By Jim Chliboyko
By Jim Chliboyko
Canada will beat the US to cashless society,” predicts the headline on
the Wired magazine website. That’s a pretty strong statement to make
from such a recognized (and American) publication.
Canada will beat the US to cashless society,” predicts the headline on the Wired magazine website. That’s a pretty strong statement to make from such a recognized (and American) publication.
|The only payment methods to decrease since 2008 (from 2011), have been paper-based forms of payment, such as cash, ABM withdrawal transactions and cheques, the Canadian Payments Association reports.|
The 2012 article – which also takes time to explain that Canadians put gravy on their French fries – largely credits Canada’s Interac system for Canadian consumers’ strong adoption of alternatives to cash, saying that the system is responsible for about four billion transactions (at that time) in Canada annually, and that the use of Interac debit cards surpassed that of cash way back in the year 2000, a milestone confirmed on the Interac website.
That’s not a surprise, probably, for people who actually live here, and who have been using their debit cards religiously since 1994 (or even earlier, depending on where they live). Canadians are very comfortable with cashless payment and have been for a while.
“There are a range of factors why Canadians have adopted cashless payment,” said Catherine Johnston, chief executive officer of ACT Canada, the stakeholder non-profit organization that deals specifically with technology in the payment sector. “Security is very high, and there’s zero liability on credit. Canadians are very comfortable with cashless payment, have used them for a long time and it’s worked very well for us.”
The Canadian Bankers Association concurs, but focuses on the convenience aspect of cashless payment in the early 21st century.
“We found in our survey that for consumers, the ability to use the ‘tap and go’ feature on a debit or credit card (61 per cent) and use a mobile device to pay for purchases (59 per cent) added value to their payments,” Kate Payne of the CBA said in an email. “Canadians believe that the introduction of new innovations will change how they pay for things. When asked, 23 per cent don’t think they will be carrying cash in 10 years and 54 per cent anticipate no longer using cheques.”
Canadian consumers are amongst the world leaders in adoption of cashless payment options. As early as 1998, Canada marked the highest number of point-of-sale transactions compared to other countries around the world, with 44.7 transactions per inhabitant, the Interac website says. Depending on the source, they are currently third, fourth or top five in the world in terms of using cashless payment. In any case, it seems that Canadian consumers may gradually be trending away from cash transactions.
“The research suggests that the only payment methods to decrease since 2008 (from 2011), have been paper-based forms of payment, including cash, ABM transactions (for cash withdrawals) and cheques,” says a 2012 report called “Examining Canadian Payment Methods and Trends” by the Canadian Payments Association. “Credit and debit card payments have grown substantially over the period, and now account for a combined 30% of all Canadian payments volume. Credit card payments volume grew faster than debit payments, averaging over 7% annual growth.”
If we can use Internet shopping as a template for determining who is open to other kinds of payment, it seems that, according to a 2013 Statistics Canada report, two-thirds of Canadians 25 to 34 years had shopped online the previous year. The items purchased tended to be things like travel and event tickets, and altogether the totals only amounted to about four per cent of total retail sales in the country back in 2012.
Using phones as a way to pay for things is another barometer. Surprisingly, the 2010 Haitian earthquake, for example, opened up people in the U.S. to using their phones for charitable donations after the Text to Haiti campaign; according to the PEW Research Center, “74% of Haiti text donors say that their donation to the Haiti earthquake relief was the first time they had used their phone’s text messaging function to make a donation to an event, cause or organization.” This spike of activity after the quake gave researchers a rare chance to analyze the behaviour of mobile donors and found that “these contributions were often spur-of-the-moment decisions that spread virally through friend networks.”
The CPA report also mentions the newer kids on the block in the payment sector.
“Emerging payments such as prepaid cards, E-wallets and electronic P2P payments grew at the fastest rate over the period analyzed. Both emerging payment categories grew by over 100% in volume and had a compound annual growth rate (CAGR) at above 30%. Both also grew in value by around 45% on average each year.”
But electronic forms of payment are slowly advancing on what is referred to as paper payments.
“In general, paper payments have declined substantially, while electronic forms of payments, including EFT, debit and credit based payments, prepaid cards, and E-wallet payments, have experienced strong growth. A sizeable portion of the payments growth (40% of volume and 55% of value) has taken place with payments that do not clear through CPA systems… Paper based forms of payment have decreased since 2008 though, including cash, cheques, and ABM transactions (for cash withdrawals). Cash use declined moderately, from 50% of retail transaction in 2008 to about 46% in 2011.”
While gradual change in payment usage is taking place over time, and while things have changed a lot over the past two decades, there have been no major shake-ups over the last year, ACT Canada’s Johnston said.
“There’s no reason to believe things have changed from a year ago, though the average ticket prices on credit items may be lower. Credit and debit are still popular. What will be changing are the form factors.”
If one looks over the horizon, there are many different kinds of payment options approaching. Along with Apple Pay, there’s Samsung Pay, Facebook’s upcoming payment offering and Square is apparently working with Snapchat on a project, amongst others. Internationally, there are various messaging apps like KakaoTalk, WeChat and Line that can move cash. And we shouldn’t forget about bitcoin enthusiasts.
Specifically, Johnston mentions the use of mobile phones as a payment tool, especially in terms of the vending industry.
“Those options make sense as long as standards are well established,” Johnston said. “You can’t start introducing more and more devices into vending machines, so standards are essential.”
According to a 2014 working paper released by the Bank of Canada entitled “Consumer Cash Usage: A Cross-Country Comparison with Payment Diary Survey Data,” there is a dearth of studies comparing how different countries’ payment systems are evolving during a time of such rapid change. But amongst one of the working papers’ findings is that “The use of cash decreases with transaction size. In all countries, cash is predominant for the smallest 50% of transactions.”
However, the complete disappearance of cash is perhaps still a ways away. As the authors of the Consumer Cash Usage working paper write, “Many have predicted and espoused the view that cash is increasingly disappearing as a payment instrument . . . . However, to paraphrase Mark Twain, we would say that the reports of the death of cash have been greatly exaggerated. This paper shows that in all seven countries considered, cash is still used extensively – particularly for low-value transactions. In some European countries such as Austria and Germany, cash even dominates consumer payment choices for all transaction values.”
Johnston, for one, has seen a lot of change in her years in the payment industry, most specifically in the reliability of the system.
“The increased security, that was exciting,” she said. As for the future, “With the new form factors coming out, mobile is not yet where we thought it would be, but things never roll out as quickly as pundits predict.”
Specifically, for vending machine operators, Johnston is concerned that a particularly new form of currency like bitcoin may be a bit too capricious for vending machine companies.
“In the time difference between pay and collection, you could see a lot of value fluctuation,” she said.
Meanwhile, on the Wikipedia index page that lists payment systems, there are 310 entries, which doesn’t even include apps like Venmo. And that number will probably get bigger before it starts to get smaller.
Debit cards by the numbers
- Interac Direct Payment launched nationally in 1994.
- In 1997, one billion Interac Direct Payment transactions were processed.
- In 1998, Canada recorded the highest number of point-of-sale transactions compared to other countries around the world, with 44.7 transactions per inhabitant.
- By 2000, Interac Direct Payment surpassed cash as Canadians’ preferred method of payment.
- In 2008, Chip technology began to roll out across Canada.
- In 2009, Interac partnered with global leader Inside Contactless to bring contactless debit to Canada.
- Canada has 1,748 ABMs per one million inhabitants – the highest number of ABMs compared to any other country in the world (Source: Bank of International Settlements, 2007).
- Canada is among the highest users of debit compared to other countries around the world with 104 transactions per inhabitant, second to Sweden with 125 transactions per inhabitant (Source: Bank of International Settlements, 2007).
- Interac Direct Payment is the preferred method of payment in Canada, with 45 per cent of Canadians choosing Interac Direct Payment, compared to 22 per cent who choose cash and 31 per cent who choose credit (Source: Strategic Counsel, 2008).
- Almost 60 per cent of all card payment transactions in Canada are debit (Source: The Nilson Report).
–from the Interac Association website, www.interac.ca