Over the last five years, the payment industry has seen an acceleration of digital payment usage among consumers and businesses, especially due to the impact of the COVID-19 pandemic. Canadians are more comfortable using digital payments on an everyday basis – and are embracing innovations that make their payment experiences more frictionless.
Although older Canadians (55 years and older) are less likely to be early adopters of emerging payment innovations compared to younger (18-34 years) and middle-aged (34-54 years) Canadians, the pandemic has driven tendencies to search for products and services online. This has sparked higher engagement in digital payment options across all generations.
Each year, Payments Canada provides an overview of the payment trends observed in Canada through the publication of the Canadian Payment Methods and Trends report. This year’s report, available on payments.ca in October 2023, reveals key themes around the growth and preferences regarding digital payment options, in addition to insights into consumers’ expectations for the future.
To keep pace with shifting consumer demands, businesses have begun to offer new payment options and features. The Canadian Payment Methods and Trends report revealed that 23% of businesses offered Buy Now, Pay Later (BNPL) as a payment option to their customers in 2022. While this accounts for less than a quarter of businesses, the appetite to implement BNPL is growing. Over half (55%) of businesses that weren’t yet offering BNPL indicated that they plan to do so within the next twelve months.
This is likely because consumers are embracing this emerging digital payment method. 48% of BNPL users in Canada reported a surge in their usage in 2022. Similarly, 59% of cryptocurrency users and 53% of contactless smartphone mobile wallet users increased their usage of these payment methods respectively. Businesses are embracing mobile wallet payments for their customers because they are secure (22%), more convenient (20%), and increase customer satisfaction (20%).
Consumers understand the benefits of digital payments including speed, security, ease of use, and low cost. For these reasons, they rely on a range of digital payments depending on their needs and unique payment situations.
Online transfers are the fastest-growing payment type in Canada, with year-over-year volume growth of 11% and value growth of 19% from 2021 to 2022. These include online e-wallet and electronic person-to-person (P2P) transactions initiated through online services and providers that are prepaid or linked to deposit accounts at financial institutions. Interac e-Transfer dominates the online transfer payment segment and is most often used for peer-to-peer (P2P) payments, such as repaying someone (43%) or sending a gift (36%).
In comparison, other forms of digital payments, including Electronic Funds Transfer (EFT), were mainly used for work payments (35%) or recurring bill payments, such as utilities (44%) and insurance (41%). Electronic funds transfers include transactions carried out through a bank account held at a Canadian financial institution, such as direct deposits, electronic remittances, pre-authorised debits, and other online bill payment transactions.
As emerging digital payment alternatives are established, consumers’ payment preferences will continue to evolve. It could mean that they swap out one payment method for another or that their overall range of preferred payment choices expands.
An example is mobile payments, and the top use cases include bill payments (39%), online payments (33%), and P2P payments (31%). However, more Canadians are beginning to use payment apps on their mobile devices for point-of-sale purchases, such as at a coffee shop.
As Canadians’ expectations and behaviours evolve, planning and anticipating their payment needs becomes increasingly important. For example, 65% of Canadians would send their payments in real time if the option was available. The top three use cases for sending payments in real time are paying a credit card bill, government taxes, and rent, all where the speed of the payment is critical, especially to avoid late penalties.
To support the future of digital payments, the development of Canada’s first national real-time payment system, Real-Time Rail (RTR), is underway. RTR will support data-rich payments, while serving as a platform for innovation and competition in the marketplace. This new payment system will enable Canadians to initiate and receive irrevocable payments between accounts at different financial institutions within seconds, day and night, 365 days a year.
Innovation is integral to ensuring Canada’s payment infrastructure meets the needs of Canadians and remains competitive on the global stage. Payments Canada is seeking updates to Canada’s payment legislation to expand Payments Canada’s membership eligibility to include a broader swath of payment players who meet the necessary requirements. Innovation is critical to remaining globally competitive, but it’s immaterial without safety and soundness. Broadening access in a safe and sound manner will foster competition and innovation, while helping to ensure that the future of digital payments, which Canadians are increasingly turning to, happens within – not outside – Canada’s regulatory framework.
This editorial piece was first published in the Payment Methods Report 2023, which provides an in-depth overview of the latest worldwide developments in how people pay, the payment methods space, the innovative technologies that these methods work upon, and the best strategies on how to win at conversion and retention.
Stephen Yun is Senior Analyst, Market Insights, at Payments Canada. His areas of focus include the Consumer Payment Methods and Trends report, the Payment Behaviour Tracker studies, and how these research insights can be leveraged to drive business action for his business partners.
Payments Canada is a public purpose organisation that owns and operates Canada’s payment systems, Lynx, and the Automated Clearing Settlement System. In 2022, Payments Canada’s systems cleared and settled over CAD 119 trillion or CAD 476 billion every business day. Payments Canada is leading Canada’s journey to introduce modern payment options that are more resilient, inclusive, and enable fair competition as the foundation for a thriving economy.
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