Fewer Canadians use paper bills
It’s the great disconnect: The value of bank notes and coins circulating in the Canadian economy has never been greater.
Yet the number of transactions involving cash has dropped significantly.
“We’re not sure why this is happening,” says Christie Christelis, the president of Oakville-based Technology Strategies International, which has been tracking Canadian payment trends for nearly two decades.
“Maybe people are stockpiling more money,” he says, “or the gray market economy is bigger than we thought,” he adds, in reference to the underground economy in which people use cash to avoid paying taxes or to preserve their anonymity.
Bank of Canada data suggests Canadians held $80 billion in cash in 2015, up $33 billion from 2004. Over the same period, the number of payments in which they used cash fell from seven billion to 5.5 billion, according to TSI estimates.
Christelis predicts debit card payments this year will pass cash transactions for the first time.
He also says he believes that, by 2020, credit card transactions will exceed those involving cash.
The use of payment apps is starting from a very low base, meanwhile, but acquiring significant momentum.
Part of the driving force has been the rapid spread of what the industry calls “contactless payment” systems: Customers simply wave their card or phone at a retailers’ scanning devices and the payment goes through instantly.
Wireless-enabled credit and debit cards, and in-store loyalty cards, have been around for years. What’s changed recently has been the arrival of a new generation of phone apps developed by Apple, Samsung and Google.
Canada’s largest banks two months ago announced they would introduce Apple Pay in partnership with the California technology giant. Samsung Pay and Android Pay are expected to roll out later this year.
Apple Pay allows the banks’ customers to install their credit and debit cards, virtually, on compatible Apple products (iPhone 6 and above, for instance). Apple assigns each device a unique number. This, not the credit or debit card number, is what is forwarded to the merchant — lessening the odds of stolen cards. Nor do transactions go through until customers do a fingerprint scan.
While the new pay apps hold the promise of greater ease and better security, at least half the country’s retailers are still not equipped with the necessary wireless technology (NFC, short for “near field communications”) — though Samsung Pay has technology it claims will get around this problem. The development of the app market may also be held back by the profusion of competing technical standards.
Nor is the Apple Pay app trouble free. The iPhone sometimes has trouble reading the fingerprint (touch ID) when the screen is smudged or the customer’s hand is dirty or damp. Phone users have the option of punching in a six-figure passcode, but that slows down the transaction process. Some retailers’ scanners appear to have difficulty reading the latest-version iPhones.
However, these may well prove to be teething problems, resolvable with technology tweaks and consumer feedback. The idea of using a smartphone to securely store multiple types of payment or credit cards and using apps to mediate purchases is potentially very powerful — and already wellentrenched in countries such as Sweden, with its long tradition of electronic commerce.
A recent survey by eMarketer predicted one in four smartphone users in the United States will make mobile payments next year compared to just 10 per cent in 2014. Potentially more revealing: The estimated value of those transactions in 2017 will be nearly US$62 billion — a very sharp rise from US$4 billion two years ago.
Embedded in eMarketer’s data is some insight into who will lead the race to sign up for mobile payment apps: Next year, the consulting firm estimates, roughly 35 per cent of smartphone users between 18 and 34 years of age will be using their devices as digital wallets — compared to less than 10 per cent of those aged 55 or more.