New growth prospects for Canadian payments
By Robin Arnfield, News Editor
The Internet, cellphones and prepaid cards offer Canadian financial institutions opportunities to grow the use of debit cards. However, they also present financial institutions with competition from nimble newcomers, says Patricia Hewitt, director of the debit advisory service at U.S.-based consultancy Mercator Advisory Group.
These newcomers could steal a march on legacy system players and they could get ahead, says Hewitt in her report entitled “The Canadian Debit Market, Warning: Contents under Pressure.”
“The Canadian debit card market is constrained,” Hewett tells Payments Business. “Interac has been a very successful payment scheme, but, because of that success, there is little room for it to grow. If Interac does venture into new areas, it is now competing with a host of newcomers such as PayPal.”
Hewitt sees the Canadian government’s Card Code of Conduct as a further hurdle for issuers wanting to offer global card network-branded debit products such as Visa Debit and Maestro into the market.
Released in April 2010 by Minister of Finance Jim Flaherty MP, the voluntary code seeks to increase choice, contract flexibility and fee transparency for merchants who accept cards. However, the code has raised the stakes and may motivate debit card networks such as Visa and MasterCard to turn to other big markets including Brazil or Africa for future growth, Hewitt says.
If the regular debit card market is stagnant, Hewitt does see growth opportunity for the growth of new products such as prepaid debit cards in Canada. An obvious market is issuing prepaid Visa and MasterCard debit cards to Canadians travelling abroad where Interac acceptance is patchy.
In any case, Hewitt thinks that Visa- and Maestro branded debit cards issued in Canada will mainly be used for foreign transactions due to Interac’s strength in the domestic market.
Hewitt also singles out online shopping as a potential area of growth for debit. “It is possible to provide security for debit cards used in online shopping,” she says, “Think of PayPal.”
If they want to see increased use of debit cards for online shopping, financial institutions should develop products that address security issues for online debit card use, Hewitt says.
Mobile and contactless payments are another area where Hewitt sees growth potential. ‘There is a lot of investment in technology going on and soon the applications and the usage will come together,” she says. “ Mobile definitely is the future and this is a great opportunity for financial institutions to invest.”
If financial institutions don’t expand into mobile payments, other players will, cautions Hewitt. “Retailers such as Wal-Mart are already in your market,” she says. “These retailers want to sell their products, and if offering a financial product or service helps them sell that product, they will offer it.”