Wealthsimple, Venn, Brim and others are now subject to the new rules and access to payment rails.
Several Canadian fintech companies are among the first to register payment service providers (PSP) disclosed by the Bank of Canada this week.
“For payments fans, this is huge.”
Abraham Tachjyan,
Brim Financial
This designation means that these companies are now subject to new reporting rules and regulations under the Retail Payment Activities Act (RPAA). It also opens the door to access to payment systems – the infrastructure that allows money transfers to be made without having to go through banks. Industry leaders say this is a key step toward leveling the playing field for nonbanks to compete.
“I’m very excited about this,” said Saud Aziz, co-founder of business banking platform Venn (formerly Vault), one of the approved registrants.
In the past, Aziz explained, fintech companies had to partner with existing financial institutions to use their infrastructure and payment channels, and sometimes pay a fee to do so. “That meant we actually had to work with banks to compete with banks,” he said.
The RPAA came into force on 8 September, creating a new legal framework for all payment service providers, including those whose applications are pending. A PSP is an organization that holds funds for an end user, performs electronic fund transfers for users, or provides clearing and settlement services—as do the vast majority of FinTech companies.
This week, the Bank of Canada released a list of the first 300 entities fully registered as PSPs, including fintech companies Wealthsimple, Koho, Brim, Venn, Helcim, Trolley, ZayZoon, Zum Rails and the payments division of Shopify. The Bank has over 1,500 pending applications under its supervision, including Clio, Manzil and Float.
“PSPs are expected to comply with operational risk and end-user fund protection obligations,” a Bank of Canada spokesperson said in a statement to BetaKit. “This is how we maintain the integrity and stability of Canada’s retail payments system.”
Abraham Tachjian, a former head of Canada's open banking sector and director of regulatory affairs at Brim Financial, another registered PSP, said that “for payments fans, this is a huge number.”
Tachjian said registering with the Bank is like a “badge” that allows payment service providers to access Payments Canada membership, thereby paving the way for direct use Railway transport in real time (RTR) payment infrastructure when it is deployed. The long-awaited payment system, which will allow payments to be sent and received within seconds, has already been created and is still being tested ahead of its planned launch in 2026, according to the latest report from Payments Canada. quarterly update.
Another PSP registration option that could open doors for FinTechs is Interac Electronic Data Transfer. Last month Interac announced that expansion of participation criteria RPAA certified PSPs to access wire transfers. Aziz said this is the right time for fintech companies as Interac is updating its pricing model for financial institutions from November 1. The new model will charge smaller firms, including eligible PSPs, a flat rate rather than offering lower rates to firms that process more transactions.
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For Brim, which sells credit card infrastructure to financial institutions, Tachjian said the appointment is “another seal of approval” from a risk management perspective. By law, PSPs are now required to report annually and report incidents to the Bank.
The Bank of Canada spokesperson added that PSPs are required by law to comply with RPAA obligations and protect consumer funds, but only registered PSPs must comply with all reporting requirements. PSPs must also notify the Bank before changing the method of making retail payments. If PSPs fail to meet their obligations, the Bank said it may use enforcement tools such as judicial enforcement or deregistration of the entity.
The RPAA “provides a strong framework for protecting consumer funds,” Ron Morrow, the Bank of Canada's executive director of payments, supervision and oversight, said at a conference in September. “This brings PSP into the regulatory realm so Canadians can access cheaper payment options and a broader range of services.”
The news comes as the FinTech community anticipates changes in Canada's payments space, including hopes for progress in open banking in the future federal budget. Comments from Bank of Canada Senior Deputy Governor Caroline Rogers strengthened this hope earlier this month when she called the Canadian financial system an “oligopoly” and advocated more competition to boost productivity.
Both Aziz and Tachjian were pleased with the Bank of Canada's approach to consulting with industry. “They have done a very good job of engaging with the industry and getting their feedback,” Tachjian said.
Before the advent of RPAA included in the federal budget for 2021FinTech firms involved in small-value electronic payments were not regulated by a dedicated centralized regulator in Canada. In 2022 Bank of Canada started developing the framework register these PSPs and called on fintech companies to prepare for increased regulation.
The Bank of Canada has opened rules for public consultations in 2023. Payments companies were asked to apply for registration within a two-week period in November last year.
According to the Treasury Department, PSPs that missed the two-week period had a 10-month transition period to apply for registration, but were required to do so 60 days before making retail payments.
Disclosure: Hannah Zaidi, Wealthsimple's Vice President of Payments Strategy and Chief Compliance Officer, serves as BetaKit Board of Directors.
Artistic image licensed from Wikimedia Commons. CC BY-SA 3.0.
