Thank you, Mr. Chairman.
Before I begin, I'd like to thank you for having given us this opportunity to appear before the House of Commons Standing Committee on Finance in order to discuss the CPA and the process involved in bill paying.
I'd like to introduce my colleagues, they are Mr. Doug Kreviazuk, who is our Vice-President, Policy and Research, and Ms. Barbara Ciarniello, Associate Vice-President, delegate of the Credit Union Central of British Columbia.
In coming before you today, I know you have many questions about how bill payments operate in this country and specifically why the process is not instantaneous, particularly in light of all the automation we see today in the banking and payments arena.
The reality is that other than cash, there are no real payment options in the marketplace that are truly instantaneous. Although some provide the appearance of real-time payment and settlement, this appearance is generally in the eyes of the consumer and is not necessarily from the biller or merchant.
The short answer is this. Moving payments and the related billing information from a consumer to the biller requires a number of sequential steps, each of which relies on a separate system. Further, the delivery route and mode may vary considerably among billers and depends on a number of factors, such as how the consumer initiated the payment and the technical capabilities of the biller.
While the process of initiating a bill payment electronically is both quick and convenient for the consumer, there's a complex web of arrangements behind the scene to ultimately make it happen. The CPA plays an integral role in most instances, as it operates the national clearing and settlement system through which many of these payments will be exchanged among financial institutions. In essence, our role could be seen as the central link in a chain, with other links both before and after our links that are operated and managed by other parties.
First, I would like to walk you through the life cycle of a bill payment. Although alternative clearing arrangements exist outside the CPA for bill payments, my comments will focus solely on the case where the payment is processed via CPA systems and rules.
Indeed, today there is no online, real-time, end-to-end processing to support the payment of a bill. By end to end, I mean from the point that a consumer initiates the payment instruction to the time a biller updates the consumer's account to reflect the payment. In fact, most consumer bill payments or the information respecting the bill payment must go through four unrelated systems, as indicated in our submission.
First, let's say a consumer decides to pay a utility bill online. He or she logs on to the financial institution website, selects the bill to be paid, and initiates the transaction. To the consumer, this looks like it is seamless and fully integrated, but it is not.
You instruct your financial institution or FI to send the payment. This is the first system connecting you to your FI.
Then your FI takes the instruction, along with all the others for the day, and batches them in a particular electronic file format that is sent across the CPA clearing system to the FI for the utility company. This is the second system.
Each day there are specific cut-off times that FIs must adhere to when delivering this information. Once the utility company's FI has received the files, they aggregate the payments to the utility company received from all the other FIs on that particular day and credit the account of the utility company for the total amount received. This is the third system.
To complete the fourth step, the utility company will need the detailed data pertaining to each customer who has made a payment on that day so that the biller is able to assign the appropriate credits to the individual accounts.
Depending on the biller's technical capabilities, receiving the data from the various FIs may take several forms. While the most efficient system for delivering this information is electronic data interchange, EDI, many billers in Canada have not adopted this technology, in part due to cost and complexity.
Non-EDI billers receive the details of each payment in the format specifically requested by that biller, for example, by fax or e-mail. In most of these cases, the biller is not able to use an automated process to transfer the information into the accounts receivable system. Where a manual process is involved, this would likely extend the time required by the biller to update the individual customer account. There is a time-in-transit period that must be considered.
As part of our strategic planning for 2006, we'd already considered examining the provisions of the frameworks for bill payments.
When we met with you last time, we'd also indicated that we intended to begin a consultation. In order to support this commitment, we will soon be establishing a task force composed of representatives of member financial institutions and stakeholders who will analyze the current issues and recommend improvements. We will also prepare a public consultation document for you and later, we will hold a series of round table discussions including stakeholders as well as members of financial institutions.
Since some of the current challenges of the bill payment environment go beyond the scope of action of the CPA, the implementation of solutions will have to be done in cooperation and with commitment from various stakeholders within the industry. To succeed, the participation of bill payment service providers and billers will be essential. Your support for this initiative is therefore important and will enable us to put greater emphasis on this review.
I thank you for your time. We remain at your disposal to answer your questions.