On September 29, 2021, Payments Canada released its annual Canadian Payment Methods and Trends Report [PDF](this link is no longer available) (the “CPMT”), which analyzes 20 billion payment transactions (totalling $9.4 trillion dollars)[1] in Canada in 2020 for trends in the payments landscape. The results of the study confirm that, as previously discussed in our bulletin titled “How COVID-19 has Accelerated the Move Away from Cash”, the global COVID-19 pandemic (the “pandemic”) has continued to accelerate the rise of digital payments and other progressive payment trends.
In preparing the CPMT, Payments Canada compiled data from several sources and worked with payment service providers, payment consultants and researchers to compare data from 2020 with data from previous years. It is worth noting that the CPMT reviews payments based on payment method (paper, card and electronic) as compared to previous payment trend reports, which contrasted results within a point-of-sale versus remote environment context. This allows the CPMT to better capture the growth of emerging channels such as e-commerce.
Digital/Contactless Payments
The shift away from cash and towards contactless and digital payments has persisted in Canada throughout the various stages of the pandemic. The CPMT confirms that while alternative payment methods were already on the rise, the pandemic accelerated the contactless payment trend. For the purposes of the CPMT, contactless payments are considered to be contactless credit card payments, mobile payments (paying with a phone or wearable device) as well as digital or electronic payments.
As a result of the effects of the pandemic in Canada (including the stay-at-home orders, brick-and-mortar business closures and remote interactions due to health & safety concerns), Canadians have continued to shift towards making more online purchases, and to favour the use of contactless and digital payments over cash.
With many Canadians actively seeking to avoid handling cash and touching payment terminals at the point-of-sale, the increase in contactless payment has been supported by increased availability of contactless and digital payment options, a general increase in the contactless transaction limits (from $100 to $250 for certain credit cards), and the introduction of new payment alternatives, like QR codes by PayPal.
With respect to digital and contactless payments, the CPMT notes that:
- 43% of Canadians stated that the pandemic had changed their payment preferences to digital and contactless for the long term;
- 67% of Canadians made more retail purchases online in March 2021, a significant increase from the 38% who did so in March 2020; and
- 58% of Canadians used less cash during the pandemic and 40% indicated they were uncomfortable handling cash.[2]
Cash, Cheque and Paper
Notwithstanding the changing payment preferences and trends noted above, the CPMT notes that cash remained the third most used payment method for Canadians in 2020, accounting for approximately 17% of transaction volume. This figure, however, represents a 17% decline from cash transaction volume in 2019.
The continued use of cash is tied to various factors. For example, the CPMT also notes that more than a third of Canadians who regularly use cash as a payment method received a portion of their monthly income or compensation in cash or coins (an increase of 8% compared to the rates in 2019); and concludes that those who are paid in cash are more likely to pay in cash. Further, it finds that there was an increase in the gig economy over the past year (with 13% of Canadians participating in the gig economy in December 2020 compared to 11% in March of 2020), and that 27% of gig workers in Canada are paid in cash. In addition, the use of cash by Canadians between the ages of 18-34, who were generally more likely to use digital or technology based payment methods, also represented 29% of the regular cash users. This could be due to the fact that this age group was more likely to have lower incomes and be unbanked.[3]
The use of cheques and paper continued to decline in 2020, both in volume (with a decline of 26% as compared to 2019, representing less than three percent of total payment volume in 2020) and in value (with a decline of 15% as compared to 2019, making up 32% of total payment value in 2020).[4]
Debit, Credit and Prepaid Card Usage
Debit cards and credit cards are still the two most popular payment methods, despite declines in both transaction volume and value over the past year. In 2020, debit card usage declined by nine percent in transaction volume and three percent in transaction value, and represented 28% of payment volume and three percent of payment value.[5]
Credit cards continued to be the most popular payment method despite an 11% decrease in payment volume and an eight percent decrease in payment value; accounting for 30% of total payment volume and six percent of total payment value.[6] Use of credit cards was bolstered by rewards programs, with 88% of credit cards overall offering a rewards program, the most prevalent being cash back (41%), travel (22%) and retail rewards (15%).[7] Notwithstanding the decline in credit card payment volume and payment value in 2020, the use of credit cards has been on an upward trend over the last five years.
Prepaid cards were most likely to be used by younger Canadians and unbanked Canadians. While prepaid cards are a less used payment product, as a payment method, they continue to be redefined with virtual prepaid products and in some cases, are also associated with retail rewards programs.[8]
Electronic Transfers
Electronic funds transfers (“EFTs”), which include transactions carried out through a deposit or operating account held at a Canadian financial institution, have become an increasingly popular payment method for Canadian consumers, and are the leading payment type in terms of total transaction value. The CPMT notes that the impact of the pandemic caused businesses to change the way they send and receive money, and that EFTs are favoured by businesses because of the speed and convenience they offer (to both businesses and consumers).
In 2020:
- there were 2.9 billion EFTs worth a cumulative $5.1 trillion;
- EFT transaction value decreased by less than one percent; and
- EFTs made up 55% of the year’s total payment value.[9]
The CPMT found that EFT usage among consumers continued to be driven by recurring payment setups and online bill payments, specifically for utility and service bills.
Online transfers, which are defined as electronic payments made between end users, including businesses, through online services and providers, which are either pre-funded or linked to a deposit or operating account held at a Canadian financial institution, have also seen continued growth. In 2020 there were 800 million online transactions totalling $249 billion. The CPMT also found that over the past year online transfers:
- increased by 40% in value and 48% in volume;
- represented four percent of total payments volume in Canada;
- led to a historical daily high in May 2020 with 3.75 million Interac transactions; and
- inspired a 43% growth of new Interac users.[10]
Moreover, the CPMT predicts that, due to factors such as its speed, convenience, security and ease of tracking and splitting expenses, online transfers are poised to overtake debit card transactions in the near future.
E-commerce
Another growing trend that the CPMT discusses is the increase in purchases for goods and services being made through web-based store fronts and applications (i.e., the e-commerce environment). As expected in light of the pandemic, the product categories that experienced the greatest year-over-year growth included personal care products and home entertainment, while travel and social memberships witnessed a decline. The CPMT finds that in 2020 there were 477 million e-commerce payment transactions in Canada, worth $56 billion.[11] This figure is reflective of:
- new online store creation by Canadian retail merchants increasing by 20%;
- 11% of businesses investing in digital platforms, either for the first time, or to increase their digital presence;
- 37% of businesses accepting payments via Interac e-Transfer more often;
- 15% of businesses accepting PayPal payments more often; and
- 90% of Canadians having made an online purchase, and close to half of all Canadians (47%) having used e-commerce platforms more frequently to purchase a wider range of products throughout the pandemic.[12]
The CPMT also finds that in terms of the e-commerce demographic, younger Canadians and those with over $80,000 in household income were more likely to make frequent online purchases. Credit cards continued to be the preferred choice for e-commerce transactions, followed by PayPal.[13]
Digital Currency
The CPMT also touched on digital currency. Digital currency refers to a wide range of electronic money, which includes digital/cryptocurrencies such as Bitcoin, as well as Stablecoins and Central Bank Digital Currencies (“CBDC”). The CPMT notes that few Canadians understand what digital currency is or have used a digital currency to purchase goods and services, and states that the biggest reasons that Canadians do not yet use digital currency is due to security and safety concerns and because of a lack of knowledge.[14] It also notes, however, that digital currency awareness has grown significantly during the pandemic, due to factors such as greater offerings, use cases, and extraordinary valuations. In addition, at least 80% of the world’s central banks are exploring the potential introduction of digital currency, and it is expected that there will be an increase in the global use of digital currency.[15] In fact, in a timely development on this front, the Hong Kong Monetary Authority released a technical whitepaper on October 5, 2021, with respect to the possible issuance of a CBDC, an “e-HKD”, and aims to provide an initial view on the matter by the middle of next year. Accordingly, there is a need for more consumer education around digital currencies including the security implications of such currencies. As discussed herein and in our earlier bulletin, the pandemic has accelerated the move towards a more fully digital society, including the movement away from paper based payment forms to electronic payment methods. This in turn, leads to, among other things, the potential issuance of a CBDC and the Bank of Canada is working with other parties to assess economic, functional and technical design options for a CBDC.
Looking Ahead
While the pandemic has lead to reduced economic activity, and overall payment transaction volumes and values declined, it has also played a large role in exacerbating pre-existing payment trends in Canada. The CPMT demonstrates a consistent shift towards contactless payment and a rise in alternative payment methods such as mobile phone wallets, EFTs and online transfers.[i]
The information and guidance provided in this bulletin does not constitute legal advice and should not be relied on as such. If legal advice is required, please contact a member Fasken’s Financial Services group.
[i] Special thanks to Rachel A. Wong for her contributions to this article.
[1] Payments Canada, "Canadian Payment Methods and Trends Report 2021" [PDF], p. 7 [CPMT Report 2021].
[2] CPMT Report 2021, pp. 5-6.
[3] CPMT Report 2021, pp. 19-20.
[4] CPMT Report 2021, p. 21.
[5] CPMT Report 2021, p. 17.
[6] The decrease in payment volume and payment value could be as a result of Canadians spending less during the pandemic, with 61% of Canadians reporting reduced spending compared to pre-pandemic levels.
[7] CPMT Report 2021, p. 23.
[8] CPMT Report 2021, pp. 22-24.
[9] CPMT Report 2021, p. 29.
[10] CPMT Report 2021, pp. 5 and 30.
[11] CPMT Report 2021, p. 8.
[12] CPMT Report 2021, pp. 6 and 33.
[13] CPMT Report 2021, p. 34.
[14] CPMT Report 2021, p. 36.
[15] CPMT Report 2021, p. 13.
