Payments modernization: A Canadian perspective on a global shift

Payments modernization refers to the transformation of how payments are processed, governed and experienced – spanning technology, data, operating models and partnerships. It includes upgrading legacy infrastructure, adopting cloud and API‑driven platforms, enabling richer data standards, and preparing for capabilities such as open banking and real‑time payments.

In Canada, payments modernization has become a strategic priority for financial institutions and retailers as they respond to rising customer expectations, intensifying competition and rapid technological change. While global trends influence the direction of change, the Canadian journey is shaped by local regulatory realities, evolving trust dynamics and a mix of traditional institutions, fintech innovators and ecosystem‑driven players.

This article provides a Canadian perspective on the Global Payments Modernization report and survey conducted by KPMG International, exploring how modernization is unfolding in Canada, why it matters, and what leaders across banking and retail must do to stay competitive in a rapidly changing landscape.

The current state of payments modernization in Canada

Canadian organizations overwhelmingly view payments modernization as essential to meeting customer expectations and maintaining competitiveness. According to the survey, a strong majority of Canadian respondents believe modernization is critical to future competitiveness, and most report being mid‑journey in their transformation efforts.

For both banks and retailers, modernization is a multi‑year effort requiring consistent investment, strong partnerships and redesigned operating models. Roadmaps increasingly include preparing for open banking, strengthening cloud foundations and enabling more intelligent, data‑driven decision-making.

While Canada shares many modernization drivers with global markets, the pace remains measured. Regulatory evolution has been gradual, market concentration is high and consumers maintain cautious views on data sharing and emerging technologies. Combined with legacy infrastructure that requires careful modernization, these factors slow Canada’s modernization curve but they do not limit ambition. Adoption of API‑driven connectivity, intelligent fraud tools and advanced analytics is expanding across sectors, and organizations are laying the groundwork for real‑time payments and more integrated digital experiences.

Banks vs. retailers: Different pressures, shared goals

Although banks and retailers are aligned in recognizing the importance of payments modernization, according to survey respondents, their motivations and investment priorities differ.

Banks

Balancing compliance, modernization and competitive pressure

Banks operate in a tightly regulated environment, meaning modernization is often triggered by requirements tied to data standardization, reporting, cyber security and payment infrastructure upgrades. Migration to richer, structured data formats such as ISO 20022 supports these needs, enabling banks to strengthen fraud detection, improve sanctions screening, refine credit decisioning and enhance liquidity forecasting.

However, the value banks seek goes beyond compliance. Non‑traditional competitors, such as global e-commerce platforms offering integrated wallets and embedded finance, and newer payment processors offering seamless onboarding and modern APIs are reshaping customer expectations. Banks must respond by evolving their digital channels, strengthening their data capabilities and extending their reach into ecosystems where customers increasingly transact.

Modernization investments reflect this dual pressure. Banks are advancing cloud adoption for scale and resilience, investing in automation to optimize operations and modernizing cross‑border and B2B payment flows. Many are also partnering with fintechs to deliver embedded financial services and to accelerate speed to market for new payment capabilities.

Retailers

Modernizing to improve customer experience and commercial agility

Retailers face pressures of a different kind – thin margins, intense competition and customer expectations for fast, frictionless digital experiences. Their modernization priorities center on checkout speed, loyalty integration, flexible payment options such as buy now, pay later (BNPL) and seamless omnichannel journeys.

Many retailers are entering financial‑adjacent services to deepen loyalty and diversify revenue, typically through partnerships with banks or fintechs that help reduce the compliance burden. Yet retailers often operate with constrained capital, rely heavily on third‑party vendors and face shortages in specialized payments talent. Payments modernization must therefore compete with investments in supply chain, store modernization and analytics.

As a result, retailers tend to pursue selective, partnership‑driven modernization to quickly enable new capabilities without overextending resources.

How non‑traditional players are reshaping Canada’s payments ecosystem

Non‑traditional players, such as global e-commerce platforms, technology‑first payment processors and non‑bank service providers, are increasingly influencing the direction and pace of payments modernization in Canada. Operating without the burden of legacy systems, these firms deliver modernized payment solutions, advanced fraud tools, analytics and integrated marketplaces far more rapidly than many incumbents. Their agility sets new expectations for seamless checkout, embedded finance and personalized, data‑driven experiences.

By integrating payments with identity, commerce, loyalty and data, these organizations are resetting expectations around convenience, visibility and control – particularly for merchants and consumers who interact with payments as part of a broader digital experience. Their ability to launch quickly, scale across channels, and leverage real‑time data is pushing the broader ecosystem to evolve.

According to the survey, many Canadian organizations are actively seeking support to form and manage ecosystem partnerships – reinforcing that collaboration, not ownership, is becoming the dominant modernization strategy. To keep pace, banks and retailers must refine partnership strategies, modernize technology foundations, and differentiate through trust, data stewardship and customer experience – areas where incumbents retain meaningful advantage.

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Technology adoption in Canadian payments:

AI, cloud and real‑time transformation

Technology adoption is one of the clearest indicators of modernization progress in Canada, and banks and retailers are accelerating investment across several domains, including:

AI-driven intelligence

Organizations increasingly rely on AI to enhance fraud detection, automate compliance checks and strengthen forecasting. Banks leverage AI for credit scoring, liquidity management and sanctions screening; retailers apply AI to reduce chargebacks, improve pricing accuracy and enhance personalization. As ISO 20022 and more consistent data standards improve context and quality, AI will unlock deeper insights and more intelligent decision‑making across the ecosystem. Survey data shows that a large share of Canadian organizations already use AI for fraud detection or predictive analytics, suggesting AI has already moved into the mainstream of payments.
Cloud migration and APIs

Cloud adoption supports operational efficiency, resiliency and scalability, while APIs enable fast integration with partners, fintechs and platforms. Banks capitalize on cloud for regulatory reporting and system modernization, while retailers value speed, flexibility and the ability to rapidly deploy new customer‑facing experiences. API enablement also supports embedded finance models, loyalty ecosystems and unified commerce experiences.
Emerging innovations

Many organizations are exploring biometric authentication, voice‑assisted payments and embedded finance models. According to survey data, retailers, in particular, are experimenting with advanced checkout experiences, including checkout‑free stores and tapless, contactless solutions.

Canada’s future modernization will also be shaped by the next wave of real‑time payment capabilities and the long‑term potential of tokenized payments and digital currencies. While still emerging, these technologies promise to reshape settlement cycles, simplify cross‑border transactions and create new real‑time experiences.

Drivers of payments modernization

Payments modernization in Canada is accelerating because organizations recognize that legacy systems cannot support rising expectations, new regulatory requirements or the emerging realities of open banking and real‑time rail payments. Banks and retailers are being pushed to rethink how they manage data, deliver experiences and compete in an environment where value increasingly comes from speed, intelligence and trust. Across the ecosystem, four primary drivers remain central:

Regulatory and risk management

For banks, regulatory obligations, such as ISO 20022 migration and enhanced fraud and sanctions controls, continue to initiate large‑scale modernization programs. Meanwhile, retailers tend to rely on partners for compliance, selecting ecosystems that can manage regulatory demands without slowing innovation.
Customer-centricity

Modernization enables faster, more secure and more intuitive payment experiences. Retailers focus on loyalty integration and access to underserved segments, while banks aim to strengthen digital channels and deliver smoother, more transparent journeys.
Cost efficiency and operational improvement

Both sectors see modernization as a way to reduce operating costs, eliminate manual processes and improve the reliability and security of transactions.
Competitive pressure from new entrants

Technology‑led payment providers, fintechs and global platforms are redefining convenience and speed. Retailers respond with flexible payments and loyalty‑integrated experiences; banks respond with data‑enhanced services, partner‑led innovation and API‑driven ecosystems.

Barriers to modernizing payments

Even with growing momentum, organizations in Canada face structural barriers that shape the pace and complexity of modernization. These constraints differ meaningfully between banks and retailers, reflecting their operating models, regulatory obligations and levels of technical maturity.

Banks

Legacy integration and regulatory load

Banks must modernize complex systems while maintaining stability and compliance, a challenge that requires extensive testing, significant investment and coordinated sequencing across fraud management, liquidity, data governance and cyber security. Real‑time payments and enhanced data standards heighten these demands.

Retailers

Vendor dependency and skill shortages

Retailers rely heavily on third‑party vendors for payments infrastructure, increasing the risk of lock‑in and limiting speed of innovation. Many also face talent shortages in payments, digital product and data disciplines, making it difficult to develop differentiated, scalable capabilities internally. As they expand into financial‑adjacent offerings, robust data governance becomes even more important.

Across both sectors, inconsistent data governance and limited interoperability remain foundational barriers to unlocking the full value of modernization.

How Canada’s payments modernization compares globally

Canada’s modernization journey is progressing, though at a more measured pace than markets where regulatory mandates or competitive pressures have accelerated adoption. While Canada is preparing for open banking, advancing ISO‑aligned data models and investing in the foundations needed for real‑time payments, several factors shape the pace:

Regulatory structure: Canada’s regulatory frameworks and participation models, even if not stricter than some global counterparts, are structurally complex and slow to evolve.
Market incentives: Canadian banks are highly profitable, reducing urgency to change in areas where modernization does not create immediate economic benefit.
Consumer sentiment: Canadians tend to exhibit higher caution around data sharing and technology‑driven financial services, influencing adoption curves.
Market size and geography: Canada’s population distribution and retail market dynamics slow the diffusion of some innovations.

Despite this, Canada leads in areas such as AI‑enabled fraud detection, digital wallet adoption and participation in global digital‑asset and settlement initiatives. The biggest accelerators ahead will be industry alignment around real‑time payments, open banking and ecosystem‑wide modernization of data infrastructure.

Looking ahead: The future of payments modernization in Canada

Payments modernization is entering a new phase that will shift competitive strategy for both banks and retailers. This new phase will be shaped by several trends:

A data‑rich ecosystem

As payments become more contextual and data‑dense, organizations will generate deeper insights into customer behavior, supply chains, transactions and value flows. This will transform credit scoring, risk models, loyalty engagement and operational decisioning.
Dematerialization of payments

Physical cards are rapidly declining. Digital wallets, integrated digital IDs and mobile‑first payment experiences are poised to dominate. The concept of the “wallet” will shift from a set of plastic cards to a seamless identity‑plus‑payment experience embedded into phones, wearables and connected devices.
Cloud‑native and API‑driven operating models

Cloud ecosystems will become foundational for resilience, scale and rapid innovation. Organizations not yet operating in cloud‑native environments will struggle to compete with partners and platforms building modern, modular systems.
Distributed ledger and digital currency integration

Digital currencies, tokenized assets and real‑time settlement capabilities have the potential to fundamentally alter back‑office clearing and cross‑border flows. Although still emerging, the trajectory suggests these technologies will play a meaningful role in the medium term.
Ecosystem‑oriented competition

The most significant catalyst may be the rise of collaborative ecosystems. Banks, retailers, payment networks, fintechs and commerce platforms are converging, each bringing strengths that others lack. The ability to orchestrate, participate in, or influence these ecosystems will determine competitive advantage.
Preparing now

Leaders should accelerate cloud adoption, strengthen data governance, modernize operating models for speed and build strategic partnerships to stay ahead of shifting customer and market expectations.

A pivotal moment for Canadian payments

Canada is at a turning point. Modernization is no longer a technical upgrade, it is a strategic transformation that moves payments from back‑office infrastructure to a core enabler of customer value, loyalty and competitive advantage. Banks are unlocking new insights and expanding their role in digital ecosystems; retailers are building more flexible, integrated and customer‑centric experiences; and non‑traditional players are reshaping expectations across the value chain.

The next few years will be defined by collaboration between incumbents and disruptors, banks and retailers, networks and platforms. Those that embrace modernization with boldness, clarity and partnership‑oriented thinking will lead in delivering the next generation of Canadian customer and business experiences.

How we can help

KPMG Canada helps banks and retailers accelerate payments modernization through strategy roadmaps, regulatory and ISO 20022 readiness, and secure cloud, AI and real‑time payments enablement. We support clients in modernizing operating models, strengthening risk and data foundations, and building effective partnerships across the payments ecosystem. Our multidisciplinary teams bring deep expertise in technology, compliance and customer experience to help organizations modernize with confidence and unlock lasting value.