Payment Systems in Canada

Learn all you need to know about the most important types of payment systems in Canada.

Payment Systems in Canada
Payment Systems in Canada

Every day, Canadians execute millions of financial transactions and the total value of these transactions can run into billions of dollars. Fortunately, the reliable payment systems in Canada are strong enough to accommodate all the traffic on the payment grid. For this reason, sending and receiving payments in Canada is very convenient and seamless.

What is a Payment System?

A payment system is simply a group of different payment methods, rules, techniques, as well as technology that is used to exchange money easily. Basically, a payment system has to be involved during the exchange of money between different parties.

Canadians execute numerous financial transactions daily to:

  • Buy goods and services
  • Transfer money from one person to another
  • Make financial investments

Giving a person a banknote is easy, however, the process becomes complex when it involves exchanging digital transfers between two parties. Hence, digital payments have to involve many payment systems and players. Essentially, a payment system offers banks and financial institutions a shared system, which they can use to transfer money safely and securely.

How Are Payments Processed?

Here are the three processes that all digital payments must undergo to get completed:

1. Exchange

This process involves transmitting and issuing specific instructions for payments between different participants.

2. Clearing

Clearing is the technique of reconciling and confirming (in some cases) different payment orders before their final settlement. This crucial process can involve offsetting different payments and specifying final balances for the purpose of settlement.

3. Settlement

This is the final release of payment commitments between two or more people. Generally, transactions are regarded as complete once the settlement process takes place. After this, the confirming cash is ultimately moved from the sender’s bank account to the receiver’s account.

Payment Systems Overseen By The Bank of Canada

The Bank of Canada primarily manages three payment systems as stated under the stipulated Payment Clearing and Settlement Act. They include:

  • Lynx
  • Interac e-Transfer
  • Automated Clearing Settlement System

1. Lynx

Lynx, formerly known as Large Value Transfer System (LVTS), is a real-time payment system that helps to process large-value and time-critical payments. Essentially, this system handles payments involving huge amounts.

Direct parties in Lynx are mandated to have a Lynx settlement bank account at the Bank. Although some financial institutions/banks partake directly in this system, others just set up Lynx payments for only their customers. They do this via direct Lynx participants. Lynx is held and controlled by Payments Canada.

2. Interac e-Transfer

Interac e-Transfer is a type of electronic payment system that is provided via online banking with different participating Canadian banks and financial institutions. The system is managed by Interac Corp. and is widely used in Canada. Here is a list of the services that this system provides:

  • person to business
  • person to person
  • business to person
  • business to business

3. Automated Clearing Settlement System

ACSS, short for Automated Clearing Settlement System, functions by clearing cheques and different electronic items. Items like direct deposits, pre-authorized debits, as well as Interac debit payments will be processed and cleared by this system.

Essentially, the ACSS provides for the successful exchange of different payment items between numerous members of Payments Canada who partake in the ACSS. Also, this system takes charge of the subsequent clearing and the settlement of the electronic payment items.

Final Thoughts

The different payment systems in Canada help by giving Canadians faster, more convenient, and easier-to-use ways to make payments. Also, technology has advanced these payment systems and they now offer better speed and are more connected to other countries across the globe. The bottom line is that the future of Canada’s payment system is already looking very bright and outstanding.

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