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From LVTS to Lynx: Quantitative assessment of payment system transition in Canada

Author

Listed:
  • Desai, Ajit

    (Bank of Canada, Canada)

  • Lu, Zhentong

    (Bank of Canada, Canada)

  • Rodrigo, Hiru

    (Bank of Canada, Canada)

  • Sharples, Jacob

    (Bank of Canada, Canada)

  • Tian, Phoebe

    (Bank of Canada, Canada)

  • Zhang, Nellie

    (Bank of Canada, Canada)

Abstract

Modernising Canada’s wholesale payments system from the legacy large-value transfer system (LVTS) to Lynx brings two key changes: (1) the settlement model shifts from a hybrid system that combined components of both real-time gross settlement (RTGS) and deferred net settlement to an RTGS system; and (2) the policy regarding queue usage changes from discouraging it to encouraging the adoption of the new liquidity-saving mechanism. This paper quantitatively assesses the effects of these changes on the behaviour of participants in the payments system. The analysis reveals that most system-level payments in Lynx are settled in a single stream via the liquidity-saving mechanism, thus facilitating liquidity pooling and leading to higher efficiency than with LVTS, where payments were distributed in two streams. Moreover, due to Lynx’s liquidity-saving mechanism, many payments arrive earlier than those settled in LVTS, providing more opportunities for liquidity saving at the cost of slightly increased payment delay. At the participant level, meanwhile, the analysis suggests that liquidity efficiency is improved for various participants, with most experiencing slightly longer payment delays in Lynx than in LVTS.

Suggested Citation

  • Desai, Ajit & Lu, Zhentong & Rodrigo, Hiru & Sharples, Jacob & Tian, Phoebe & Zhang, Nellie, 2023. "From LVTS to Lynx: Quantitative assessment of payment system transition in Canada," Journal of Payments Strategy & Systems, Henry Stewart Publications, vol. 17(3), pages 291-314, September.
    • Handle: RePEc:aza:jpss00:y:2023:v:17:i:3:p:291-314
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    Citations

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    Cited by:

    1. Ajit Desai & Jacob Sharples & Anneke Kosse, 2024. "Finding a needle in a haystack: a machine learning framework for anomaly detection in payment systems," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Granular data: new horizons and challenges, volume 61, Bank for International Settlements.
    2. James T. E. Chapman & Ajit Desai, 2023. "Macroeconomic Predictions Using Payments Data and Machine Learning," Forecasting, MDPI, vol. 5(4), pages 1-32, November.
    3. Irving Fisher Committee, 2024. "Granular data: new horizons and challenges," IFC Bulletins, Bank for International Settlements, number 61.

    More about this item

    Keywords

    high-value payments systems; LVTS; Lynx; payment modernisation;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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