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October 25, 2021The New Canadian High-Value Payment System – Lynx
For over the last twenty years Canadian banking has been served by the LVTS – Large Value Transfer System. This infrastructure comprised of an electronic wire payment system, facilitating the transfer of funds between large financial institutions, including the central Bank of Canada.[1] Operated by Payments Canada, this hybrid real time gross settlement system[2] transfers substantial amounts of liquidity every day, clearing a daily average value of $398 billion[3].
Due to the magnitude of these tremendous flows, central banks and regulators have been devoting a lot of resources to guarantee its smooth functioning. Canada’s response to these efforts is Lynx, a High-Value Payments System. As described by Payments Canada, Lynx will process large value, time-critical payments with real-time settlement finality and will provide enhanced cyber security and resiliency capabilities. Local financial institutions and relevant stakeholders rejoice this new payments landscape in Canada as new technologies, consumer demands and increased international competition drive this demand.
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With the emergence of developing FINTECH and increasing acceptance of Virtual Currency/Blockchain supported technologies, advancements in the payments industry were overdue. Lynx will have the flexibility to integrate with future technologies like APIs integrations. Multiple stakeholders share a vested interest in the outcomes of modernization including faster processing of funds, more data travelling with payments and increased funds availability. These include businesses, consumers, financial institutions and payment service providers as well as the government.[4]
Canadian businesses need access to fast, inexpensive and efficient payments methods to complete activities including payroll, payables and receivables. Consumers seek the same, for increased speed and transparency for rent payments, budgeting and family support. Financial institutions will be able to leverage Lynx to provide expedient, detailed payments solutions to their clients. Payment Service Providers will gain entry into the traditional payments space through the introduction of the Retail Payments Activities Act (RPAA), fostering competition and innovation in the payment sector.[5] Lastly, the government supports the evolution to Lynx, to facilitate fast, data-rich payments, allowing funds to travel faster between levels of government and to other countries.
The second release, introducing the ISO 20022 message standard in late 2022, will bring forth the “digitization of manual and paper-based processes related to invoicing and payment reconciliation.”[6] The real time rail (RTR) payments system is currently in development, which will provide undisrupted payments that are final and irrevocable. These systems will create new opportunities in everyday payment transactions and provide faster, efficient, convenient and secure payments experience for all to benefit from.
Payments modernization promises to confer significant advantages to the Canadian economy, catapulting Canada into the forefront of the revolution of the global payments marketplace. The evolution of our financial ecosystem is in full swing – starting with the next generation of high value payment systems, LYNX.
[1] https://www.investopedia.com/terms/l/lvts.asp
[2] https://www.payments.ca/high-value-payments
[3] https://modernization.payments.ca/
[4] https://laws-lois.justice.gc.ca/eng/acts/R-7.36/FullText.html
[5] https://www.finextra.com/newsarticle/38750/canadas–high-value-payment-system-launches
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