Doug Kreviazuk, Executive Director, Fintechs Canada, May 28, 2020
On May 13, 2020, Payments Canada released survey data showing that consumer spending preferences have shifted considerably during this pandemic. Although not validated by the survey, these new spending patterns are very likely due to two key concerns: i) the further spread of the virus; and ii) the fear of the changing and poor economic climate.
It isn’t surprising when people suggest Canadians are conservative in nature. As Canadians, we tend to avoid behaviours that expose us to greater levels of risk. Despite this belief, recent data released by Payments Canada indicates that Canadians, in large numbers, have set aside their past shopping and payments preferences and moved quickly to adopting new and sometimes unfamiliar payments services/approaches.
Based on the survey produced by Payments Canada, the current data suggests:
- Three quarters of Canadians have significantly reduced their spending during the pandemic
- Nearly two thirds of Canadians have reduced their dependence on cash, while 40% have also reduced cheque usage
- 36% of Canadians reported a reduced reliance on pre-paid card products
- Some 42% are avoiding retail establishments that do not support contactless payments and
- Conversely, the usage of on-line services (i.e., Interac on-line, PayPay and general-purpose credit cards) have increased by 31, 29 and 28% respectively.
Historically, altering consumer’s payment choices suffers from a high degree of stickiness. To incent consumers to substitute one payment option over their current preferred method requires strong incentives, often monetary in nature (i.e., loyalty points). However, the influence of heightened risks are causing consumers to move rapidly and decisively. But what happens after the risk has been mitigated – do we return to our old habits? If the new payment alternatives are user-friendly, safer and more efficient, should the government or the payments system support old “bad” habits to return?
According to the Bank of Canada, the first paper cheque issued in this territory (pre-dating Canada’s confederation by 177 years) was by the Hudson Bay Company in 1690. While the cheque industry has evolved and standards developed since that time, the cheque still remains the payment method of choice to many. What has made it so resilient?
Possibly because it is a known commodity, readily available and easy to use. But the cheque brings with it paper-related issues, including counterfeiting, fraudulent, relatively high costs (i.e., cheque-book fees, stop payment charges and NSF penalties) as well as labour-intensive exception processing. Yet this payment instrument continues in popularity, largely among business; a group best positioned to adopt and implement new and more efficient technologies.
It is said that cheque usage is declining, but according to Payments Canada, there are still some 460 million cheques written annually and make up as much as 40% ($2.9 trillion) of all payments in Canada in 2019. In terms of total payments value exchanged, the total value from cheques declined by a meager 2.7%. On balance, there seems to be a growing need to proactively and intentionally drive payment volume away from cheque and into more efficient, safer and less expensive alternatives. As evidenced during the current pandemic, consumers increasingly shied away from writing and accepting cheques and avoided using ATMs/in bank tellers to make deposits.
If there is any silver lining from this pandemic it may be the fact that increasingly Canadians are venturing into the world of online payments and becoming familiar with the options and broad versatility. However, breaking away from what is familiar when it comes to payments may be one of the most difficult habits to break. Once consumer payments behaviour is altered and replaced with a more responsive and personalized way for each of us to move money and pay debts, further efficiencies and opportunities will arise. We have the ability to take greater control of our finances and reap the benefits of this change as seen by those in many other parts of the world including Scandinavia, UK, Europe and Australia.
Regardless of the outcome attributable to the pandemic, maybe now is the time to give serious consideration to mandating the orderly removal of paper cheques from the current clearing system. After 330 years in existence on this continent, it seems time to step aside and allow newer forms of payment to support business and consumer needs.