In the war on cash, Canada doesn't hold a candle to Sweden, where bills and coins are used for less than 5% of retail transactions, or Denmark, which plans to eradicate cash by 2030. But recent research suggests Canada is quickly closing the gap as its rate of contactless payments is soaring.
Cash use has declined 26% in total volume since 2008, according to a report published last month by the Canadian Payments Association. The new figures surpass previous forecasts from the organization, which noted a recent surge in contactless credit and debit payments in Canada as one of several contributing factors in cash's decline. The report, last published in 2012 from data gathered the previous year, analyzed a total of 20.7 billion transactions in 2014 worth $8.6 trillion.
More than one in four Canadian card transactions are contactless now, according to MasterCard Canada, and that figure is growing fast. The overall rate of contactless transactions was 27% in September 2015, compared with 20.6% a year earlier, MasterCard data shows.
Contactless payments were on an even more aggressive growth track this fall. Contactless transactions in Canada rose 162% in the third quarter of 2015 compared with the same period a year earlier, according to Toronto-based processor Moneris Solutions Corp.
This leads to the eye-catching statistic that 65% of consumers in Canada "rarely buy anything with cash anymore," emerging from a survey of more than 1,000 consumers Moneris conducted last year.
"The convenience of paying with cards—especially contactless cards for drive-through services plus the shift we're starting to see to mobile payments—is gradually displacing cash for many transactions," said Wendy Braithwaite, group head and senior vice president of market development at MasterCard Canada.
But predictions of Canada going cashless anytime soon are premature, analysts said. Cash still accounts for more than a third of all transactions in Canada, at 35%. That compares to 40% in the U.S., based on the most recent cash-use study by the Federal Reserve Bank of San Francisco, from data gathered in 2012.
While it's true that Canada, with its cooperative Interac debit system, has one of the highest per-capita rates of debit usage—rivaled only by Iceland—cash is still firmly in first place among all payment types, said Catherine Johnston, president and CEO of ACT Canada, a nonprofit payments industry group.
"Canada has very healthy rates of debit and credit card use, which isn't altogether that surprising, because our credit card programs have very strong rewards programs. But I highly doubt we'll see Canada going cashless in our lifetimes," Johnston said.
The recent boom in contactless payments is also somewhat misleading in terms of its potential to wipe out cash, said Christie Christelis, a payments analyst with Toronto-based Technology Strategies International.
"Contactless is growing rapidly in Canada, but an increasingly small proportion of new contactless transactions are displacing cash," he said. Many consumers are simply switching tapping their cards instead of dipping them into a terminal, he added.
Christelis' firm's data suggests the number of cash transactions in Canada is still higher than credit and debit payments combined, and he predicts cash transactions will decline by about 2% per year over the next five years. "In 15 years, cash will [be lower], at 75% of current levels, but still far from zero," Christelis said.
The growth of credit and debit payments aren't the only pressures on cash in Canada. Check-writing has declined by 30%, according to the Canadian Payments Association's recent study. Online transfers, including mobile wallet and P2P transactions, accounted for only 0.4% of total transaction volume, but are growing at 42% average annual growth rate.
"While these [electronic and mobile wallet] payments are in the early stages of growth, they have the potential to impact nearly every other payment segment," the report's authors noted.