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This is a time of significant transformation for the payment industry, which is the foundation of our financial and monetary system. From individual consumers to large corporations, payments underlie the groundwork of the Canadian economy. Technology innovations are driving an evolution for payment options and efficiency, driving the need for industry upgrades and improvements to enable fast, safe, and data-rich digital payments that meet the demand of organizations and consumers who want simple solutions for an everyday occurrence.
Our vision is a payment system that supports a highly efficient and rapid transfer of funds, as well as flexibility for consumers across online and mobile payment channels. With data-rich payments new ways of doing business are enabled. The modernization of payment systems is critical for addressing rising customer expectations for payments as an almost invisible part of their daily life
The key is identifying and implementing modernization through new technology, updated payment systems, and renewed process governance. Preeti Malik, who leads our Risk and Compliance practice within Financial Services in Canada is quick to point out that banks and insurance companies must also consider the risk and regulatory changes that we must all monitor and address, especially related to impacts on liquidity and capital required for collateral. As our financial system evolves a portion of the final payment settlement may fall on each institution, rather than the Bank of Canada, which means that capital reserve requirements may change and ripples will spread out across the economy.
The good news is that banks have a golden opportunity to leverage modernized payments to capture data on spending in real time and better manage their capital and liquidity. With that information banks may be able to create new credit and savings products. And these changes may have an even bigger impact on insurance companies than banks in some cases, as it requires them to update their balance sheet management practices to resemble those used at the banks.
Preeti points out that risk management practices will be vital during the payments transformation journey. For example, faster payments may result in more probabilities for fraud, misuse, or misdirection of large payments – thereby requiring a new increased focus on real-time fraud detection. For example, financial institutions might design threshold-based analytics models to identify fraudulent patterns or they may require personalized user information to identify intended payment recipients. Cybersecurity systems need to be continuously monitored and enhanced, as faster processing increases the risk of hackers developing new tools to break systems to siphon funds through payments redirection from intended recipients, or the creation of fraudulent payments.
To address these and other emerging risks, financial institutions must first proactively and holistically assess which improvements are necessary to modernize their systems and manage legacy systems that may be expiring. They then must assess which enhancements and precautions are needed to properly secure the infrastructure. By taking this holistic look at their payment landscape, both from a modernization perspective, as well as a risk/regulatory perspective, a financial institution will not only be able to improve their internal payment and liquidity optimization processes, but also increase their digital footprint, increase customer satisfaction, and increase their technological preparedness
To read more about payments, visit A Real-Time Revolution: Faster Payments in the US Creating a digital backbone to power the future of payments.