February 6, 2018
Payments modernization could save businesses billions, new study suggests
OTTAWA--The way Canadian businesses process payments costs them $2.9 to $6.5 billion annually, according to a new study by Payments Canada and Ernst and Young LLP (EY Canada). According to the report, delays in payments processing and a lack of data and transparency in payment messaging create a number of inefficiencies for small, medium and large enterprises.
These inefficiencies include:
> Labour-intensive matching of customer payments to invoices.
> Poor visibility into supply chain and collections.
> Limited predictability of cash inflows and outflows.
> Difficulty tracking cross-border payments.
> Continued reliance on manual processes and legacy technology.
"The modernization of Canada's payment systems – specifically the introduction of faster, safer and more data-rich payments – will bring highly efficient options to Canadian businesses that will lower operational costs and boost bottom line returns over time," said Gerry Gaetz, President & CEO of Payments Canada. "Business leaders can prepare to take advantage of the changes now by paying more attention to the way they make and receive payments, examining the inefficiencies in their existing processes and becoming more informed about the coming changes to national payment systems."
The introduction of new systems, rules and standards as part of Payments Canada's Modernization program will foster a faster, safer and more data-rich payments environment. Besides the introduction of new systems for high-value, batch retail and real-time payments – which will operate under an enhanced risk, regulatory and rules framework – the primary efficiency enhancement for businesses is anticipated to come from adopting the ISO 20022 data standard.
The ISO 20022 standard is being adopted by businesses and financial institutions around the world and is becoming the standard language for electronic funds transfers globally. The standard enables the transfer of rich data with payments, a change that has the potential to improve automation and efficiency, reducing many of the pain points in accounts payable and receivable, particularly for those organizations processing large volumes of payments.
In 2011, the Task Force for Payments Systems Review found that a modernized payments system could save the Canadian economy up to $7.7 billion annually. Supplementary research by Payments Canada in 2015 indicated the cost savings of adopting ISO 20022 could be upwards of $1 billion annually simply from a reduction in the use of cheques. While the scope of these studies differed slightly in their measurements of payments modernization, together they point to significant benefits and opportunities on the part of Canadian businesses.
"The case for a modern payments infrastructure in Canada is strong," said Ron Stokes, Partner and FinTech Leader at EY Canada. "There are many opportunities to deliver significant efficiency gains for the Canadian business community without compromising safety and security. By modernizing and building a scalable, future-oriented payments infrastructure, Canada will continue to promote innovation and strengthen its competitive position in the global economy."
How will business and the economy as a whole gain from a new, more modernized payments infrastructure?
> Enhanced analytics and faster reconciliation from larger and richer data
> Simplification of accounting processes
> Increased productivity and re-deployed capacity
> Reduced operational risk
> Improved cross border capabilities
> Greater interoperability across platforms
> More flexible and open architecture to spark value-added innovations
> Increased adaptability to future technological innovations
Full details of the report, including best practices from other international jurisdictions, core supplemental benefits for business-to-consumer, business-to-business and consumer-to-business transactions, and innovation opportunities for PayTech and FinTech are available for download here.
The study was undertaken by EY Canada and Payments Canada in fall 2017 and involved both quantitative analysis from study participants and qualitative-based interviews with Canadian small, medium and large corporations, as well as payment professionals in Canada and globally.
Payments Canada ensures that financial transactions in Canada are carried out safely and securely each day. The organization underpins the Canadian financial system and economy by owning and operating Canada's payment clearing and settlement infrastructure, including associated systems, bylaws, rules and standards. The value of payments cleared by Payments Canada's systems in 2016 was nearly $50 trillion or $201.5 billion every business day. These encompass a wide range of payments made by Canadians and businesses involving inter-bank transactions, including those made with debit cards, pre-authorized debits, direct deposits, bill payments, wire payments and cheques. Payments Canada is a proud supporter of the Catalyst Accord and The 30% Club.
EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.