Executive Director of Payments, Supervision and Oversight Ron Morrow discusses advancements in how Canadians pay for things, and why Canada needs to do more to get ahead. He also explains the Bank of Canada’s new role as the regulator for payment service providers.
Watch Executive Director Morrow speak to the Chartered Professional Accountants Canada The ONE Conference in Ottawa. Read the full speech.
Innovations in how we pay
From Canada’s first credit card in the 1960s to tap-and-pay technology and mobile wallets, paying for goods and services has changed a lot over the years. The pace of change is now accelerating. And many new players are offering innovative ways to make payments.
One big development is the rise of cryptocurrencies. Even though people can use cryptocurrencies to pay for things, very few do. Most who own them simply hold them as an investment. This may be because the prices of bitcoin and other cryptocurrencies are very volatile, making them a risky method of payment.
Stablecoins are a less volatile type of cryptocurrency because their value is pegged to a fiat currency, such as the US dollar. And their use as a method of payment is rising, particularly in cross-border transactions. Making cross-border payments through traditional services can be slow and expensive. Stablecoins are proving to be a cheaper and faster alternative.
But there are risks. Consumers have limited protections if something goes wrong because stablecoins are not yet regulated. There is also the risk of criminal activity. One solution is to bring stablecoins into the existing financial system. This would protect consumers, businesses and the broader financial system.
At the end of the day, for stablecoins to be seen as money, they need to be as safe and stable as the balance in your bank account.”
Canada needs to pick up the pace
The future of payments ecosystems is exciting, and it is great to see so many new and innovative products and services. And while we don’t want to slow the pace of this innovation, we do need appropriate guardrails. Industry experts and regulators need to work together—and quickly—to develop policies and a regulatory framework to protect Canadians.
Canada also needs to speed up progress on modernizing the payments system infrastructure. The Bank’s official capacity in this area is limited. But Bank staff are researching and testing new payments technologies. And the Bank is working with domestic and international partners on projects using artificial intelligence and blockchain technology that could benefit our payments ecosystem.
We should seize opportunities to make the system more efficient and more productive—like opening up settlement and payment rails and continuing work on open banking. To do so, we must think big—and then think even bigger.”
Our newest mandate
Under the Retail Payment Activities Act, the Bank now supervises close to 1,500 payment service providers (PSPs). Our job is to ensure that they manage risks and safeguard funds held on behalf of Canadian households and businesses.
For Canadian consumers, regulation is about more than just protection. It should also encourage more competition, leading to lower costs and more services. For PSPs, regulation give them access to Canada’s national payments infrastructure, which opens the door to further opportunities and innovation.
Canadians trust our existing payments systems—they don’t worry about what happens behind the scenes when they tap their debit card or smartphone to buy something like a cup of coffee. This is a solid foundation we can use to build a modernized payments system that can adapt to new technologies, withstand shocks and help drive the economy forward.