May 3 , 2010

Deloitte forecasts big changes in Canadian credit card market

By Robin Arnfield, News Editor
Deloitte Canada has published a report outlining significant changes to the Canadian credit card landscape. The report, Charting a new course for the credit card industry, says that, in the wake of record industry losses, consumer bankruptcies and the recently announced voluntary Code of Conduct for the Credit and Debit Card Industry in Canada, the credit card industry has been transformed from one of the most profitable areas of lending to one of the least. According to Deloitte, two things are clear: issuer strategies need to change and, in many cases, consumers will benefit.

“The industry is at a turning point and forward-looking issuers will use new market dynamics as an opportunity to innovate, introduce new products, and improve relationships with consumers and merchants,” says Pat Daley, Leader of Deloitte Canada’s Payments Practice. “This will bring about a new generation of card and payment services — many of which will directly benefit Canadian consumers.”

In an interview with Payments Business, Ms Daley says that she sees several major trends affecting the Canadian credit card industry. Firstly, she predicts closer links between bank accounts and credit cards. “I see the likelihood that a customer’s credit card will be linked to their bank deposits,” Ms Daley says. “So they will get a lower credit card APR (annual percentage rate) if they have money on deposit with the bank. The money will be secured, so the bank cannot lose.”

Ms Daley also thinks there may be a similar innovation in debit cards. “Some people prefer to use debit cards to credit cards as they want to stay in control of their spending, but sometimes they need to make a big purchase that puts them temporarily into debt,” she says. “So banks could offer a special line of credit for a major one-off purchase to debit cardholders – this would be a pre-approved temporary financing line that is activated by special merchant codes to stop fraud.”

Social media such as Facebook will become important payment channels for online purchases, Ms Daley says. But, while social media websites offer ‘virtual currencies” for use solely on their site, consumers may find it easier to set up universal e-wallets on PayPal. These e-wallets can be used anywhere that accepts PayPal, Ms Daley says.

Mobile payments will start to become more common in Canada, with mobile person-to-person transactions leading the way. “We will also see a big opportunity for near-field communications-based (NFC) payments in Canada,” Ms Daley says. NFC involves downloading a debit/credit card application to a mobile device, and using the device to make a contactless payment at an NFC-enabled point-of-sale card reader.

Ms Daley points out that there are a number of Canadian consumer segments who would be willing to accept mobile payments. “Already, 17 percent of Canadians have a smartphone,” she says.

Other significant trends predicted by the Deloitte report include the use of prepaid cards to make recurring salary or welfare payments to consumers; the increasing integration of credit card reward programs with retailers’ loyalty schemes; greater use of behind-the-scenes analytical intelligence tools to prevent card fraud; and the disappearance of several credit card products.

“I see a rationalization of the credit card business in Canada, with products being more closely aligned,” Ms Daly says. “Some issuers will just shut down, and other issuers will simply get rid of certain credit card product types.”




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