With Netflix and other video streaming services at our fingertips, it’s hard to believe that not long ago we were watching our movies on DVD players. The home viewing entertainment industry has undoubtedly undergone a complete transformation in less than a decade.

Now, thanks to technological, economic and demographic shifts, as well as the growing impact of regulation, the global payments landscape is undergoing a similar change — and Canada may be in danger of getting left behind.

Modernizing payment practices is difficult for traditional institutions. “The single biggest hurdle is a company’s legacy infrastructure, their current application process, and practices,” according to Sanjay Tugnait, CEO of Capegemini, a financial technology consulting company. 

“This, coupled with the fear of cannibalizing traditional revenue streams as a result of the deployment of innovative payment practices, and fear of changing,” he says, “leads to an inertia in them to lead the market with disruptive payment practices.”

Banks have been the main players in the payments industry for decades, but in recent years, other payment providers have been gaining ground in the market. Among those are financial technology startups — including Ripple and Venmo— and non-payment technology behemoths such as Apple,
Google, and Amazon.

In response to the arrival of these non-traditional players and to heightened demand for customer data privacy and security, many regulators are taking steps to facilitate innovation and create a level playing field.

In Europe, for example, the Payment Services Directive 2 is intended to increase competition by opening up the market to third-party payment initiation service providers and account information service providers.

The United Kingdom’s Payment Systems Regulator aims to foster innovation in the industry by giving non-bank institutions access to the Faster Payments Service, which shortens payment times between various banks’ customer accounts from three days to just a few hours.

China has also seen transformative innovation. In 2004, Alibaba Group introduced a digital payment platform called Alipay to the country. The service works similarly to PayPal, except that funds are kept in escrow and not released until the customer receives the goods paid for. Alipay has expanded its services in recent years, and today it offers online transactions, money market accounts, and small business loans. It has 400 million users, similar to PayPal, and boasts control of nearly half of China’s online payment market. Traditional financial institutions in the country are now using Alipay’s APIs to offer innovative new services.

A golden opportunity to become digital leaders

Canada has yet to see this degree of innovation. Our national landscape is much more conservative, with people having long relied on the big banks for traditional financial services.

However, these institutions must now act quickly and decisively to meet the changing needs and demands of their customers when it comes to payment services, or they risk taking a back seat to new technological startups.

“Our financial institutions and regulators are behind the curve compared to countries like Australia, the E.U., the UK, Singapore, and others,” says Kristy Duncan, founder of the organization Women in Payments. “We have to invest in innovation and make changes to our financial infrastructure so that it’s more forward-looking. Otherwise, other countries are going to leave us in the dust.”

With the field of consumer payments rapidly changing, Canada would do well to adopt some of the new innovations that other countries are. Having independent developers and startups create new APIs and services autonomously would have many benefits. First of all, it would help to meet consumer demand in an increasingly consumer-centric and digital landscape. It would be a great opportunity for growth (for Canadian businesses and tech professionals) and job creation. It would also benefit the big banks that could form partnerships with these new innovative companies — helping Canada’s traditional financial institutions to not only survive but thrive in an increasingly competitive industry. Lastly, it could help to position Canada as a digital leader, giving us a competitive advantage in the global marketplace and driving investment.

In its report, Global Payments 2020: Transformation and Convergence, the Bank of New York Mellon reports, “The world of payments is going to be fundamentally transformed between now and 2020.” If Canada doesn’t want to be left behind, we need to get on the innovation bandwagon and to stop relying on the big banks for all new developments.

Industry could benefit from more women

The report identifies one of the factors influencing these changes as retail customers’ expectations. Duncan sees a lot of room for improvement in that area, noting that consumer payments could be “faster, better, and more innovative.”

“Women drive 70–80 percent of all consumer purchases. What I’m suggesting is payments product design teams should be reflective of that so they better understand the customer experience and can therefore design more relevant products”, says Duncan, who obtained an engineering degree before forging a long career in banking.

“Women are often better able than men to put themselves in the customer’s shoes,” says Duncan, “and they would bring some much-needed diversity to any design team.”

“Overall,” she says, “Canadians have a golden opportunity to modernize our payments infrastructure and to position ourselves as digital leaders in the 21st century.”