On January 27, 2020, Payments Canada Rule E5, Exchange of Point-of-Service Delayed Authorization Debit Payment Items for the Purpose of Clearing and Settlement, came into effect, enabling broader point of sale debit card acceptance. Rule E5 removes the requirement for merchants to have consistent online connectivity to accept debit payments. Therefore, merchants may now choose to provide a good or service to a consumer prior to the transaction being authorized, and accept the risk that it may not receive payment for the goods or services provided.
With debit card transactions being the most widely used payment method (by volume), followed closely by credit card transactions and cash, there was a recognized need to allow for greater practicality in the use of debit cards as a form of payment. According to the 2019 Canada Payment Methods and Trends Report published by Payments Canada, in 2018, debit card transactions accounted for the greatest volume of point of sale transactions in Canada, and tended to be used for every day, lower dollar value transactions, whereas credit card transactions accounted for the greatest aggregate value of point of sale transactions. Cash was used less than either debit cards or credit cards, measured by both volume and value of transactions.
A key impetus for the creation of Rule E5 was to provide for the use of point of sale debit card payments where quick authorization is required. In particular, Rule E5 is designed to accommodate debit card payments for transit services and other high volume, low dollar value transactions, such as payments for on board purchasers (airline/train/ferry), vending machine purchases and parking (via parking meters).
Delayed authorization transactions will still be cleared and settled through Payments Canada, with the initial submission for a delayed transaction to be within 30 hours after the transaction at the point of sale.
Rule E5 is the latest development in the ongoing move away from cash. Rule E5 recognizes that Canadians want easy, fast and digital payment alternatives, and will undoubtedly decrease the use of cash by facilitating debit card payments in areas where cash payments have remained more prevalent.