Behind the Brand®

Neo S04E32_RonBOC_v2
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Jeff Adamson: [00:00:00] Welcome to behind the brand the podcast and explore ourselves. Technology innovation and other forces of change are reshaping age old industries and giving rise to new opportunities. Join me, Jeff Adamson, one of neo financials, co founders in an awesome lineup of guests to discuss how the world is evolving to meet the needs of customers.

In the next few episodes, we're focusing on the financial industry in Canada. This is a space that has been dominated for decades by the big five banks who hold 93 percent market share. There's an incredible number of opportunities for innovation in this space. Today, I'll be speaking with Ron Mauro, the Executive Director of Payments, Supervision, and Oversight at the Bank of Canada.

The Bank of Canada's mandate is to promote the economic and financial welfare of Canada. In his role, Ron is responsible for the supervision, Of retail payment service providers and the oversight of financial market infrastructures. He also guides the bank's work [00:01:00] to explore the potential design of a digital form of the Canadian dollar.

On this episode, we cover everything from the modernization of money movement to the productivity crisis in Canada and get an understanding of the new payment provider supervision under the new Retail Payments Activities Act, which will come into effect in November of this year. I'm interested to hear a little bit about the person behind your role at the Bank of Canada.

And I read on LinkedIn that you graduated from Waterloo Economics and Math, um, then you got an MA, I believe, from Queen's?

Ron Morrow: Correct.

Jeff Adamson: There's a significant gap here though, all the way to I think 2010. So I'm assuming you weren't on holidays the whole time between 1992 and 2010. Tell us about your journey to the Bank of Canada.

Ron Morrow: Uh, so I grew up in, in northwestern Ontario, uh, city by the name of Thunder Bay. So you better like the outdoors if you grew up in Thunder Bay, uh, lots of trees, rocks and, and water. Um, and I did, I, you know, uh, great memories of, you know, camping and fishing and, uh, canoeing, uh, [00:02:00] with my dad and my, my family, but then, uh, off to, uh, After Waterloo, I started out with a, with a math degree and a couple of years in decided that maybe, maybe a lifetime of mathematics wasn't for me.

And I really enjoyed economics, so I thought I'd give that a go. And then, then my master's degree at Queen's, and then straight here to the, to the Bank of Canada. At the, at the time I was, I remember thinking to myself, well, if I want to be an economist, I should probably a place at a place like the Bank of Canada, Central Bank.

That, that seems like a very economist thing to do. And, uh, I was fortunate to, to take a job here and it's been, uh, over 30 years of, uh, uh, fun and adventure here at the Bank of Canada.

Jeff Adamson: And so for, for people who aren't familiar with the Bank of Canada's role, just give us a high level understanding of what is the Bank of Canada do?

How is it What is responsibilities in Canada and then specifically your journey with them within Bank of Canada to getting to where you are today

Ron Morrow: in the preamble to the Bank of Canada Act, [00:03:00] the, you know, the objects of the bank card to, you know, protect the enhance the economic and financial welfare of Canadians.

It does that. I'd say our primary mandate is really around monetary policy, where we set interest rates to try to achieve an inflation outcome of inflation at our 2 percent target. That is probably the most famous of the bank's mandates and something that has been in the news quite a bit in recent years is, uh, Inflation surged post pandemic and, and, uh, we've been working to bring it back to the 2 percent target.

We also have a role to play in preserving the, the stability of the financial system. And we work with the department of finance, the banking regulators and others in that regard. Currency, we, you know, those fancy polymer banknotes that people have in their wallets, we're responsible for producing those.

And despite rumors to the contrary, cash is still not dead. One in five [00:04:00] point of sale transactions still involves, still involves cash. So we're committed to supplying cash to people who want to use it. And then, you know, Uh, last but certainly not least, uh, we have, uh, a new mandate here at the bank to supervise payment service providers and to, uh, so that's new.

We had an existing mandate to, uh, supervise or ensure that Canada has a solid kind of financial infrastructure behind it. So that's, uh, that's my current set of responsibilities. My tour of duty here at the bank has led me through a whole, I think I've worked in, I don't know, six or seven departments here at the bank.

A lot of it with a financial focus. I started out in the financial markets area. I was in our international department, but with a financial markets focus, our funds management and banking department, our financial stability department. It's been a lot of, a lot of really interesting roles, but within that kind of financial media.

Thank you.

Jeff Adamson: It's a [00:05:00] terrific career, especially given how important the Bank of Canada is to the economy, to the functioning of society here in Canada. One of your, your colleagues, uh, Carolyn Rogers has recently come out, and this is kind of all over the news right now, really strong language around, hey, we got to break the glass on productivity in Canada.

And, and one of the things you, you hear a lot about the Canadian economy is, This idea around competition and about efficiency and consumer advocacy. How do you think about striking this balance between stability and. Efficiency and competitiveness and innovation. And by that, I mean, you know, and I've got a, you know, a two year old and a four year old at home.

And I remember the buzzword was helicopter parenting. And I feel like we're almost in Canada really optimizing for that stability. But at the same time, how do you know when we've gone too far on protecting at the cost of potentially competitiveness and innovation?

Ron Morrow: Well, there is, I think there's an [00:06:00] inherent trade off, right?

You, you can, you, you want a, a system that is stable and reliable, but not one that is so, uh, stable and reliable that it stifles, uh, innovation and competition. So it, you know, Mm-Hmm. , it's a challenge to find your, the right spot on that, uh, trade off. I think a lot of what is going on in the, in the world of payments right now is, is trying to ensure that we are, uh, you know, striking that right.

Balance, there are a lot of initiatives underway, whether it's, you know, modernizing the payments infrastructure here in Canada to bringing about a new supervisory regime for payment service providers. The, I mean, the thinking behind this is if you bring payment service providers who have been largely unregulated into the regulated financial sphere, hopefully you get there.

There are two potential benefits. First, it will make it easier for, uh, payment service providers or PSPs to interact with the regulated financial sector. One of the, one of the things I've heard [00:07:00] over the years is the challenge that many PSPs have in terms of just getting a bank account and allowing themselves to, to do business.

And those who do succeed are fearful of being sued. Debanked, uh, the, uh, by bringing the sphere, hopefully that makes it easier for them to connect into the financial system, but we also want it to open up new doors. So with, uh, if you are a PSP overseen by the Bank of Canada, you will ultimately be able to, uh, apply to become a direct participant in Canada's, uh, kind of national payments infrastructure or something, you know, something like the real time rail so that, you know, you can reduce, uh, your dependence, uh, on, uh, On financial institutions, reduce your cost base.

Hopefully that means more competition, more PSPs and more, more, the more efficient provision of financial services to, uh, to Canadians.

Jeff Adamson: So the idea then just to kind of play that back to you, Ron is bringing people into the fold so that they have greater [00:08:00] access to some of the different tools that perhaps a bank will have, and then allow more competition for consumers.

More innovation. Is that, is that the idea?

Ron Morrow: Yep, that's exactly the idea.

Jeff Adamson: So the idea then is you bring them in. Now, I guess as a non bank, as someone who's going to be kind of brought in, maybe even before we get into that, maybe just help us understand under the new Retail Payments Activities Act, this is something that obviously you have been working a ton on.

So the bank now has a mandate to supervise Payment service providers or PSBs and the regime is meant to go live this year, November, and then in 2025 is when the actual supervision will take place really quickly. You've done this on other other calls, but really quickly just break down some of these new rules for handling payments in Canada.

So

Ron Morrow: the act came into the act was passed by Parliament in July of 2021. Then the regulations were developed. And as you say, we go live in November. So [00:09:00] under the new rules, payment service providers have to do three key things. So the first is they actually have to register with us at the bank. We've used a variety of different sources and have looked at a whole lot of different companies providing payment services to Canadians and by our estimation, there are over 3, 000 payment service providers operating within Canada.

So they're going to have to register With us in November, so we'll receive those thousands of applications. We then will take 10 months to go through the applications, you know, build out our registry of payment service providers, which will then make available in September 2025. So everyone will see the registry, see who's on it.

And then if you are on the registry and you are supervised by the bank, you'll have to do. Two things. So the first is if you hold client funds, if you hold end user funds. So if you're some sort of [00:10:00] digital wallet or similar type of application, and I can actually store funds in that wallet for use a later date, you're gonna have to ensure that those those funds are Safeguard and the way you're going to there are a number of ways in which you can do that.

What it boils down to is ensuring that those funds are, uh, I'm going to use a legal term here bankruptcy remote. So in the event, the payment service provider becomes insolvent that that money that client money can be returned to clients. So we'll have some requirements around that. This the other set of requirements are going to be around.

Okay. Operational risks. So this involves everything from, you know, business continuity risks, cyber risk, et cetera. So what you're gonna have to do is, uh, have a framework for how you manage your operational risk and you have to demonstrate that you actually follow that framework and are actively managing your operational risks.

Jeff Adamson: I'm just thinking about my past life, Ron, in the food delivery world, where we would process massive, [00:11:00] massive amounts of payments for, you know, tens of thousands of restaurants, and then every week or every two weeks, those payments would then get provided and passed through to all the restaurants, and then you know, The food delivery platform would retain a percentage of those, those payments would, would a food delivery business fall into this as well?

Ron Morrow: My general answer to questions like that are, it depends, uh, the, cause it really does depend on how things are structured. But if you, if you're in the business of food delivery, right, uh, you're providing a service to people that the ability to have food delivered from restaurants to their home, you're not really in the business of.

Helping people to make payments. You're not in the business of facilitating or fostering, you know, payments to, uh, for other reasons. You're just in the business of, uh, providing food delivery. So, in that respect, the your, even though you might be doing some things that might technically qualify you for oversight under the retail payments activities [00:12:00] act.

They would be deemed incidental, right? You're doing those things in a manner that's incidental to your business and therefore it doesn't apply.

Jeff Adamson: So, so it sounds like the PSPs are going to have additional oversight, but what does this actually mean for consumers? You know, will people's money be safer? Is there going to be any impact?

Will consumers even, Feel or notice any difference.

Ron Morrow: I'm not sure if consumers will notice much of a difference for if you're a very super keen consumer, you'll be able to go on our website and see whether or not the payment service provider you're dealing with is indeed registered with the Bank of Canada.

You should, you know, you'll be reassured that the trust that you have been placing in payment service providers. Uh, is warranted now that, uh, now that the Bank of Canada is overseeing, uh, these folks. But I, like, I don't start with a premise that, uh, there's a lot of, you know, bad behavior in, uh, in the payment space.

There are, there are few spectacular failures when it comes to [00:13:00] payment service providers. Maybe, maybe there's one internationally in the form of Wirecard that is, uh, uh, pretty well known and a pretty spectacular collapse. Uh, but the, Uh, I think Canadians can be comforted and by just by virtue of the fact that you have this regulated ecosystem that where you can have more and more players and more and hopefully more and more competition, more and more innovation.

That's what consumers should notice, which is a more competitive, more efficient, uh, uh, payments ecosystem.

Jeff Adamson: And so, you know, I can definitely see, I can understand where, where the bank of Canada is coming from, especially, you know, industry kind of gets ahead then, then the regulatory framework has to kind of catch up.

What kind of training wheels are you seeing the industry have, or at least the bank of Canada have for. For all these PSPs that are coming in, there's going to be people who aren't compliant. There's going to be people who make mistakes. What does noncompliance look like? Is it going to be, you know, come in, shut it down?

Is there kind of going to be an [00:14:00] escalating ladder of, of kind of like, Hey, you've got this much time or is it kind of zero to 100 here? We got to get this in place right away because there's, there's some burning issues that need to be done or taken care of. How are you, how are you thinking about noncompliance?

Ron Morrow: So, let me start first with the resources, uh, the, in terms of helping payment service providers get their heads around what exactly is this framework and what's required of them. When we're originally given this mandate by the, uh, by the government, uh, by the Department of Finance, one of the things we set out to do is to try to be a little humble at the outset, right?

We're not experts in, you know, all things payments related. So we, uh, as we, you know, work with the department of finance to build the legislation and the regulations, uh, or advise them on how to build the regulations and legislation, we created, uh, advisory committees of payment service providers. So we, we had an advisory committee of about two dozen PSPs where we, we talk about the concepts [00:15:00] around.

Uh, the regulatory framework and how it would work. We've written, uh, lots of guidance, which is available, uh, on our website for PSPs to take a look at. There, there are just a lot of resources on our website. So, shameless plug, uh, bankofcanada. ca slash rps is, uh, where people can, uh, can find those resources.

So, let's suppose you've done that. You've gone through the, uh, all the material that's available and the day has come and now it's time to get, uh, get registered. So, what you're going to have to do is go through and, you know, your own kind of initial assessment, okay, that we're required to have things like an operational risk framework.

Do we have one? Yes? No? If not, well, it has to have these elements. Okay, well, let's, let's build it. And if, I mean, it will. The impact on a PSP is probably going to vary. We're going to have a kind of a minimum standard that all PSPs, regardless of size, need to meet. But if you're a multi billion dollar [00:16:00] payments company in 40 different countries with 20, 000 employees, you probably already have a very, very thick board approved risk binder that covers off a lot of the things we're going to be looking at in the compliance department, lawyers and all of that, if on the other hand, you're a three or four person fintech startup, right?

You, you and a couple of your friends created a little company, a little app to help people in your community, Okay. Uh, who are all from, you know, or orig, uh, they aren't, weren't born in Canada, cut hail from some other place and all wanna be able to send money back to that place. You create a little app to help them do that.

Well, you, you, you may not have a, a written down framework, so you'll have to, you know, go through that work. There'll be some burden associated with that. Uh, the. And we have actually spoken to those, some, some of those smaller PSPs. So there's some might be some inherent buys here, right? We've, [00:17:00] we've spoken to the people that who are willing to speak to us, but the, the ones we have spoken to, do they understand the risks facing their business?

Absolutely. They understand the risks. Are they doing a good job of managing those risks? Absolutely. They're doing a very good job of managing those risks. There's just going to be, have to be a little bit more structure and a little bit more, you know, written down rather than people's heads about how they go about managing those risks, their business.

Jeff Adamson: And I read that the bank of Canada is going to start supervising PSPs based on how risky their operations are. Is there a, and you mentioned, you know, a multi billion dollar company versus a two person FinTech. How is this risk? Like, I guess, who's the arbiter or like, what's the framework for evaluating the risk, uh, from the bank of Canada's perspective?

Ron Morrow: Well, as, uh, as we start our supervision in September 2025, I think we're going to, uh, want to take a kind of a, A varied approach to who we do [00:18:00] a deep dive on. Yes, there should be some, probably some focus on PSPs who have a large number of end users in Canada because, you know, we can, uh, ensure that those PSPs are behaving in a manner consistent with, uh, with the new regulations and, you know, that's, that's, that's better for end users here in Canada.

But I, I don't, you know, I don't think we're going to focus strictly on, You know, large PSPs, the, I think we're going to want to take a sample of PSPs across the spectrum. And, uh, so that we can, you know, over time we'll, we'll, we'll have to get through. We're not going to look at every single PSP every year.

We don't have the, the resources to do that, especially if there are 3000, over 3000 PSPs, but we'll get to every one at some, with some regular cycle, uh, review them and ensure they're, they're meeting our standards. You had asked about. Enforcement, uh, for so, so if you, the whole regime is really about, uh, ensuring that PSPs are complying with the regulations.

We're, we're not about [00:19:00] punishing anyone. That's not, that's not what we're all about. So if we go through, uh, we do a deep dive on a PSP and there are some gaps with where they are, where they're at vis a vis the, uh, the regime, we'll correspond with them to say, we've gone through, we've identified these gaps.

The, what do you think? Do you agree that these are gaps and what's your intention? And if they come back and say, yes, yes, we agree those are gaps and here's our plan to, uh, to deal with them. Well, then that might be exactly right. You know, no need for further action. If on the other hand, they disagree that there are gaps or they are.

Purposefully, uh, for whatever reason, not complying with the, uh, with the regulations, then, then that's where enforcement actions will, will have to be used. So this can range from everything from a letter to signing a compliance agreement with a PSP, where they agree to take certain steps to us issuing a notice of violation, which will be public, uh, and which may also include a monetary penalty.

[00:20:00] And for a very, very serious. Infractions that could be, you know, the maximum fine is, uh, is 10 million.

Jeff Adamson: Well, even just the public shaming aspect of, of that coming out, I think is got to be a strong enough, uh, message because people will see that and say, well, okay, do I really want my money flowing in and out or being held by this, this company or that company?

That should be a very strong deterrent. I'd say of people, that's not the news you want your company named in.

Ron Morrow: I agree. Uh, and I think that, well, and again, Maybe there might be some bias here. The PSPs we've spoken with, they, they, they're all, they embrace the new regime. They, they're, you know, willing to be regulated.

They see some benefits that go along with it. They see it as aligned with, right. We're asking them to do things that they're already doing or that are already aligned with the best interests of their business in the, in the long run. So we've gotten some, some pretty positive feedback. I would say they're.

You know that there's the other side of that some of some feel as though the [00:21:00] regime is like we're requiring a lot of PSPs and there's concern around the burden, but the what it boils down to is, you know, we don't have a one size fits all approach. PSPs can take different approaches to meet the requirements and.

You know what they're going to have to do to demonstrate their compliance will vary from, you know, very large PSPs to very small PSPs,

Jeff Adamson: but I guess back to the understanding of the risk of the operations. Is there a north star metric that you guys are using to determine how risky a PSP may be? Is it, you know, number of transactions, number of customers, volume of payments, complexity of operations like How do you guys look at that?

Because if you've got 3000 to go through and you're trying to rank order them in terms of who should we be focusing on first, how do you get to that order of that list?

Ron Morrow: So I think if we try to think about the level of ubiquity, for lack of a better term, of a PSP, we'll look at a number of those things that you talked about, right?

What's the volume and, uh, value of, [00:22:00] Payments that the PSP puts through, does the PSP actually hold funds on behalf of, uh, of end users? Is the PSP itself a, maybe not critical, but a very important service provider to other PSPs? Uh, in the ecosystem, like, are they, are they highly kind of integrated with many other PSPs?

So I think we'll look at, you know, all of those factors to develop a sense about how kind of ubiquitous, uh, as I said, that, that PSP actually is. And therefore the, uh, what the potential impact is of a, of a problem were to occur at that PSP.

Jeff Adamson: You know, back to the original. Topic we were talking about around efficiency and competition.

I think a lot of people may be excited. To have oversight by the bank of Canada and thinking, okay, well, this is the first step towards getting better access to things like the real time rails, but I guess for some people, they may look at and say, Hey, this feels a little bit like there's a bit of a gap between the regulation side and the access side.

And I know that we just saw that real [00:23:00] time rails is planning on coming out no sooner than than 2026. I guess it would be better if we heard it and said no later than 2026. Thanks. Because then we know at least there's a deadline and I think what I've heard kind of rumblings is it feels a little bit like taxation without representation in the sense that we're not really going to get the benefit of this oversight and there's going to be a lag and it sounds like almost an unknown period of time that there'll be that lag.

How do you think about this gap between coming into supervision in next year and then kind of Who knows how long until you get that access that everyone's kind of wanting.

Ron Morrow: The RTR has been, has had its, had its challenges, uh, along the way. I, you know, I know the, uh, the industry and, uh, PAMAS Canada, uh, spent a lot of time over the past year trying to chart up the Uh, the, the best way forward.

And as you say, kind of industry 20 testing in 2026, it's what's expected. The, yes, there is a gap. You know, in a, in a perfect [00:24:00] world, uh, the RTR would would either be ready to go in simultaneous with the regime, or heck, I, you know, even a few years before would've been, uh, would've been even better from, uh, from my perspective because I, I think the RTR is, uh.

Is a very important piece of infrastructure that Canada needs to needs to build. So, yes, there's a gap, but there's also a commitment, right? Ourselves and my colleagues at the finance have been pretty, pretty clear that we are fully committed to seeing this RTR built and I know, uh, famous Canada and the industry, as I said, have put a lot of work into this and are fully committed to, uh, To moving this along as quickly as they can not as quickly as anyone would have that not as quickly as people would like but that's the uh, that's the situation right

Jeff Adamson: yeah it's almost you know in an ideal world you have them both moving at the same pace and they can kind of both go live at the same time what was it a [00:25:00] situation run where you.

You know on the regulatory side you guys had a pretty clear idea and you're like okay well. On the actual infrastructure of the payments, you know, the RTR that side was lagging behind and you just said, Hey, listen, we can't wait forever to get the new regulatory scheme in place. We have to get this out because you know, otherwise we may just be waiting forever.

You know, it was at the point where you just basically you guys were able to get ahead of the actual technology. And instead of waiting, you said, let's just get it out. And then we'll be more ready for when RTR comes out.

Ron Morrow: Well, uh, the, so as I said, the, the Retail Payments Activities Act was passed in July of 2021.

So a few years ago, and the legislation and regulations, it's, uh, It's a process that moves, you know, very deliberately, you shouldn't, you know, make laws or regulations, which have the power of law the without a lot of thoughtfulness and consultation with the industry. And at the time, all of [00:26:00] this was proceeding along.

Uh, I think we believe that there would be, uh, both the, uh, the RTR and the RPA would be. Launching at around the same time, it's running into problems, but once once you set the, it's really the Department of finance responsible for the legend, the regs. But this is the process demands that you set coming into force dates.

And, you know, those get written down in stone and don't change on a whim.

Jeff Adamson: I guess the one thing I'm trying to figure out is in Canada, you kind of already have the real time movement of money through Interac, through e transfer, but it's capped at a relatively small amount. What does the world look like where you have a real time rail, you know, under Payments Canada, regulated, you've got PSPs who can get access to it, but then you've also got this other one, which is e transfer.

How do you see these both coexisting

Ron Morrow: so from a consumer perspective you have the appearance of a real time money [00:27:00] movement here in canada you don't actually have finality of settlement which is a very jerky payments thing right that the money might look like it's your bank account but it could get caught back for a variety of reasons it's not really final final final and that's you know that's determined by A host of, uh, rules that are, that have been written by, uh, by Payments Canada.

So in a new world where you do have real time, 24 7, 365 payments, it's final, right? You and I bump phones and money moves from my account to your account in seconds, and it's final. It's irrevocable. That money can't be, uh, can't be taken back. The. You also open up, uh, the possibilities for much higher, uh, amounts in e transfer.

I mean, uh, different financial institutions set caps on, uh, e transfer according to their own kind of internal risk appetite. But in a, in an RTR world, those numbers are going to be, are expected to be much, [00:28:00] much higher. So, you know, when you have a, I don't know, a kitchen renovation and you know, you need to pay, uh, pay your contractor 10, 000 for your kitchen renovation.

You can do that over the RTR versus today. That would be probably a series of interact transfers to pay your contractor.

Jeff Adamson: Yeah. And also just the removal of, of, you know, even like, I don't know what the cost of a wire is right now, or. The, you know, bank drafts, for example. So I think for, for the consumer side, it's going to be wonderful to be able to have real time, uh, movement of money and larger amounts of money if needed.

How do you see this impacting things like card networks, where you've got the MasterCard, the visas, the amexes of the world, where. You know, they are highly penetrated. Every single business uses them. Most consumers use them. They're very convenient to use. Do you see a world where with RTR, there's new payment products coming out where it's, it's literally just instant bank to bank [00:29:00] movement of money that bypasses some of the traditional rails that exist for the current movement of money?

Ron Morrow: I think the RTR opens up a new. Like, it's a new way of making payments, right? Cards are one way, uh, so credit cards are one way, debit cards are another way, e transfers another way, this will be yet another way to be able to, uh, send and receive payments, and it's, you know, it offers more choice to consumers, the merchants might be attracted to something like this because the cost of these types of transactions, uh, might be lower than some of the alternatives, so they might try to steer their clients towards it.

Those types of payments, but the other thing that the RTR is going to bring is, uh, something called data rich payments, right? So data can go along with your payment. So take, for example, the idea of I'm paying an invoice. Someone sent me an invoice for something I purchased or for, for services. I, uh, I purchased the, so when I send, when I pay [00:30:00] them, I can send the invoice along with the payment.

The vendor can then receive that. Uh, they can say, Oh, okay, well, I just received, you know, 1, 000 from Ron and there's this invoice detached, uh, it's for the services we provided her on, you know, a month ago. So you're now in a world where accounting systems and accounts payable can automatically process that payment, right?

Straight through, you can get a lot of efficiency. It's. It's potentially a source of productivity, uh, for the, uh, for the economy, probably not anything that's going to, you know, move the productivity needle in a big way, but, you know, every little bit counts when it comes to improving productivity in Canada.

Jeff Adamson: Yeah, but that's a, that's actually probably more powerful than what you're letting on there on, like, if you're able to. Have additional fields of data that go along with the actual payment, the ability to create automations on the other side or on both sides, I think actually does open up a lot of opportunity for consumers and businesses, and I know that a lot of the, you know, you couple this with open banking with digital [00:31:00] identity, and you actually start getting closer to the promised land of of simplifying finance, making it more transparent, easier to understand.

Reducing a lot of the complexity and overhead, you know, the intimidating things of finance, I think you, you start being able to, yeah, really automate a lot of the things that people are just, couldn't be bothered to try to understand and, or find intimidating.

Ron Morrow: Yeah, I totally agree. I think the, I don't mean to, to, uh, to undersell it, but I look forward to the day when we, when the rail is built and these capabilities are out there and people can actually, uh, start taking advantage of them.

Jeff Adamson: When you look at what's happening in. Other different jurisdictions for that southeast asia weather that's south america you look at the just absolute explosion of different types of technologies and consumer apps. That enable people to kind of manage their whole life on an app and. I know that when Brazil launched the, the PIC system, the adoption and then that's their kind of, you [00:32:00] know, digital movement of money in real time.

The adoption was basically almost near kind of credit card, MasterCard, Visa levels within like a year or two. Like it just basically almost every single person started using it within a couple of years. And then you have all these people building different types of, of apps off of it or incorporating it into their apps.

So I think, I mean. I think it's going to be absolutely huge for Canadians. We're super excited to see it get rolled out. And obviously I think because you're dealing with instant money movement, you need to make sure you're getting it right. Need to make sure that the companies that that are coming out with it, like a Canadian, if they're moving their money, we hope that we live in a world in Canada where you can trust that the government has vetted these companies, that these companies can be trusted because otherwise they wouldn't be able to have access.

I think Canadians are expecting that level. And so I think totally understand why we need to have the regulatory framework in place. Fingers crossed that RTR does, you know, arrive as quickly as [00:33:00] possible and as safely as possible. It's going to be a big unlock. But it's not the only thing that you're working on.

I know that, um, you've done some talking around the, uh, digital dollar. Help me understand what is a digital loonie in Canada look like? I think a lot of people, when they think of digital currencies, they just think about crypto, they think about SBF, Sam Bankman, Friedman, they, they, they, they start thinking about like risky gambling, you know, black market stuff, but how is a digital loonie in Canada, uh, significant?

What would be the impact to Canadians? Uh, of having a digital currency,

Ron Morrow: you know, as of today, as of right now, there, there is no kind of digital version of the, uh, of the Canadian dollar. We have a physical bank notes. So digital loony or the, in the parlance of central bank, something, a central bank, digital currency would be it's digital.

Equivalent so it would be something that is issued by the central bank that people can use to pay for things electronically. This is something we've been, you know, taking, you know, taking a look at, uh, [00:34:00] for for many, many years here at the bank of canada, not because we felt there was a, you know, a urgent need to bring forward a digital version of our currency, but more given trends and the evolution of the financial system is something that we thought, well, this could be, you know, Okay.

There could be a day when the government or parliamentarians turn to us and say, Hey, you know, would, uh, would a digital currency make sense? And if, if, if so, how exactly would you the bank of Canada bring it to life? So that's been the focus of our work and of central banks around the world. I think there are.

The latest stat I saw was over a hundred central banks taking a look at the idea of a digital currency. Some have actually gone out and, uh, and launched them. It's hard for me to point to a jurisdiction where the, you know, digital currencies, digital central bank currencies have really taken off. If I focus on, uh, the, The major developed countries around the world.

There are many countries in the same campus us, [00:35:00] which is well, we need to understand this. We need to think about it. Uh, and I can talk a little bit more about the work we've done in that regard. But there's 1 jurisdiction that is, I wouldn't say all in that's that's a bit well, maybe, uh, on a, on a digital currency.

It's, uh, the European central bank. So Europe is has, uh, Has stated that they're, they're moving ahead with to dot to launch a, uh, a central bank, digital currency. We're very interested in, in the work they're doing and, uh, are very keen to see how they, uh, how they actually bring this to life. There are a lot of very complicated questions when it comes to central bank, digital currency, how do you adequately deal with.

Privacy, how do you deal with security? How do you put something out that has quantum proof encryption associated with it? There are a lot of potential roadblocks and challenges along the way. So we're very interested in what they're doing. And I think we and several other of our central bank colleagues are going to be paying close attention to the choices they make and looking to see how they progress.

Jeff Adamson: But I guess, [00:36:00] how does it differ Ron? And, and again, I'm not deep on crypto as crypto took off and, and NFTs took off. I was, I was so heads down focused on building Neo that I just was like, I don't have bandwidth to figure out like what, you know, should we get, be getting into this, there's so many other things we have to build.

So when you talk about like electronic payments and how would this be any different than what people are doing today because people are using digital payments all the time, like how does it actually differ? Like what would be the difference in someone's in a Canadian's day to day life? If, for example, we had a digital currency in Canada.

Ron Morrow: You're absolutely right. I would say Canadians are very well served by the payment options they have right now, be it things like e transfer, be it the various card networks, be it cash, be it any one of the many payment service providers out there that provide service.

Jeff Adamson: Canadians

Ron Morrow: can move their money pretty well right now.

Digital canadian dollar would be different in as much as it would be a liability of the central bank so [00:37:00] it would be central bank money that people would have and be able to spend in that money that you know those transactions would settle over the books of the bank of canada and they would be final and irrevocable versus the way things work currently you're essentially paying for things.

With your bank account, you're either using your bank account directly as a debit card or using credit cards and then paying for your credit, paying your credit card statement using, uh, using the money in your bank account. So it's a slightly different way of paying, but the, uh, at the back end at the kind of complicated, you know, who exactly is, you know, whose liability is this?

And how does the transaction settle? But. The, I think most Canadians don't really care about any of that. They, you know, they can pay for things just fine. Thank you very much. And, uh, I was based on public consultation work we've done and, and, uh, talking to Canadians about this very subject. I would, I would [00:38:00] say there's no, there is no groundswell of, uh, Of people looking for a, uh, a digital Canadian dollar.

They think that the options they have right now are just fine.

Jeff Adamson: There's no truck or convoy for a digital dollar.

Ron Morrow: Not yet. Not yet.

Jeff Adamson: Right now we've got Canadian currency. It's in people's bank accounts. It's all over. With a digital dollar in Canada, it would be kind of hosted at the Bank of Canada or the central bank.

And so it's not really going into your bank account, not really going into anyone else. Like the source of truth is just all up on one ledger at the central bank. And then you're connecting to that ledger to just make changes to it. But money is not really moving anywhere. It's just always on that ledger.

Is that kind of. Tell me this is totally wrong.

Ron Morrow: I think you're you're you're most of the way there. So there are lots of choices on how you would distribute the digital currency. So let me let me use possible construct, which would be kind of leveraging the current financial system. So the Bank of Canada would [00:39:00] issue digital Canadian currency.

Dollars in this hypothetical world. Uh, so we'd have the ledger. We'd have the tokens that we'd be creating for that We could use other financial institutions. So banks credit unions PSPs others as a as the mechanism for for distributing those tokens. So how would you do this? Well you would Go to your, uh, go to your bank or credit union or, you know, wherever your, whatever financial institution you're using, take money out of your bank account and use that money to purchase the, you know, dollar for dollar, these digital Canadian dollars, which would then go into a wallet and then from that wallet, you would be able to spend from that wallet to buy goods and services or transfer funds to others.

Jeff Adamson: Yeah, I mean, I think there's a ton of potential, especially if you're not having to actually, if you don't have as much of the friction between being able to make payments or any, you know, less middlemen along the way, it certainly has that potential. It seems like to increase efficiency and lower prices [00:40:00] for consumers and hopefully make things more convenient.

Where do you see banking, finance, and Canada going? If you kind of put your, your kind of, Crystal ball in front of you and you know, right now it seems like there's a lot going on. It seems like there's some pretty exciting times ahead. We've got, you know, open banking, real time rails, you know, digital currencies.

If you kind of fast forward five years out, Ron, where do you think we're going to land five years out from here? What do you think we're gonna be talking about in five years?

Ron Morrow: Well, five years. So I don't know how clear my crystal ball is, but five years out from now, I would expect that all the things we've been talking about are.

Right. Been running it live, right? We have a, a functioning, uh, not just functioning. We have a, a great real-time rail system that allows for this 24 7, 365 data, rich payments. We have a, uh, uh, a, a maturing, uh, supervisory framework for, uh, uh, for payment service providers. We have new payment service or payment service writers who've been able to.

Directly join the real time rail and are offering a range [00:41:00] of services to Canadians. So I, you know, I think that's table stakes, right? I think all of that has to be in place 5 years from now. The what else could happen? Well, there are, I think there are a lot of really cool things Additional things we could be doing or thinking about, uh, there have been a couple of, uh, experiments that other jurisdictions have done who have real time rails up and running.

There's a Canada or a US Europe experiment. I'm particularly thinking of where they connected kind of real time rails, you know, in Europe. In the US to allow clients customers to be able to send it wasn't real time but it was near real time payments from the US to Europe so how cool would that be right if we can link up real time rails if you know how great would it be if canadians both you know small medium sized businesses consumers were able to send and receive in real time.

Cross border payments between Canada and the US that that's [00:42:00] probably pretty, uh, pretty cool, pretty important. So I think those are the types of things that I'd like to see. How do we take this baseline technology and regulatory system we're putting in place and leverage it to get. Even better benefits or even better open even more doors towards a more efficient and more competitive financial system

Jeff Adamson: cannot wait until we get there on last question if you could go back in time and give 20 year old Ron some advice career advice what would it be.

Ron Morrow: Well, the, I would say it's follow your heart. The, you know, do what you, uh, do what you like. I, I've been, someone once told me that a career only makes sense in hindsight. The, I, I had no grand plan when I embarked upon my career. It's, uh, It's, it's all worked out. Uh, I've enjoyed all the choices that I, or the, uh, all the opportunities I've had along the way, the ability to work with some, uh, very, very intelligent people, the ability to try to [00:43:00] give back and make Canada an even better place.

It's been, uh, it's been a fun journey. I've really enjoyed it.

Jeff Adamson: Well, I know that people look at the, you know, banking system of Canada. I think generally the consensus is that it's, it's well run. It's stable. It sounds like we're pushing forward some important pieces right now. And I know that a lot of the benefits have not manifested yet, but I know that everyone's eagerly excited about.

About those coming and appreciate all your hard work, all your team's hard work, and kind of getting these things pushed forward. Uh, and again, and thank you so much for taking the time to chat about it today.

Ron Morrow: Thanks very much, Jeff. A pleasure.

Jeff Adamson: Thank you for tuning in to behind the brand. If you enjoyed today's show, please subscribe and leave a review on your preferred podcast platform. If you're interested in learning more about neo financial, visit us at neo financial. com behind the brand is production of neo financial and media lab, YYC hosted by me, Jeff Adamson.

Strategy, research, [00:44:00] and production by Philippe Burns, Dario Boettcher, and Kyle Marshall.