The country's payments infrastructure is long overdue for an update to ensure financial system stability amid the rapid advance of new technologies and the risks that accompany them, a senior Bank of Canada official said Thursday.
Deputy bank governor Sylvain Leduc warned, for example, the systems must be able to keep up with new payment options that have mushroomed in recent years. He pointed to examples including innovations such as PayPal, Interac e-transfers and Apple Pay.
Keeping the payment systems up to date, he added, is necessary to protect Canada's financial stability and to address credit, liquidity and operational risks that can arise, including computer glitches.
The existing payment systems are showing their age, Leduc said.
"I don't want to be alarmist here, the systems are still functioning-- but it could be improved,'' Leduc said after the speech as he took questions from the audience at the event for Payment Canada, a not-for-profit group funded by financial institutions that helps oversee business and consumer transactions.
He said down the road the retail payments system must be designed to allow enough openness to allow for consumers' expectations of fast, efficient payment options such as PayPal.
If the system fails to stay up to date with these innovations, consumers may choose to adopt alternative, potentially unregulated forms of payment that could eventually pose risks to the broader economy, he added.
"Modernizing systems when technological advances and other changes in the payments environment are occurring at such a fast pace is not only challenging, it is potentially paralyzing,'' Leduc said.
"However, we all know that inaction is not without costs."
He credited Payments Canada with undertaking a plan to modernize them.
The Bank of Canada, Payments Canada, a tech consortium called R3 and several financial institutions have spent the last year working on an experiment called Project Jasper that tested an inter-bank payment system using a digital-ledger platform.
The experiment looked at whether digital-ledger technology could underpin an entire wholesale payment system. Digital ledgers, which are the underlying technology behind cryptocurrencies like Bitcoin, are sometimes to referred to as "blockchain."
The study found it could be possible one day, but it's not quite ready because concerns over issues such as privacy must still be addressed, Bank of Canada senior deputy governor Carolyn Wilkins and Payments Canada president Gerry Gaetz wrote in an op-ed published Thursday in the Globe and Mail.