As you might’ve guessed, Canada has eChecks, just like many other countries. Business owners in other countries have a specific set of protocols that need to be followed to accept a Canadian eCheck. It’s not as simple as entering the account and routing numbers into your payment system.
Canadian eChecks are a convenient way for Canadian merchants and citizens to exchange funds. However, there are complications when it comes to cross-border payments with Canadian eChecks. Here, we discuss what eChecks are, how they’re processed, and the complications of echecks in cross-border payments with Canadian eChecks.
What is a Canadian eCheck?
A Canadian eCheck is no different in functionality than an eCheck in any other country. It is a payment option that merchants can offer consumers to pay for goods and services. To use this option, customers must provide their account information at the time of payment for the merchant to process.
The numbers on a Canadian eCheck are a little different than an American check. For example, American checks require a routing and account number to be entered for payment. On a Canadian check, there are three important numbers. They are:
- Bank Transit Number
- Financial Institution Number
- Account Number
When using a Canadian eCheck for payment, account holders must provide these three numbers. They can be found on the bottom of a paper check, or by requesting them from the account financial institution. As a merchant, depositing a Canadian eCheck can be a bit more complicated, but is far better than it used to be.
How to e-Deposit a Canadian Check
Depositing a Canadian eCheck into an American bank account used to be a major hassle but has come a long way. In general, an American merchant can scan a Canadian check, or enter its information and deposit the funds via remote deposit capture (RDC). Modern scanners are now able to understand vast amounts of information, including the difference between checks from Canada vs America.
But it wasn’t always so simple…
Why Were Canadian eChecks So Difficult to Process?
When the Canadian eCheck system was first implemented in 2014, it had a variety of hurdles to overcome. While it was efficient in Canada, the checks were not easy to process in other countries. As a result, many merchants in other countries opted not to accept Canadian payments.
Here are some of the initial problems with processing Canadian eChecks in the United States:
Check Formatting
As referenced below, the formatting of Canadian checks is different than that of checks drawn on US accounts. This presented an issue with payment processors and scanners because the machines could not understand the difference between the checks. This resulted in Canadian checks being rejected for errors in scanning.
Since the checks were rejected by machines, merchants had to process them manually, which requires more labor and time. Checks had to be sent back and forth between countries for verification by the different financial institutions. As you might’ve guessed, this process took weeks or even months to complete.
Language Barrier
Scanners also had difficulty recognizing languages other than English. While many Canadians speak and write in English, there is also a large part of the population that speaks French. When checks were written in French, or any language other than English, the scanners would reject those checks, as well.
Technical Issues
Finally, there were some technical issues that needed to be solved. Since Canadian checks had different formats and sometimes different languages, they needed to be categorized differently. This required engineers to create different file formats that would categorize the checks as either US checks or Canadian. Once categorized, the payment information would be processed accordingly.
Interac – The Future of Canadian eChecks
As the Canadian eCheck transfer system continues to evolve, it will require more buy-in from financial institutions across the country. The future of Canadian eChecks lies in the hands of those who are building the technology to increase usage. Interac is leading the way in this arena, connecting thousands of banks and other entities.
What is Interac?
Interac is the premiere Canadian network that connects financial institutions and other entities to allow merchants and consumers to exchange funds electronically. It not only serves as the debit card and electronic funds transfer system, but also employs over 59,000 ATMs and over 450,000 merchant locations. ATMs and merchant locations allow Canadians to access and transfer funds as they see fit.
It was launched in 1984 as a non-profit, adding a for-profit arm in 1996. This project began as a collaboration between 5 financial institutions. By 2010, there were more than 80 member organizations and today, the network spreads across the entire nation. It is subject to the regulations of the Bank of Canada.
How to Receive an Interac e-Transfer
Accepting an Interac e-transfer requires an email address or cell phone number. When someone wants to transfer money to you, they will send it through the Interac application to either via email or an SMS message. To accept the funds, simply click on the link and follow the instructions sent by Interac.
If you prefer transfers to be automatically deposited into your account without the need for an email or SMS message, you can do so. Go to the Interac website and create a profile. Setup your profile for auto-deposit into the bank account of your choice. When funds are transferred to you, they will be auto deposited into that account.
Another option with Interac is billing or invoicing. If you want to request a payment from a vendor, customer, or other entity, you can do so. Simply enter them into your profile as an invoice recipient and send the request. If they accept your request, the funds will be transferred.
How Are Electronic Trades Processed in Canada?
We’ve talked a lot about the transfer of funds for payment, specifically in the form of eChecks. However, we have not considered equity trades and other market transactions. For those transactions, the CDSX comes into the picture.
What is CDSX?
CDSX is the Canadian system for the settlement of debt and equity securities. It processes exchange-traded and over-the-counter trades, as well as money market transactions. CDSX is owned by the Canadian entity CDS, which stands for Clearing and Depository Services, Inc. At the federal level, CDSX is required to adhere to all protocols of the Bank of Canada, to protect consumers and their securities from malpractice or potential fraud. In individual provinces, CDSX is also held accountable for local regulations applicable to that financial institution or municipality.
Final Thoughts
The Canadian banking system has consistently improved its services over the past few decades and will likely continue to do so. Whether making a payment for your morning coffee, or training funds in the market, there is a platform to help Canadian consumers complete those transactions. Additionally, it is becoming easier for US merchants to accept payments and trades from Canadian customers. We are excited to see what happens next in this thriving industry.