Publication date: August 21, 2024
The following fictional case scenarios provide examples of incidental activities under the Retail Payment Activities Act.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.
These examples build off each other. We recommend reading them in the order they appear.
Case scenario: Payroll service performed in-house
Company A has 10 employees. Given its small size, its management decides that Company A will conduct its own payroll services and pay its employees directly. Employees are paid with biweekly direct deposits. Since these direct deposits are transfers of funds by electronic means, they are considered electronic funds transfers EFT), as defined in the Retail Payment Activities Act (RPAA).
Company A stores information about its employees’ working schedules, paycheque amounts, pay dates and payment account details. As a result, Company A is performing a payment function, i.e., providing or maintaining an account in relation to an EFT. However, this payment function is incidental to Company A’s business, as it is performed exclusively to enable Company A to operate, not as its primary activity. Company A does not perform this payment function on behalf of any third parties, and it does not provide any payment services that allow other individuals or entities to transact with each other.
As a result, Company A does not meet the definition of a payment service provider (PSP) under the RPAA and does not need to register with the Bank of Canada.
Case scenario: Payroll services company
Company A grows to 50 employees and, for ease of operations, its owners decide to hire Company B for its payroll services. Company B is an independent company that runs payroll cycles for other Canadian businesses, providing dedicated software and associated payment services, including processing pre-authorized deposits.
To set up its account with Company B, Company A provided its payment details and those of its employees. Before each payment cycle, Company B calculates statutory deductions and determines payment amounts. Company A then deposits with Company B the total amount of money needed by a due date. Company B holds those funds at rest for a few days to ensure it has sufficient liquidity to make all the necessary transfers to the employees of Company A on time. On the agreed date, Company B sends EFTs to the employees’ accounts.
In this case, Company B performs several payment functions: provision and maintenance of an account; holding of funds on behalf of an end user; initiation of an EFT at the request of an end user; authorization of an EFT and transmission, reception or facilitation of an instruction in relation to an EFT. These payment functions are not considered incidental since Company B provides payment services as a distinct business line. In other words, its business consists of facilitating payments between payers (the employer) and payees (the employees). This conclusion is further validated by Company B advertising and generating revenue from its payment related services.
In this scenario, Company B meets the definition of a PSP under the RPAA and needs to register with the Bank, assuming it meets the other registration criteria.
Disclaimer
The case scenarios are illustrative examples reflecting the Bank of Canada’s interpretation of certain requirements set out in the Retail Payment Activities Act (RPAA). All names, facts and descriptions in these scenarios are entirely fictitious and do not reflect any real or actual individuals or entities.
Additionally, they do not represent legal advice and should not be used as a replacement for seeking such advice if an individual or entity is unsure about whether they are required to register with the Bank of Canada as a payment service provider. The nature of the products and services offered by each individual or entity will vary, as will the circumstances around offering these products and services. Therefore, any individual or entity that may be subject to the RPAA should assess their own situation on a case-by-case basis according to their own facts and circumstances. Any entity or individual that may be subject to the RPAA is ultimately responsible for determining whether they are required to register with the Bank.
The examples provided are not a replacement for the Criteria for registering payment service providers supervisory policy, but rather they are meant to complement the policy. They should be read in conjunction with the policy.