OTTAWA, May 30 (Reuters) - The Bank of Canada (BoC) will increase supervision of payment service providers and launch a real-time payments system over the next two to three years, the central bank said on Thursday, in efforts to modernize the country's financial system.
Critics complain the current payments system, which relies heavily on cash, debit and credit cards, is archaic compared to those of the United Kingdom and Australia.
"It's no exaggeration to say that if we didn't take steps to continuously improve our payments systems, our economy would suffer," said Ron Morrow, executive director of payments, supervision and oversight at the Bank of Canada, speaking at a conference in Toronto.
Morrow, while acknowledging the payments system would be cash-driven for a long time, said the BoC would start supervision of largely unregulated payments system providers (PSPs), primarily fintech companies, by September 2025.
A PSP is any company that helps people store or move their money electronically, such as PayPal and Square. This encompasses businesses that offer digital wallets, provide point-of-sale terminals or facilitate cross-border money transfers.
"The bank's supervision of payment service providers will give Canadians further confidence in the safety and reliability of PSPs' services," he told the conference organized by Payments Canada, a government organization that provides payment clearing and settlement systems.
The central bank is also working with Payments Canada to introduce an around-the-clock service to allow businesses and consumers to send and receive payments. This should be ready for a test phase by 2026, he said.
Canada's payment systems are mainly controlled by the big five banks, an arrangement that critics say has led to high fees and delays.
Real-time transactions, Morrow said, would facilitate faster settlements with the U.S., Canada's biggest trading partner. Currently, any online money transfer in Canada happens with a delay ranging from a few hours to a few days. In a real-time payment system, transfers happen within seconds.
The bank, as part of its core function to ensure a safe and secure supply of public money, is also researching what a central bank digital currency might look like.
"We've been thinking a lot about why we may want or need a digital dollar," Morrow said, adding that the currency would have to be rolled out in a way that was widely accessible and that addressed privacy concerns.
Morrow reiterated that any decision to introduce such a currency would be taken by the government.
"The bank's job is to build the capacity to issue a digital currency, if one day we are asked to do so," he said. (Reporting by Promit Mukherjee; Editing by David Ljunggren and Rod Nickel)
