Canadians are Embracing Payment Modernization
How Businesses Can Find Success Through This Evolutionary Payment Landscape?
Payment Modernization Challenges and Opportunities – Overview
Consumer preferences are changing with newer buying habits with the adoption of newer technologies. It’s no different when it comes to choosing a payment method for online, in-store, or offline payment options.
Today's consumer wants more choices in every aspect of their buying process including payment methods. It means businesses and merchants are under consistent pressure to offer more to their consumers.
The covid-19 pandemic remained a crucial factor in the adoption of online shopping trends worldwide. As it forced conventional businesses to shutdowns, it opened opportunities on the digital front as well.
Canadian businesses are gradually catching up on online shopping and e-commerce trends as well. However, most Canadian consumers face difficulties when it comes to utilizing modern payment options.
As the Canadian government pushes for a digital adoption plan for small and medium businesses, offering more options for digital payments will be critical.
The current situation and the future scenario present manifold business growth opportunities in the Canadian market linked directly to an innovative payment ecosystem.
Historic Payment Trends in Canada
4% of the total payment transactions were performed through online transfers and another 14.5% through electronic fund transfers (ETFs) in 2020 in Canada, a Payments Canada report revealed.
Although these numbers look promising, they remained significantly lower at 0nly 0.1% and 12.4% respectively as of 2015.
The largest chunk of payments came through cash, credit cards, debit cards, and ETFs as of 2015 as compiled by Payments Canada in its research report.
The report revealed that most consumers preferred using conventional payment methods and the proportion of modern payment methods like alternative banking, ETFs, and online fund transfers remained low.
Evolutionary Payment Landscape in Canada
Canadian government’s initiative of Canada Digital Adoption Program (CDAP), Payments Canada, and global trends meant the payment landscape in Canada saw upward trends in recent years.
The Covid-19 pandemic restrictions forcing consumers to switch to contactless shopping and payment methods remained a significant factor as well.
Canadian banks and businesses are eventually adopting new payment methods as well. However, most consumers still face challenges when it comes to receiving flexible and affordable payment methods in the Canadian consumer market.
Payments Canada’s report on payment trends in the market for the year ended 2020 reveals significant improvements in modern transaction methods.
Key findings from the report include:
Cheque and paper transactions decline to 2.2% of the total transaction volume in 2020.
Cash payments reduce to 16.9% from 29.8% in 2015.
Online transfers increased 4.0% up from 0.6% in 2015.
Overall, electronic transfers represented a staggering 79% of the total transaction volume in 2020.
Contactless payments increased by 13% year-on-year.
How BNPL is a Major Contributor in this Digital Payment Transformation?
One of the leading payment trends in any modern economy is the “buy now, pay later” trend. It allows businesses to offer a flexible payment option to customers.
Customers can enjoy flexible installment plans without paying interest as compared to traditional bank loans or credit card payments.
A major driver behind the rise of BNPL payments is access for customers with bad credit profiles. Conventional lenders charge interest rates and set credit limits based on credit scores.
As of now, only 14% of Canadian consumers have used a BNPL service once a year at least. It is expected to reach 55% by 2028. Then, there are only a few BNPL providers in the local market including Affirm, PayBright, and Afterpay.
The data shows there is a significant opportunity for conventional banks and alternative banking service providers alike to grab the untapped BNPL market in Canada.
Businesses can take the lead and become early adopters of the trend leading to increased sales and customer satisfaction overall.
Payment Modernization and CDAP
E-commerce and online business growth have seen acceleration globally due to Covid-19 pandemic hardships in the last couple of years.
However, online business growth wouldn’t halt once we return to the pre-pandemic normal. These trends present significant growth opportunities to businesses of all sizes globally.
The Canadian PM, Justin Trudeau formally announced the launch of the Canada Digital Adoption Plan (CDAP) in March.
CDAP aims to upgrade or provide digital adoption technologies to small and medium businesses with a total budget of $4 billion over the next four years.
A key hurdle for small and medium businesses in the adoption of e-commerce remains the acceptance of online and POS payments.
Thus, businesses can make full use of government assistance as well as the available technology to harness the growing benefits of modern payment methods and accelerate their business growth.
Payment Modernization Challenges for Businesses
Businesses can evolve into modern payment ecosystems by providing more options to consumers and making the process easier.
If consumers face hurdles in adopting newer payment methods like contactless payments and virtual debit cards, they’re unlikely to consistently use them in the future.
A recent report by Payments Canada suggests that nearly 57% of consumers faced some sort of difficulty when making a payment.
Here are the main challenges described by consumers when making a payment:
31% of young and another 30% of middle age consumers didn’t find a contactless payment option.
56% of the young and middle age consumers were forced to use a single payment option.
Nearly 40% of these consumers could not find their preferred payment method.
Consumers in the age 55+ group are more concerned about payment security including not knowing transaction costs in advance.
Overall, 29% of consumers are concerned with payment security, 29% with merchants not offering contactless payment options, and 23% with a lack of payment options at a merchant location.
Addressing these issues can significantly reduce the friction for consumers willing to adopt modern payment methods. Businesses offering more choices to their customers can retain valuable sales and even grow further.
How Businesses in Canada Can Make the Most of the Digital Payment Landscape?
A conventional approach to offering payment methods has been to facilitate the customers only. However, the modern payment ecosystem offers much more to businesses beyond customer satisfaction.
Businesses can access data insights by adopting modern payment methods. They can transform raw transactional data into established trends and data analytics.
Successful businesses in the modern payment ecosystem will be those who can identify consumer trends and have access to reliable data analytics. Offering more payment options will be the key factor to becoming part of that ecosystem.
Like any other economy, consumers in the Canadian market want more payment options from merchants and businesses. More consumers are making buying decisions based on the availability of payment options than ever.
Although the adoption of the digital business landscape and offering a comprehensive suite of payment options is challenging, it presents manifold growth opportunities for businesses.
Moreover, the need to join the modern payment ecosystem for businesses of all sizes has become a survival factor rather than a choice. The cost of leaving behind the competition will overweigh the costs of adapting modern technology.
References:
Buy now, pay later – Is it here to stay? | Payments Canada