Paybefore checked in on the robust state of the Canadian prepaid and emerging payments industry in the Spring 2013 issue of Pay Magazine. In the year and a half since, the market has continued to mature, with a bevy of new mobile wallets and a new set of federal prepaid regulations among the major developments shaping the future of payments in the Great White North.
In this issue, Paybefore is checking back with many of the contributors to our previous coverage—along with a few new faces—for an update. We asked our team of experts on Canadian payments about key trends, developments and challenges for providers already active in the Canadian prepaid and emerging payments space—as well as those seeking to enter what continues to be a market full of opportunity.
There is significant growth potential in the Canadian prepaid market. The open-loop prepaid market currently is only $4.5 billion in Canada, which leaves plenty of room for increased adoption of open-loop solutions. The government, travel, consumer reloadable and B2B payments segments all have significant growth upside. We expect the major banks in Canada to garner a large share of the government business. Store Financial will concentrate on the consumer and B2B segments.
Regulatory changes continue to challenge prepaid program managers and issuers. The biggest challenge facing the industry in Canada is the new federal prepaid rules enforced by the FCAC (Financial Consumer Agency of Canada). The new disclosure rules required significant replacement of plastic and packaging for card programs, which drove up costs. The clarity provided by the prepaid rules is welcome, but there is still discord between the agencies in the provinces and at the federal level, which leaves uncertainty in jurisdictional authority—which may play out in the court system in 2015. We would like to see clear safe harbor rules at all levels of jurisdiction. Educating lawmakers and the public on prepaid is one way to combat these challenges. Self-regulation by the industry can help also.
The Canadian market closely follows the U.S. market, so with the expected publication of new prepaid rules by the CFPB in the U.S., we will be monitoring any reaction by the Canadian regulatory bodies.
—Eric Mettemeyer, CEO, Store Financial
The new Prepaid Payment Products Regulations that came in force in May of this year are largely disclosure-based, focused on providing clear and simple disclosures to customers so they understand the nature and features of the products they are purchasing. Among the disclosure requirements is a fee information box on the exterior packaging and on any other document prepared for the issuance of a prepaid product. There are also required disclosures to be placed on the product itself. The only fee restrictions in the federal regulations are on maintenance fees, which are prohibited for at least one year after issuance, unless the product is a GPR card and a cardholder has provided express consent to the imposition of the maintenance fee. By comparison, the existing provincial prepaid product regulations tend to be much more restrictive of fees, and some provincial legislation prohibits charging any fees except for replacing a lost or stolen card. Given these differences, it’s important to understand which regime—federal or provincial—a prepaid card program is subject to.
Meanwhile, the federal government is in the process of creating a new consumer code, which is meant to apply across a broad spectrum of financial products. It’s not currently clear what products and entities will be covered by the code, but based on consumer codes in other jurisdictions, the code could include a broad general duty of fairness, which would require institutions to conduct an assessment of whether certain financial products or services are suitable for a particular consumer, among other things. The final content of the code could have an indirect effect on the federal prepaid requirements. The government is currently carrying out consultations on the code, and it’s not clear at this point when it will be released.
—Jacqueline Shinfield, Partner, Blake, Cassels & Graydon LLP
Now is an extremely exciting time for payments in Canada. There’s huge opportunity as more retailers move to NFC terminals and tap-and-pay technology. More than 40 percent of Canadians are ready for the jump to contactless payments, and mobile handsets with NFC technology are increasingly common. Now is really the time to shine.
We’ve been spending a lot of time on bringing contactless tap-and-pay technologies to our prepaid customers through Host Card Emulation (HCE), enabling card numbers and other physical identifiers to flow easily through the cloud. HCE removes many technical and security barriers that obstructed the push toward adding cards into contactless wallets. While HCE will finally bring prepaid into mobile wallets, it’s now up to retailers to upgrade their systems to NFC-capable terminals. This will take another year or so.
Pairing mobile payments and loyalty is emerging as a recipe for success. Companies like Starbucks, PayPal, Google and Apple all are moving toward mobile as the holy grail of payments and loyalty retention.
With the continued adoption of smartphones by consumers, there’s an increasing demand for features and applications that enable individuals to easily pay for goods and services in stores and online. That demand has been further driven by the rise of mobile applications, retailer acceptance of mobile contactless payments and social media engagement tied to loyalty programs and payments.
But the mobile opportunity goes beyond payments—to bill payment, top-ups, reloads and promotions. Ads and promotions, in particular, are becoming increasingly interactive and offering greater incentives to consumers, which, in turn, drive retail traffic and provide tremendous opportunity for merchants to increase sales.
The payments industry must embrace the changing payments landscape to ensure consumers are aware of the available options to make shopping and bill paying more convenient. The increased functionality of digital and mobile payments needs to be brought to the forefront of the customer experience. In the end, consumers are seeking easy-to-use secure payment options that provide convenient solutions, whether in-store, online or on a mobile phone.
—Karen Budahazy, VP, General Manager, Canada, InComm
Canadian banks have started offering prepaid products, but we’re also seeing a lot of nonfinancial institutions turning to prepaid. For example, the suretap mobile wallet [from mobile provider Rogers Communications] includes a virtual prepaid MasterCard. There’s also interest from the government and public sectors, where prepaid benefits programs are an opportunity to cut costs and drive financial inclusion. Municipal governments already have begun getting into prepaid for things like the Toronto Works benefit program. And, the federal government is expected to release an RFP for a program analogous to the Direct Express Social Security program in the U.S., so that will be huge.
Prepaid also is popular as a companion account for those who may already have a bank account but like to use prepaid for online shopping or purchasing groceries or gas. While there are no-fee banking options, many Canadians do pay banking fees, so having multiple bank accounts can be expensive. People are using prepaid as a separate purse for specific activities and to avoid worrying about overdrafting.
In the U.S., prepaid has become mainstream, with the entry of large financial institutions, such as Fifth Third and SunTrust, and products like Chase Liquid and American Express Serve providing a big halo effect to raise awareness and educate consumers. That still hasn’t happened in Canada, where prepaid is largely unknown among consumers. There needs to be a tipping point to make prepaid mainstream and known. Canadian merchants might be able to drive this, because the retail sector is relatively concentrated; you’d only need a few major retailers to bring out a prepaid product for it to happen.
—Shekhar Sahgal, VP Product Management, MasterCard
As a leading issuer of prepaid cards in Canada, we see more than enough business potential in prepaid to be excited about. The virtual prepaid space is growing fast in Canada. Peoples Trust issues virtual vouchers for the 3V Visa program; these vouchers can be bought at select retailers and used as a virtual prepaid card to make purchases online. We’ve also received requests from physical card programs interested in adding a virtual card for online or mobile purchasing.
On the mobile side, we recently worked with InComm to provide a virtual prepaid card for Rogers Communications into the suretap wallet. Prepaid cards and mobile are a perfect match, especially for younger users, who may not have access to a credit card, but have a mobile phone. The majority of retailers in Canada already have a contactless terminal in place in-store, and the growth of omnichannel shopping means mobile is an increasingly important part of shopping in stores. The Canadian corporate incentives market also is growing. We’ve seen multiple providers from the U.S. come into Canada. American corporations that also have a presence in Canada are a big driver of this trend.
The biggest change over the past 18 months was the new federal prepaid regulations, effective May 1. In summer 2012, in anticipation of the regulation, we eliminated fees after purchase for our Vanilla prepaid cards, putting us ahead of the curve. Now, the market is playing on a level field and all [federally regulated] payment providers are playing by the same rules. Although there may have been some negative connotations around prepaid in the past, the new regulations raise the industry to a new level of professionalism.
—John Pals, COO, Peoples Card Services
This article originally appeared in the Fall 2014 issue of Pay Magazine. Click here to view the digital edition.