Canada's prepaid card market—still relatively small—is experiencing a healthy growth surge, according to new data from the Canadian Payments Association, and key industry players confirm the trend.
Prepaid card transaction volume rose more than 30% between 2011 and 2014, from CA$9.9 billion to $13 billion, the Ottawa-based industry association said. The Canadian Payments Association analyzed a total of 20.7 billion transactions in 2014 worth $8.6 trillion. The organization’s prepaid card data, published last month, encompasses both reloadable, open-loop prepaid cards and single-load retail gift cards.
The growth forecast for prepaid cards in the next few years in Canada is nearly as bright. The open-loop prepaid card market in Canada is on track for a compound annual growth rate of 18.5% from 2015 to 2020, or an additional $9.4 billion growth, according to market research firm Euromonitor International.
The figures mark an uptick in prepaid use across the board in Canada, where the prepaid card industry's arc trails that of the U.S. by a few years, observers say.
In the wake of the recession, tens of millions of Americans emerged as unbanked or underbanked, and the U.S. prepaid card industry experienced a growth spike as many of those consumers flocked to prepaid cards for day-to-day financial management. In Canada, however, laws specify everyone has the right to open a personal bank account, so bank account access doesn’t play the same role in prepaid card adoption.
But as in the U.S., a growing base of Canada’s millennials—who could obtain a bank account—instead are gravitating toward prepaid cards, in part because the products seem to represent less commitment, Canada’s prepaid card industry analysts and executives say.
"Prepaid cards appeal to these younger consumers [in Canada] for their spending controls and how they make purchasing online goods more convenient,” said Kendrick Sands, a senior analyst in Euromonitor’s Chicago office.
Canada’s largest banks have taken notice, and within the past few years most have added prepaid card programs.
More prepaid card programs are in the works. One example is Vancouver, B.C.-based startup Koho Inc., which is preparing to roll out a reloadable prepaid Visa card with a mobile app, targeting Canada’s millennials who don’t habitually visit a bank branch. The Koho card will support card payments, direct deposit, ATM cash withdrawals, bill-payment, a savings account feature and P2P, all centered on a mobile app. Marketing for the card centers on ease of use, and Koho’s tools to help users set goals, control spending and manage their savings
"The idea here is to give millennials a product designed around their preferences for using mobile devices to do everything—including managing their finances—quickly and easily," said Peter Read, president of Peoples Card Services, the card’s issuer, a major player in Canada’s prepaid card market.
Millennials aren’t the only force driving prepaid card growth in Canada, but David Eason, chairman of Toronto-based prepaid card services provider Berkeley Payment Solutions, says it’s a strong trend for the future.
"A significant proportion of millennials in Canada, like those elsewhere, just don’t seem to have the same affinity for walking into a branch and banking the way their parents do," he said. Berkeley Payment Solutions provides prepaid Visa and MasterCard programs for a number of Canada’s large banks, including Toronto-based Scotiabank’s reloadable prepaid Visa card.
Last year Eason spearheaded the foundation of the nonprofit Canadian Prepaid Providers Organization, whose members include MasterCard, American Express Co., RBC, Scotiabank, Bank of Montreal, Home Trust, InComm, Peoples Trust, Berkeley Payment Solutions and The Fletcher Group. The organization aims to generate awareness and education about open-loop prepaid cards for consumers and businesses.
Another strong growth area for prepaid cards in Canada is bank-issued reloadable prepaid cards for travelers. These cards are used to manage foreign currency exchange—particularly for Canadian visitors to the U.S.—and for businesses to manage employee expenses, said Eason. “Corporations also are continuing to use prepaid cards for customer rewards and incentives, though it’s a smaller part of the whole,” he added.
Payroll cards, which deliver wages to part-time and temporary employees, are another small but growing area of prepaid card growth in Canada. Payroll cards in circulation in Canada soared 400% between 2010 and 2015, from 382,000 to 1.9 million, according to Euromonitor. Payroll cards account for about 5% of all open-loop prepaid cards in circulation in Canada, Euromonitor estimates.
Canada's government has made some important moves in the prepaid card industry in recent years. The Financial Consumer Agency of Canada in May 2014 put new regulations in place covering prepaid cards to standardize consumer protections and fees, enhancing product consistency, Eason said.
A few years ago Canada's government also expressed interest in launching a prepaid card program to deliver government benefits to the fraction of Canadian citizens who still receive disbursements via checks instead of direct deposit. Canada’s Public Works and Government Services unit in 2012 issued a "Request for Information" that closed in May 2014, as a prelude to accepting proposals from providers.
"The U.S. government has seen a lot of cost saving with prepaid cards, and a similar program could be a plus for Canada," Eason said, referring to the U.S. Department of the Treasury’s Direct Express prepaid card program delivering Social Security benefits to approximately 4.5 million unbanked Americans.
But observers said Canada's plan to adopt prepaid cards for government payments now is up in the air, following the election of a new federal government in October 2015.