By Everlink Payments Services & PayTechs of Canada Member, October 2020
The year 2020 will go down as a year to remember, but not necessarily for the good things. The measures put in place to control the COVID-19 pandemic have wreaked havoc on the economy and have had a major impact on the confidence, income, and expenditure of Canadians.
In part, the economic impact on many Canadians has been buoyed by government stimulus payments to
keep people and businesses afloat, but the impact on household consumption expenditure, a key driver of the payments market in Canada, has been dramatic. Over the year, personal consumption expenditure is expected to decrease by 6.8% in real terms, which reflects 1.69 B payment transactions.
Despite this dire prediction, the events of the recent past have created new opportunities for system participants. FinTechs who can adapt quickly to the changing circumstances, or those who have the spirit of innovation and can bring to market solutions which leverage the emerging pandemic-related trends can find success in the midst of uncertainty.
One such trend is online shopping. Online shopping has become the “go-to” space for many consumers during the pandemic, with Statistics Canada reporting that online shopping more than doubled between May 2019 and May 2020. While store re-openings have prompted consumers to return to in-person shopping, we nonetheless expect overall online sales to increase by 28% this year.
The way consumers pay for online purchases is changing rapidly. Despite the convenience factor associated with credit cards, their use for online payments has also begun to decline. This year, 57% of Canadian online shoppers paid with a credit card; a 10% drop from 2019; or some 3 million fewer consumers.
Although not shocking, consumers are increasingly moving to mobile and online debit products like Visa and MasterCard; and in the case of Interac online, volumes have doubled in the past 12 months. Mobile payments are now riding a wave of success. Only eight years ago, bill payments/transfers on a mobile device were a fraction of those transacted on a personal computer; now mobile payments accounted for 48.8% of all bill payments/transfers (i.e., 580 million transactions) and the growth trend seems unabated.
Much of the effort in mobile commerce has focused on providing consumers with an easy way to navigate vast arrays of products in an engaging way. There is little doubt, however, that much of the friction in the mobile shopping experience was related to the payment experience. Interac services have traditionally been embraced by Canadians and now with the recent release of Interac Debit for In-App and In-Browser payments and permitting debit payments through Apple Pay/Google Pay, this trend continues. Clearly, by embracing the traditional attributes of POS debit, demand and acceptance of this new service outpaces that of credit cards.
They say “timing is everything” and with the onset of Covid-19 where consumer spending patterns have been significantly impacted (i.e., shunning the use of cash [down 53%] and contact payments), contactless and online payments have surged; however, the same cannot be said about the switch to mobile payments, at least not yet.
In-store mobile payments have a long history in Canada, having been hyped as far back as a decade ago.
Initial efforts were experimental and tentative. Mobile operators launched many unsuccessful forays into the payments space. The segmentation of the market added complexities, where simplicity was being sought.
By 2019, Canada had a far more stable mobile payment ecosystem, with smartphones in the hands of 80% plus Canadian adults. Mobile payment functionality was available through a wallet on most of the major smartphones in circulation, offering a variety of payment options including debit, credit card and even prepaid card applications. The contactless infrastructure has grown dramatically in the intervening period and is almost at a level of ubiquity. It is only since this ecosystem has stabilized that consumers have been willing to reconsider mobile payments as a viable option for regular use.
In 2020, indications point to the fact that in-store mobile payments are set for takeoff. The adoption of Apple Pay and Google Pay has surged over the past twelve months and are within reach of PayPal’s penetration on smartphones. More than two thirds of smartphone owners have conducted a mobile payment on their device over the past six months and more than 27% of smartphone owners have made in-store mobile payments at brick and mortar stores during this same period.
The use of debit cards for in-store mobile payments is growing at a rapid rate, at 57%. As more issuers adopt debit payment products into their mobile wallets, the proportion of smartphone owners using embedded debit payment credentials is likely to surpass that of credit cards.
Over the past five years, the incidence of in-store mobile payment adoption among smartphone owners
has increased steadily every year. In 2020, we evidenced a substantial jump (i.e., 20% annual increase), setting the stage for market ignition.
While there could be convergence in mobile payments at a technical level, growth prospects are high across the board. The forecast annual average growth in the value of all mobile payments is 16.4% per annum over the period 2019 to 2024, while the corresponding forecast growth in the number mobile payments is 19.7% per annum.
These high growth segments of the payment industry offer a rich market for FinTech innovation and a wealth of opportunity for financial institutions, acquirers, and merchants to capitalize on the strong consumer uptake.