Financial stress is now recognized as a mainstream issue and one of Canada’s biggest social problems.(see source) Regardless of income and upbringing, this type of stress can negatively impact mental and physical health, work productivity and family life. In earlier research, 63% of higher income households (household income over $100,000) agreed money worries cause them emotional stress, with concerning three-year trends since 2017 for Canadians across all household income groups (see source).
Between global uncertainty, housing affordability, unplanned life events and banking access, there are many factors that can contribute to financial stress. For example, while 99% of Canadians have an account with a financial institution (see source), approximately 10-20% are either unbanked or underbanked, meaning they do not have access to a wide range of convenient or everyday banking services (see source). The millions who fall into these categories tend to be financially excluded from the mainstream banking sector due to geographic location, new immigrant status and/or for being perceived as too risky to access basic credit products. For newcomers to Canada, it can also be challenging to understand our financial landscape and to manage competing demands for their attention when they first arrive – one of which may not be financial planning.
E-commerce retailers have a unique opportunity to support Canadians’ financial health through the payments options being offered. But first, let’s look at common payment options that deter financial inclusion.
“10-20% of Canadians are either unbanked and underbanked”
Credit cards remain the most used payment method and make up most of the card value overall according to the most recent Canadian Payment Methods and Trends Report (see source). But, the same data highlighted that 32% of Canadians carried a balance on their credit cards past their billing cycle indicating an increased debt burden on Canadians who take advantage of the ability to make smaller monthly (or minimum) card payments. There is also a concerning reliance on credit for everyday expenses for Canadians: 46% of people are using credit to buy food or pay expenses because they’ve run short of money (see source).
But why? Nearly six in 10 Canadians said low interest rates convinced them to take on more debt, while 12% pointed to sales events like Black Friday (see source). Canadians are also drawn to rewards programs - nearly three-quarters of Canadians carry at least one credit card that has a rewards program and for 82%, rewards are a priority when selecting a credit card (see source). Chasing rewards and points could also encourage poor spending habits.
The offer to spread out bill payments can be very attractive, especially to younger shoppers who are seeking convenience or are shopping on a budget, but this could encourage overspending. Another risk is missing a payment, which can lead to late fees or being added to debt collection lists. Of those who have used BNPL services, 34% have admitted to being late on one or more payments (see source). Missing one payment can impact a consumers’ credit score and further increase financial stress.
While these options are popular and can remain a low risk for financially responsible shoppers, it’s important for retailers to understand the downfalls and counter them with more inclusive options.
Debit cards continue to grow at a stable pace, most commonly used to replace cash transactions at the in-store point-of-sale (see source). The top three reasons Canadians choose debit are speed (46%), ability to use their own funds (46%) and wide acceptance rate (42%). While debit is more common in-store (see source), it has not yet surpassed credit usage online. But this delta is shrinking as there has been an increase in co-badged debit cards (with Interac, Visa or Mastercard) for e-commerce and in-app transactions according to Payments Canada. At the risk of the merchant, Canadian financial institutions issuing these co-branded products offer “zero-liability” consumer protections. While this is still not a fully viable, financially inclusive option for online shopping, the added consumer protections help instill confidence in Canadians to make secure transactions.
This method of sending money has become engrained in Canadian culture. It’s perceived as so secure for person-to-person payments that an autodeposit feature was introduced to have incoming Interac e-Transfer®'s deposited directly into your bank account without answering a security question. And if it were a payment option at checkout, 46% of Canadians would choose to pay this way to help: avoid credit card debt (39%), manage their finances (32%) and feel more secure about e-commerce (24%). An alternative payments solution like DirectPay makes this possible to help Canadians pay online safely and conveniently. For a merchant, incorporating Interac e-Transfer® at the e-commerce checkout helps ensure a smoother checkout and less payment friction for the customer. Similar to the person-to-person autodeposit functionality, there is no need for a customer to set a security question and/or answer for the merchant as the payment securely and seamlessly runs through the customer’s bank.
According to Payments Canada, the use of card alternatives – such as smart watches, gaming consoles or digital/mobile wallets – has increased 115% and 125% in the volume and value respectively between 2019 and 2020. While each digital wallet is a little different, this card alternative continues to provide choice and convenience to consumers who prefer not to carry all their physical cards with them. Moreover, the increasing competition among digital wallet systems in Canada will continue to work in the consumer's favour as payments security and protection continue to be enhanced.
Canadians continue to expect more options and flexibility in how they make payments without sacrificing security and convenience. The gaps in the Canadian market for supporting financial inclusion can be tightened by expanding payment options to combat the reliance on credit cards and growing acceptance of BNPL platforms. When consumers are welcomed with a full, inclusive suite of payments options at the checkout, such as debit, digital wallets and Interac e-Transfer® merchants help Canadians of all ages and immigration status be fiscally responsible. A financially healthy customer base can reward merchants with increased customer loyalty and reduced cart abandonment.