Slide 0 - BMO Capital Markets

U.S. / Canada
Banking & Payments
Following Topics
Overview of US and Canadian Banking and Clearing systems
Differences / Similarities by Service
 Disbursements
 Receivables
 Imaging
 Balances
 Reporting
Fraud Prevention
Clearing and Settlement System
Canada's clearing and settlement system is one of the most efficient in the world
 Same day value across five time zones
 Overnight clearing
 Six clearing centers across the country
Canada's single, centralized check clearing system is overseen by:
 the Bank of Canada, which provides the means for settlement;
 the Canadian Payments Association (CPA), which operates the national clearing and settlement systems that
facilitate the flow of funds between institutions; and
 all deposit-taking institutions, such as the top six banks
Banking Facts – What’s the Difference?
United States
Governed by the Bills of Exchange Act and the
Canadian Payments Association
Governed by federal and state laws – case law also
impacts banking regulations
Electronic payments make up the largest percentage
of items cleared
Checks still comprise a very large percentage of the
items cleared
One centralized check clearing system
Various options for check clearing including the
federal reserve and local clearing house
Same day value for CAD items deposited across 5
time zones
Multiple days for clearing (one to three is the norm)
Overnight clearing of checks
Defined “business day” clearing times
Electronic Payments overseen by Canadian
Payments Association
Electronic Payments overseen by NACHA
Banking Systems
United States
• Small number of large banks that
branch across the entire country
• Large number of depository
financial institutions
• A corporate customer will typically
have only one primary banking
• The U.S. banking environment is
regionalized. Corporate customers
typically have multiple banking
• The six largest Canadian banks
represent about 90 percent of total
bank assets
• The largest U.S. banks represent
51 percent of the total bank assets
• Checks in Canada clear the same
• Checks in U.S. typically take one
to three days to clear
• Payments are mainly electronic
• Significant usage of checks and
mail-based payments
What Drives the Differences?
Banking Services
U.S. Banking Facts
8,900 financial institutions
90,000 branches and bank offices
Multiple layers of regulation
Federal Reserve maintains 32 check-clearing centers
Several other check-clearing options are also available from other check-clearing services, or use of direct
What Drives the Differences?
Banking Services
Canadian Banking Facts
120 financial institutions
68 banks – 6 major banks hold 90% of assets
14,700 branches – cross-country branch network
Consolidated check processing (Symcor / Intria)
Canadians are the world’s largest ATM/ABM and debit card users
85% of retail banking transactions done electronically
U.S. Check Clearing Process
Canadian Check Clearing Process
Differences / Similarities: Disbursements
• Checking accounts
– No significant difference in the basic checking account services
• Controlled Disbursement Accounts (CDAs)
– Controlled Disbursement is unique to the U.S
– Used to help determine daily funding position
• Electronic Data Interchange (EDI)
– Similar in both countries
– EDI payments use the North American ANSI standards on both sides of the border
• Wire payments
– No significant difference in the basic wire services
– U.S. RTGS is operated by Fedwire
– Canada LVTS is operated by the CPA
• Stop Payments
– In the US, UCC identifies that stop payments expire after 6 months
– Some FIs offer longer term options
– In Canada, there are no similar regulations. It is left to the individual FI
Differences / Similarities: Disbursements
• Check value
– In Canada the maximum amount that can be paid to one party by check in any given day is $25
– In the U.S. our operational limit is $99,999,999.99
• Payroll cards
– In the U.S., this service was made available primarily due to the needs of workers in the U.S. who
do not have bank accounts
• “Backdating”
– Backdating of transactions is a common practise in Canada (for example: service charges, interest
charges, returned checks), whereas in the U.S. it is rare
• Procurement Cards / Purchasing Cards
– Offerings are very similar between countries in terms of service offerings from the banks
– However, there is higher use and growth of this service within the U.S.
Differences / Similarities: Receivables
• Nation-wide deposits / float
– The most significant difference between the two countries is float
– In Canada you receive same day value for your deposits
– In the U.S. you receive ledger credit immediately; collected funds for checks deposited take
between 1 to 3 days
• Mail delivery
– Canada we receive mail once per day, and in the U.S. mail delivery for wholesale lockbox
activity typically occurs 18 or more times per day
• Lockbox
– Available in both the U.S. and Canada
– Is more prevalent in the U.S. partly due to the multiple mail deliveries per day, and because
of the drive to reduce mail and check clearing float
Differences / Similarities: Receivables
• Electronic Funds Transfer (EFT) payments / Automated Clearing House (ACH) payments
– In Canada you can not forward much more than the payor’s name
– In the U.S. depending on the type of ACH, the amount of information that can be transferred
can be fairly substantial
– In the U.S. there are a number of different payment types and applications for debits and
• Electronic Data Interchange (EDI) formats
– Virtually identical on both sides of the border. The EDI is a North American standard
– Settlement occurs in a different manner
• Incoming wire payments
– Very similar on both sides of the border
Differences / Similarities: Receivables
• Merchant services - debit & credit card
– Debit and credit cards are available, to companies both in the U.S. and Canada
– A key difference is the apparent complexity of the pricing or discount structure in the U.S.
• Check conversion (ARC, POP, BOC)
– Check conversion is the process of converting a check into an ACH payment
– Only available in the U.S.
– Limited to consumer checks less than $25,000 only
• Deposit capture (Check 21)
– Scanning the checks and electronically forwarding the images and information to your bank
– Replaces the process of depositing the checks at your bank or having the checks sent to a lockbox
– The introduction of Check 21 has allowed U.S. banks to introduce this service
– With the move to TECP, remote deposit capture will also be available in Canada in the future
Differences / Similarities: Balances
• Interest on credit balances
In the U.S., interest can not be paid to corporations on business checking accounts
In Canada, interest can be – and often is – paid on your daily credit balance
• Earnings credits
In the U.S., a customer receives an earnings credit on their average collected bank balances
The allowance is used to offset against your service fees
• U.S. customers sometimes will use sweep services to earn interest on funds
Movement of excess cash automatically into an institutional money market fund
Differences / Similarities: Balances
• Bank account overdrafts
In the U.S., account overdrafts are discouraged
In Canada, the bank account overdraft service is a fairly normal credit offering
• Reserve requirements
• Deposit insurance fees
• Account consolidation vs. Sweep Arrangement
Differences / Similarities: Reporting –
Generally Quite Similar
Bank-specific proprietary reporting tools
BAI (Bank Administration Institute) reporting
EDI information
SWIFT (not used extensively in the U.S. by
corporations) and multi-bank reporting
Balance availability reporting
Fraud Tools for Treasury Professionals
Check Security Features
Positive Pay, Reverse Positive Pay, and Payee Match
Electronic Payments
Check Blocks and ACH Blocks
Timeframes for Fraud and Returned Items
Altered Item
90 Days
Counterfeit Item
24 Hours
Forged Drawer
24 Hours
Forged Endorsement
Unauthorized B2B PAD, with agreement
24 hours
10 days
Unauthorized B2B PAD, without agreement
24 hours
90 days
Unauthorized B2C PAD
60 days
90 days
*UCC varies from state to state and timeframes can be negotiated between the customer and their bank.
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