

and analyze cyber security issues for financial market infrastructures, challenges to operational risk

management and business continuity plans, and also implications for oversight bodies.

Given their critical role in the economy, clearing and settlement systems require very high levels of

resilience and availability. New risks such as cyber, as well as challenges related to managing

increasingly complex legacy systems must be well understood and better managed to protect the

integrity of payment systems.

4.2 INNOVATION – THE CHOICE BETWEEN OLD AND NEW PAYMENT

SYSTEMS AND THE CASE TO FUND INFRASTRUCTURE RENEWAL

Market and regulatory forces will continue to shape the evolution of payment platforms and core

national infrastructures. The approach that payments systems globally have taken to respond to these

forces and meet evolving needs is not consistent. Some have opted for improvements to the existing

systems; others have started anew by designing and architecting new systems, viewing the constraints

and limitations of their existing infrastructure as insurmountable. The choice of a right model and

approach will vary from one country to another, depending on the risk appetite of the participants and

the oversight authorities.

There are significant challenges to funding new payments infrastructure development. Firstly, there is

an ongoing debate within jurisdictions on what improvements are needed, secondly, there is limited

certainty around innovation inertia and its impact on consumer and business needs;59 and finally,

political conditions are dynamic and can give rise to a host of outcomes especially when trying to

balance the issue of user interest with funding.

Infrastructure renewal for payment systems results in significant costs for system operators and

participants. A key challenge is that some of these systems are not flexible and are significantly limited

in their functionalities (e.g. the ability to process and post payments to a beneficiary account in real-

time).60 Major expenses are required, for example, to upgrade the processing infrastructure for a 24/7

real-time flow of payments and faster settlement for bulk retail payments.

In some jurisdictions, payments system operators have a pricing strategy that includes a “cost plus”

model to provide for infrastructure renewal. Others borrow the capital funds and recover this cost

through item processing fees. Funding models for new infrastructure development vary from one

jurisdiction to another and depend on the type of infrastructure being funded.

59A market assessment that can help identify gaps and best solution can be useful in addressing this challenge. 60ACI Payments Systems, Replacing Legacy Payments Systems - White Paper, 3. www.aciworldwide.com

20

5. THE CANADIAN CONTEXT – CHALLENGES AND OPPORTUNITIES

The extent to which the developments discussed in this report impact Canada will be different. Impacts

are influenced by factors such as political considerations, industry structure, and economic and

demographic conditions, amongst others. For example, there will likely be a limited need for regulatory

intervention in mature payments market with well-established industry bodies and a clear path forward.

In such markets, it is expected that market forces will lead to the most optimal outcome for all

stakeholders.

This section provides a snapshot of how global drivers and trends impact the Canadian context, honing

in on a select number of issues for Canada and the CPA.

5.1 A SNAPSHOT OF DEVELOPMENTS IN CANADA

The global drivers and trends documented in this report are being experienced in Canada, albeit in

varying degrees. See Exhibit 7 for a high-level snapshot.

DRIVERS Globalization Technological advancements New industry participants Public policy objectives of safety, efficiency and user interest

TRENDS

1. The digitization of payments → Globally, Canada has amongst the highest up take rate for electronic consumer payments. The Canadian Government is examining the resulting opportunities and challenges (e.g. consultation on a comprehensive consumer protection framework; parliamentary hearings on emerging digital payment systems etc.).

2. Move to speed up electronic payment processes → Pressure to modernize Canadian legacy payments, clearing and settlement systems to accommodate growth in electronic payments and user demands.

3. Convergence towards a global payments standard for payment messages → Adopting ISO 20022 is a key element in the CPA’s drive to lead the modernization of Canada’s payments system. Over time, adopting ISO 20022 will enable straight through processing and electronic invoicing, thereby enhancing the competitiveness of Canadian businesses and driving efficiencies.

4. More stringent standards for risk management → The CPA holds its Large Value Transfer System (LVTS) to the highest international standards, the CPSS-IOSCO Principles for Financial Market Infrastructures. The CPA is working towards meeting this higher bar.

5. Heightened interest of public authorities in payments → Public authorities in Canada are enhancing the governance and accountability structures of the CPA and the oversight powers of the Bank of Canada. To enhance collaboration, Canada’s Department of Finance created a forum of public and private sector representatives, FinPay, to discuss and advise on industry level developments in the Canadian payments system.

Exhibit 7

21

5.2 CHALLENGES AND OPPORTUNITIES IN CANADA

The dynamism of the payments landscape will result in opportunities and challenges for Canada in the

coming years. Some examples include:

Strengthening end-user protection for Canadians in an increasingly digital age while promoting competitive markets (both domestic and international);

Collaborative strategy setting for the Canadian payments system. This includes planning for a next generation clearing and settlement system for Canada, anchored to the public policy objectives of increasing efficiency, enhancing risk management and responding to end-user needs;

Contributing to the harmonization of international payment standards with broad adoption of ISO 20022‐based messages across the Canadian payments ecosystem. This requires tremendous industry coordination, collaboration and engagement; and

Embracing governance reform in Canada, including transitioning to a changing governance structure and oversight framework for the CPA.

Canada must embrace the dynamic state of the payments ecosystem and forge ahead with a

collaborative direction for its national payment systems – one that will continue to support the country’s

financial stability, economic development and international competitiveness.

22

6. APPENDICES

6.1 LIST OF ABBREVIATIONS

ACH Automated Clearing House

APC Australian Payments Council

APCA Australia Payments Clearing Association

B2B Business-to-Business Payments

B2C Business-to-Consumer Payments

BECS Bulk Electronic Clearing System

BESP Banking Electronic Speed Payment

BOJ-Net Bank of JAPAN Financial Network System

BGC Bankgirocentralen

BiR Betalningar I Realtid

BIS Bank for International Settlements

CHAPS Clearing House Automated Payment System

CHIPS Clearing House Interbank Payments System

CLS Continuous Link Settlement

CNAPS China National Advanced Payment System; bulk electronic retail clearing system

CPSS Committee on Payment and Settlement Systems

DC Direct Credit

DD Direct Debit

DNS Deferred Net Settlement

ECB European Central Bank

EFT Electronic Funds Transfers

ELIXIR Poland’s clearing system for bulk electronic retail payments

ESAS Exchange Settlement Account System

ERPS Expedited Retail Payment Systems

23

FATCA Foreign Account Tax Compliance Act (U.S.)

FRB Federal Reserve Bank (U.S.)

FMI Financial market infrastructure

FPS Faster Payments Service

HVPS High Value Payment System

IBG Interbank GIRO

IBDS Internet Banking Payment System

IFPA International Payments Framework Association

IFT Immediate Funds Transfer

IOSCO International Organization of Securities Commissions

IMPS Immediate Payment Service

LSM Liquidity Saving Mechanisms

LVPS Large-value Payment System

LVTS Large Value Transfer System; Canada’s large-value payment system

MEPS+ Monetary Authority of Singapore Electronic Payment System

NEFT National Electronic Funds Transfer system

OECD Organization for Economic Co-operation and Development

P2P Person-to-Person Payments

P2B Person-to-Business Payments

PFMI Principles for Financial Market Infrastructure

PSD Payment Services Directive (European)

RBA Reserve Bank of Australia

RITS Reserve Bank Information and Transfer System

RIX Riksbank’s Funds Transfer System

RTC Real-Time Clearing; South Africa’s expedited retail payment system

RTGS Real Time Gross Settlement

RTGS (India) Real Time Gross Settlement System; India’s large-value payment system

24

SBI Settlement Before Interchange

SEPA Single Euro Payments Area

SIPS Systemically Important Payments System

SPEI Sistem de Pagos Electronicos Interbancarios

STEP2 Straight-Through Euro Payment Processing System; bulk retail payment clearing system used across Europe

STET Systèmes Technologiques d'Echange et de Traitement

TARGET2 Trans-European Automated Real-time Gross settlement Express Transfer system

TED Low-value direct credit payment instructions settled through Brazil’s large-value payment systems (STR and SITRAF)

TNS Telgiro Nieuwe Stijl

SAMOS South African Multiple Option Settlement

SITRAF Sistema de Transferência de Fundos

VER System for Intraregional Electronic Payments

25

6.2 BIBLIOGRAPHY

ACI Payment Systems. Replacing Legacy Payments Systems - White Paper. ACI World Inc., 2011.

www.aciworldwide.com

Asian Bankers Association. Asian Bankers Association Position Paper: FATCA Compliance. 2013.

www.aba.org.tw

Australian Payments Clearing Association. Annual Review 2013 – Collaboration for a better payments

system. Sydney: Australian Payments Clearing Association Limited, 2013. www.apca.com.au

Australian Payments Clearing Association. Strategic Review of Innovation in the Payments System: Real-

time Payments Committee - Proposed Way Forward. Sydney: Australian Payments Clearing

Association and Reserve Bank of Australia, 2013. www.apca.com.au

Australian Payments Clearing Association. Establishment of an Australian Payments Council. Sydney:

Australian Payments Clearing Association, 2013. www.apca.com.au

Bank of England. Payment Systems Oversight Report 2012. Bank of England, 2013.

www.bankofengland.co.uk/publications

Bank of Japan. Payment and Settlement System Report: 2012-2013. Tokyo: Bank of Japan, 2013.

www.boj.or.jp/en/research/

Basel Committee on Banking Supervision. Monitoring Tools for Intraday Liquidity Management. Bank for

International Settlements, 2013. http://www.bis.org/publ/bcbs248.htm

Bech, Morten L., Christin Preisig and Kimmo Soramäki. “Global Trends in Large-Value Payment.” Federal

Reserve Board of New York Economic Policy Review 14, no. 2 (2008): 59-81.

www.newyorkfed.org/research

Canadian Bankers Association. How Canadians Bank. Canadian Bankers Association, 2013. www.cba.ca

Canadian Payments Association. Key Developments in Payments. Ottawa: CPA, 2012.

Capgemini. World Payments Report 2013. Capgemini and the Royal Bank of Scotland plc, 2013.

www.capgemini.com/wpr13

Citibank. Citibank’s Payments Prospectus 2013: A Look at the Payments Market around the World. Citi,

2013. www.citibank.com

Committee on Payment and Settlement Systems (CPSS). New developments in large-value payment

systems. Switzerland: Bank for International Settlements (BIS), 2005. www.bis.org

Committee on Payment and Settlement Systems (CPSS). Innovations in Retail Payments: Report of the

Working Group on Innovations in Retail Payments. BIS, 2012. www.bis.org

26

Committee on Payment and Settlement Systems (CPSS) - Technical Committee of the International

Organization of Securities Commissions. Principles for Financial Market Infrastructures.

Switzerland: BIS and International Organization of Securities Commissions, 2012. www.bis.org

Cummings, Christine M. “Enhancing Payment System Speed, Efficiency and Security.” Keynote Remarks at the TCH Annual Payments Symposium and Business Meeting, New York City, June 12, 2013. www.newyorkfed.org

Dab. Stefan et al., Global Payments 2013 – Getting Business Models and Execution Right. Boston, MA:

The Boston Consulting Group Inc., 2013. www.bcgperspectives.com/content

EBA Clearing. STEP2 SEPA Services: Straight through SEPA. EBA Clearing, 2013.

European Commission. “Directive on Payment Services (PSD).” The European Commission. January 30,

2014. www.ec.europa.eu/internal_market/payments

European Payments Council. EPC Newsletter, no. 11 (July 2011): 1-42.

www.europeanpaymentscouncil.eu

European Payments Council. EPC Newsletter, no. 20 (October 2013): 1-59.

www.europeanpaymentscouncil.eu

Financial Services Club. The Changing Face of Payments: A Review of Current Payments Infrastructures,

Drivers for Change and Implications for the Future. Cognizant and VocaLink, 2011.

www.mobilepaymentsinsider.com

Financial Services Club. The Changing Face of Payments: A Review of Current Payments Infrastructures,

Drivers for Change and Implications for the Future. Cognizant and VocaLink, 2013.

www.mobilepaymentsinsider.com

FIS. Real-time Payments Resonate with Consumers. FIS Global, 2014. www.fisglobal.com

Fundtech. Immediate Payments: Innovation is Knocking - White Paper. Fundtech, 2014.

www.fundtech.com/library/white-papers/

Fung, Ben, and Miguel Molico. “Conference Summary: New Developments in Payments and

Settlement.” Bank of Canada Review, Spring 2012 (2012): 39-45. www.bankofcanada.ca

Gomes, Tamara, and Natasha Khan. “Strengthening Bank Management of Liquidity Risk: The Basel III

Liquidity Standards Financial System Review.” Financial System Review, December 2011 (2011):

34-42. www.bankofcanada.ca

International Telecommunication Union. World Telecommunication/ICT Indicators Database 2013. 17th

ed. ITU: 2013. www.itu.int/en/ITU-D/

27

Jeffs, Jennifer, and the Canadian International Council. Interview. The Payments Revolution. November

11, 2013. www.opencanada.org/features/the-think-tank

Lipis & Lipis. Global Payments Systems Analysis Report 2012. Berlin: Lipis & Lipis, 2012.

Lodge, Gareth, Neil Burton. ISO 20022 Payments Standard: A Hero for Our Times?. Celent, 2013.

www.earthport.com

MasterCard Advisors. MasterCard Advisors’ Cashless Journey: The Global Journey from Cash to Cashless.

MasterCard, 2013. www.mastercardadvisors.com/cashlessjourney

McKinsey & Company. “Payments Regulation: A Catalyst for Innovation.” McKinsey on Payments 16

(March 2013): 38-45.

Nakajima, Masashi. “Payment System Technologies and Functions: Innovations and Developments.

Hershey, PA: IGI Global, 2011.

Norman, Ben. “Liquidity Saving in Real-time Gross Settlement Systems: An Overview.” Journal of

Payments Strategy & System 4 (September 2010): 1-11.

Payments Council. HM Treasury Consultation: Opening Up UK Payments Response from the Payments

Council. UK: HM Treasury, 2013. www.gov.uk/government

Payments Market Practice Group. Inventory of Regulatory Initiatives. PMPG, 2013. www.swift.com

Richards, Tony. Update on the Strategic Review of Innovation in the Payments System. Speech from the

Future of Digital Payments Conference, Sydney, August 28, 2013. www.rba.gov.au/speeches

Reserve Bank of Australia. 2013 Self-Assessment of the Reserve Bank Information and Transfer System.

Sydney: Reserve Bank of Australia, 2013. www.rba.gov.au

Salmon, Chris. “The UK Payments Landscape.” Remarks Given at the CD Howe Institute Special Policy

Conference: Canadian Payment Systems, Toronto, November 4, 2013.

www.bankofengland.co.uk/publications

Summers, Bruce J. Payment Systems: Design, Governance and Oversight. Great Britain: Central Banking

Publications, 2012.

The Federal Reserve Banks. Payment System Improvement - Public Consultation Paper. The Federal

Reserve Banks, 2013. www.fedpaymentsimprovement.org

UK Government. Financial Services (banking reform) Bill Government Amendments: Payments Regulator.

UK: HM Treasury, 2013. www.gov.uk/government

Vantiv. Vantiv Insights White Paper: Top 10 Payment Trend to Watch in 2013. Vantiv, 2014.

www.vantiv.com

28

VISA. “Payments and Technology.” The Future of Technology and Payments. 2nd edition (April 2013): 1-

58.

Wandhofer, Ruth. “Get Ready for More – Basel III marks only the beginning of increased regulatory

scrutiny of the payments market.” EPC Newsletter, no.11 ( July 2011): 33-35.

World Bank. Payment Systems Worldwide Global Payment Systems Survey 2010. Washington: World

Bank, 2011. www.worldbank.org