Canada’s Financial Sector Urged to Accelerate Digital Infrastructure Modernization
A recent survey by KPMG in Canada reveals that 65% of Canadian business leaders are urging immediate modernization of the country’s digital infrastructure for financial services. This push focuses on critical areas such as open banking, digital identity, and real-time payments.
Canada’s financial system still heavily relies on outdated legacy technology. However, financial institutions are actively working to upgrade their systems. The goal? To enable faster, more efficient, predictable, and transparent payments that enhance the overall customer experience.
Edwin Isted, a KPMG executive director specializing in payments, notes that while many institutions still depend on older systems, the survey highlights ongoing industry efforts to modernize these technologies for customer benefit.
Real-Time Rail (RTR): A Key Government Initiative
The Canadian federal government is advancing two major initiatives to build new digital infrastructure. One of the most notable is the Real-Time Rail (RTR), a nationwide payment infrastructure designed for instant transactions.
With 24/7 clearing and settlement between financial institutions, RTR will allow consumers and businesses to move money securely and immediately. This mirrors advancements in other advanced economies, bringing modern commerce capabilities to Canada.
Industry-Wide Commitment to Modernization
KPMG’s analysis shows that 94% of Canadian financial institutions are either planning or actively engaged in payment modernization programs. These efforts are driven by rising compliance requirements, a focus on efficiency, and the need to stay competitive.
The modernization push is further fueled by the disruption of traditional financial landscapes by fintech entrants and large incumbents. Institutions are allocating significant budgets—typically between $10 million and $25 million—to these initiatives.
Outsourcing and Priorities
A majority of institutions (88%) plan to outsource key infrastructure components to specialist providers. Their top priorities include improving customer experience (67%) and upgrading payment engines (62%).
Despite the challenges of deploying new infrastructure without disrupting daily operations, most institutions remain optimistic. Many aim to launch their updated systems within the next three to six months, measuring success through transaction speed and cost reduction.
ISO 20022 Adoption: A Global Driver
A significant technological driver in payments modernization globally is the adoption of ISO 20022, a financial messaging standard. In Canada, ISO 20022 promises to deliver richer, more structured data and improved interoperability.
This implementation is expected to enhance efficiency, security, and transparency, helping institutions achieve key modernization goals.
Beyond Payments: Broader Modernization Efforts
Beyond payments, initiatives like TMX-CDS’s Post Trade Modernization are upgrading back-end infrastructure for clearing, settlement, and depository services in capital markets. These efforts aim to enhance security, user experience, and standardized reporting.
By adopting a more flexible technology platform, Canada’s financial market infrastructure will remain robust and competitive on the global stage.
In summary, the Canadian financial sector is undergoing significant digital transformation. Business leaders, regulators, and technology providers are collaborating to roll out faster, safer, and more customer-focused digital financial services.
These investments and industry-wide collaborations aim not only to bolster the resilience of Canada’s financial system but also to position it as a global leader in digital financial infrastructure.
The Importance of Digital Identity and Open Banking
While the focus on real-time payments and infrastructure modernization is critical, the survey also highlights the importance of advancing digital identity and open banking frameworks. These components are essential for creating a holistic digital ecosystem that empowers consumers and businesses alike.
Digital identity solutions are seen as a cornerstone of modern financial systems, enabling secure and efficient authentication processes. By integrating advanced digital identity systems, Canada can reduce fraud, enhance user experience, and streamline compliance with evolving regulatory requirements.
Open banking, on the other hand, is expected to play a pivotal role in fostering innovation and competition in the financial sector. By allowing third-party providers to access financial data (with consumer consent), open banking can unlock new services and products, driving financial inclusion and customer-centric solutions.
The Role of Fintech and Big Tech in Driving Modernization
The survey also underscores the growing influence of fintech companies and big tech firms in shaping the future of Canada’s financial landscape. These new entrants are not only raising the bar for customer expectations but also introducing innovative technologies that traditional institutions must adopt to remain competitive.
As fintech and big tech companies continue to gain traction, collaboration between these disruptors and established financial institutions will be key to accelerating modernization efforts. Partnerships that leverage the agility of fintechs and the stability of traditional banks could pave the way for groundbreaking advancements in digital financial services.
Conclusion
In conclusion, the modernization of Canada’s financial landscape hinges on the integration of digital identity and open banking frameworks. These elements are crucial for building a secure and efficient digital ecosystem, reducing fraud, and enhancing user experience. The rise of fintech and big tech companies presents both opportunities and challenges, emphasizing the need for collaboration between these innovators and traditional institutions to drive progress. By embracing these advancements, Canada can foster a competitive and inclusive financial sector that meets the evolving needs of consumers and businesses alike.
FAQs
What is digital identity, and why is it important?
Digital identity refers to electronic verification of an individual’s identity, crucial for secure and efficient authentication in financial systems. It helps reduce fraud and enhances user experience while streamlining regulatory compliance.
How does open banking benefit consumers?
Open banking allows third-party providers to access financial data with consumer consent, fostering innovation, new services, and financial inclusion, thereby promoting customer-centric solutions.
What role do fintech and big tech play in financial modernization?
Fintech and big tech drive innovation and raise customer expectations, introducing technologies that traditional banks must adopt. Their collaboration with established institutions can lead to groundbreaking advancements.
How can traditional banks stay competitive?
Traditional banks can stay competitive by collaborating with fintech and big tech firms, leveraging their agility and innovative technologies while maintaining stability and trust.
What are the potential risks of open banking?
While open banking offers benefits, potential risks include data breaches and privacy concerns. Robust security measures and regulations are essential to mitigate these risks and protect consumer data.
