What a payment system is
A payment system is a set of payment methods, procedures, rules and technology used to exchange money.
Canadians make financial transactions every day to:
- purchase goods and services
- make financial investments
- transfer funds from one person to another
Giving someone a bank note is simple, but exchanging digital payments between two parties can be quite complex and can involve many systems and players. A payment system provides financial institutions a common system to transfer funds safely and securely.
How payments are processed
Digital payments generally involve the following processes:
- Exchange—the process of transmitting and issuing instructions for payments between participants.
- Clearing—the process of reconciling and, in some cases, confirming payment orders before settlement. This process can include offsetting payments and establishing final balances for settlement.
- Settlement—the release of payment obligations between two or more parties. Transactions are considered complete once settlement takes place, confirming funds are eventually transferred from one bank account to another.
Direct and indirect participants in payment systems
A payment system generally has different classes of participants based on specific characteristics or obligations of a participant. Typically, entities can be either direct or indirect participants in a payment system.
A direct participant instructs, clears and settles payments on its own behalf. If the payment system uses central bank money, then direct participants need to have an account with the central bank and connect directly to the payment system. Direct participants may also act as intermediaries for indirect participants.
An indirect participant can take various forms. In general, an indirect participant in a payment system relies on a direct participant to perform payment instruction, clearing and settlement on its behalf.
Payment systems overseen by the Bank
Under the Payment Clearing and Settlement Act, the Bank of Canada oversees the following payment systems:
Lynx is a real-time system that processes large-value, time-critical payments.
Direct participants in Lynx must have a Lynx settlement account at the Bank. Some financial institutions participate directly in the system, but others arrange Lynx payments for their customers through direct Lynx participants.
Lynx is owned and operated by Payments Canada.
Automated Clearing Settlement System
The Automated Clearing Settlement System (ACSS) clears cheques and electronic items, such as pre-authorized debits, direct deposits and Interac debit payments. The system provides for the exchange of payment items between members of Payments Canada who participate in the ACSS and the subsequent clearing and settlement of those payment items.
ACSS is owned and operated by Payments Canada.
Interac e-Transfer® is an electronic payment system offered through online banking with participating Canadian financial institutions. It provides the following services:
- person to person
- person to business
- business to person
- business to business
Payment system modernization
The global payments landscape is changing rapidly and extensively. To support the long-term growth of Canada’s economy, Payments Canada, in collaboration with financial institutions and other stakeholders, is leading a multi-year, multi-phase initiative to modernize Canada’s payment systems. As part of this effort, Lynx replaced the Large Value Transfer System in September 2021.
Payments Canada is also leading work to design a new real-time payment system called the Real-Time Rail (RTR). When launched, Canadian consumers and businesses will be able to exchange funds in real time.