Payments market dynamics and trends in Canada

Payments Canada, the organization responsible for the clearing and settlement infrastructure of Canada, has issued in December 2017 the Canadian Payment Methods and Trends 2017 report. The analysis provides a detailed overview of the 2016 payments market dynamics and trends, where 21.3 billion consumer and business transactions were worth more than USD 9.2 trillion in 2016.

Could you elaborate on the most important trends that shape the POS- and ecommerce payments ecosystem in Canada?

The most pervasive trends can be linked to Canadian preferences for rewards and convenience.

In the POS and ecommerce environments, credit card reward incentives are clearly influencing consumer and business habits. In 2016, 82% of credit card users indicated their primary card is a rewards card, and the vast majority make at least a quarter of their total purchases using their credit card.

The convenience driver is key as well. We are seeing the move away from cash and slower electronic payment channels giving way to faster and more convenient channels. Like other jurisdictions, Canada is seeing more of its commerce shifting to online environments using online payments channels. We also observe convenience driving more card payments to contactless channels and ecommerce moving from more traditional computers to mobile devices. Canadians are also growing their use of in-app and mobile contactless channels, which represents a further step towards even more convenience.

Canada is the second largest user of credit cards per capita in the world and, in 2016, its POS environment was dominated by credit cards. How do you explain the surge of this payment method in your country?

We see this less of a surge and more of a decade-long trend. During this period, credit card ownership expanded to upwards of 90% of adult Canadians, while a strong general trend occurred away from paper forms of payments – like cheques – to electronic. Credit cards have been increasing in popularity in large part due to rewards and convenience. We have found that about 80% of user’s primary credit card offers some form of rewards incentive. Credit cards have also had an edge over the competition in the field of innovation, enabling transactions in emerging payment channels. For example, today credit cards remain dominant for in-app transactions, such as the payment experience with Uber or Amazon, where we continue to wait for another payment instrument that might challenge that dominance.

On the business side, we are seeing increased credit card use for B2B payments as more businesses have become interested in rewards and credit card issuers have become more adept at providing businesses with enhanced reporting and reconciliation tools.

The credit card is the payment instrument of choice in Canada. What are the most frequently used alternative payment methods for POS/ecommerce in your country?

Canada has its own domestic debit card brand called Interac. At physical merchant locations, Interac debit card transactions are thriving, particularly for the lower value and higher volume transactions, and this position has been bolstered since contactless debit became widely available in 2014.

For ecommerce, credit cards are responsible for at least nine out of 10 transactions, where alternatives are less present than at the physical POS. A mix of online direct payments from bank accounts (e.g., Interac e-Transfers), prepaid cards, and pre-funded schemes makes up the relative niche alternatives.

Could you give some examples of important collaborations between fintech and banks to enable social media payments in Canada?

A variety of financial institutions are testing payments using social media and messenger services. Royal Bank of Canada (RBC) now allows Canadians to send direct bank account to bank account payments (Interac e-Transfers) to their Facebook contacts, who receive notifications through their Facebook Messenger. RBC also recently launched the use of Siri (in Apple devices) to enable voice-activated Interac e-Transfers. In addition, several Canadian fintechs have begun to partner with Canadian banks to enable “chatbot” banking services, which will include a bill payments feature. In this way, Canadians will send direct payments to others through iMessenger and Facebook Messenger.

The present social messenger services provide a convenient new payment channel, which will not require users to prefund or link bank accounts to new apps or service providers. One such service, which was the winner of the 2017 Payments Canada FinTech cup, is called Finn.ai. The company has already partnered with ATB Financial and Bank of Montreal and is currently running a pilot programme using Facebook Messenger to perform a variety of online banking services for ATB Financial customers. As more services become available, we see the prospects for the emerging payment channel growing stronger.

Payments Canada is committed to providing Canada with a real-time payment system of its own. How will this initiative impact the credit card market in the country?

The expectations for a real-time system involve mostly cash, cheque, and electronic direct payment volume migrations. However, the system will provide an opportunity for deposit-account-based payment alternatives to take root, which could have some impact on credit card use.

The use of ISO 20022 should enable easier reconciliation and transaction processing for businesses that accept real-time payments. In addition, businesses that accept real-time payments will enjoy quicker access to funds, improving their cash flow and funds management. Both of these factors will encourage some degree of business preferences towards real-time transactions.

The real-time system will also leverage an overlay service model, which, among other benefits, will enable innovation from service providers. This will create the potential for innovation of services involving deposit-account-based payments. We have seen examples in Europe and Asia, where schemes have developed on top of real-time systems to provide new payment channels for POS and ecommerce. If similar schemes were to become available in Canada, it would provide for some intriguing alternatives.

About Anne Butler

Anne Butler is the Vice President, Research, Policy and Legal at Payments Canada. She is leading the teams that think about the future of payments and support the rules, standards and legal framework for Canada’s national payments systems - the arteries of the Canadian economy.

About Payments Canada

Payments Canada is responsible for the clearing and settlement infrastructure, processes and rules essential to the transactions conducted in Canada. We are delegated by the Canadian Government to support a vibrant economy by helping to meet the payment needs of consumers and business, and empowering a new era of modern payments. Were headquartered in Ottawa and operate under a board of directors. We are a public purpose, non-profit organization fully funded by the financial institutions that participate in our systems.