Canadian consumers will rely more on prepaid cards as consumer bankruptcies, industry losses and a voluntary code of conduct for the credit and debit card industries reshape the country’s payments industry, predicts Deloitte Canada’s Payments Practice in a report released April 22.


Industry losses and consumer bankruptcies transformed one of the most-profitable areas of lending to one of the least, Toronto-based Deloitte Canada said in the report “Charting A New Course For The Credit Card Industry.”


Still unclear is how the code of conduct, which Finance Minister Jim Flaherty released April 16, will affect Canada’s payments industry (see story). Card issuers, processors and merchant acquirers are reviewing how the code might affect their operations, and they have until May 17 to voluntarily adopt it.


If the industry does not adopt the code, the Canadian government could step in by making the voluntary rules a regulation. If the payments industry accepts the code of conduct, the rules will be implemented over 90 days, beginning May 17.


Because of financial challenges and the looming, but not-yet-clear, affect the code will have on the payments industry, issuer strategies need to change and, in many cases, consumers will benefit,” Pat Daley, leader of Deloitte Canada’s Payment Practice, said in a statement. Financial institutions in Canada last year had 69.7 million Visa- and MasterCard-branded credit cards on issue and 27.6 million credit card accounts, according to the Canadian Bankers Association.


Daley could not be reached for comment, but Deloitte Canada predicts eight markets will emerge from the country’s payments’ landscape, including mobile phones used as payment devices. “Convenience for consumers will drive the adoption of mobile payments using Near Field Communication. Consumers concerned about providing credit card details over the Internet for m-commerce are likely to prefer the mobile e-purse form of payment,” the report notes.


Deloitte also predicts a rise in the use of prepaid cards, chip-based credit cards requiring four-digit PINs for authorization and the use of social-networking sites as payment platforms.


“There will be a rise in the use of prepaid cards for recurring payments. The pay-ahead concept of prepaid cards (as opposed to the pay later concept of credit cards) is on the rise as a way to distribute rewards or benefits to particular classes of consumers, and especially as a way of delivering government payments to individuals,” the report notes.


However, one Canadian industry payments observer suggests prepaid cards will grow because there are so few of them now. “I can see that because I never hear about them,” the observer says, requesting anonymity.


Card issuers will increase credit card security because of the significant jump in card fraud. “The implementation of security features such as chip-based credit cards requiring PIN authentication will become widespread and will help minimize fraud,” the report said. All Canadian issuers are required support EMV chip-and-PIN technology as part of a migration over the next few years.


Canadian consumers also will begin to see deployment of online payment services through personal digital assistants and social networking sites, Deloitte said. “These sites provide functionality for consumers to make online purchases through various mechanisms such as the introduction of virtual currency, purchased via debit and credit transaction mechanisms,” the report notes.


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