Canadians are enthusiastic users of
plastic cards. The country’s payment card industry – which has a
strong payment infrastructure already in place – has formally
committed itself to chip migration over the next few years.
Sarah Williams reports.

The use of cash is not centrally recorded in Canada. However,
various economists have used survey data and ATM use figures to
estimate that the average cash transaction was around C$15 ($14) in
2004. It has also been estimated that the number of cash
transactions in 2004 was around 6.2 billion, representing total
spend of about C$92 billion.

Many observers – including the central bank, the Bank of Canada
(BoC) – believe that the displacement of cash is likely to continue
as the public perceives electronic payments to be a more efficient
payment method than cash.


Canada by numbers


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Cheque use is extremely low in Canada and is estimated by
national payment association Interac
to represent less than 1 percent of all retail transactions.
(See Figure 1.)

Canada: Consumer payment patterns, 2006

 Research carried out by the BoC found that cash is the
preferred method for making purchases of less than C$25, debit is
preferred for purchases between C$25 and C$100, and credit is the
preferred method for purchases greater than C$100. The BoC also
found that 72 percent of survey respondents used cash at least once
a week, followed by debit cards (64 percent) and credit cards (36

Credit cards

There are 61.1 million credit cards in circulation,
approximately 26.4 million of which are considered active due to
having a balance on them (including those paid off in full every
month). The value of credit cards grew at a compound annual growth
rate (CAGR) of 11.8 percent in the period 2000 to 2006. (See
Figure 2.)

According to the Canadian Bankers Association (CBA), there are
over 550 issuers of Visa
and MasterCard-branded cards. This includes 23 primary issuers and
hundreds of affiliated issuers.

According to the CBA, the delinquency rate (90 days or over) was
0.9 percent in 2006. MasterCard estimates that two-thirds of
Canadians pay off their credit card balances each month, and the
network believes that credit cards in Canada are generally used as
a payment tool rather than a borrowing tool. For its part, Visa has
estimated that around 71 percent of its cardholders pay off their
debt all or most of the time.

Consumers in Canada are regarded as somewhat more conservative
than those in the US.

Debit cards

Debit payments at the point of sale in Canada are organised
through the Interac Association. Interac was founded in 1984 by
five financial institutions, and by June 2006 it had more than 80
members. Interac is responsible for the development of a national
network of two shared electronic financial services. They are:

• Shared Cash Dispensing (SCD) service: cash withdrawals from
any ATM (known as an automatic banking machine or ABM in Canada)
not belonging to a cardholder’s financial institution; and
• Interac Direct Payment (IDP) service: Canada’s national debit


Canada: Credit card statistics


Interac is the only brand used for domestic debit card
transactions, although banks issue Visa Debit and MasterCard
Maestro cards for use outside Canada. In 2001, IDP overtook cash as
the most popular way of paying for purchases. Canadians have one of
the highest rates of debit card use in the world. (See Figure

A recent survey commissioned by Interac found that 86 percent of
Canadians have a banking card and 85 percent of cardholders have
used IDP to make a purchase. Each Canadian makes an average of 101
IDP payments per year. Even among cardholders aged 65 and over, 32
percent said they used cash most, 34 percent said they used credit
cards most and 28 percent reported using IDP most frequently.

Canada: Debit card use

Payment networks

A key feature of the Canadian credit market is that duality is
not permitted in Canada: banks cannot be members of both Visa and
MasterCard. This leaves MasterCard and Visa vulnerable to any
consolidation among the six largest banks in Canada, which dominate
the banking landscape.

So far, the government has not allowed merger and acquisition
activity to occur, but the possibility has led to worries that one
scheme could risk losing a significant part of its business.
Although a fiscally conservative government was elected in 2006,
large-scale consolidation does not look likely in the short to
medium term.

According to Visa Canada, 29.6 million Visa cards had been
issued in Canada as of April 2007. As there are 61.1 MasterCard and
Visa cards in circulation, this implies that approximately 31.5
MasterCard credit cards have been issued in Canada.

Migration to chip-enabled cards

In March 2006, the payment industry (including MasterCard, Visa
Canada, Interac and many of their respective card issuers)
announced a firm commitment to a broad industry migration to chip
technology. The migration has already begun, with many merchants
and cardholders starting to see the introduction of cards that
feature chip technology.

It is expected that by 2010, the majority of cards in Canada
will be chip-enabled. Magnetic stripe transactions will not be
permitted in the SCD service for debit card cash withdrawals from
ATMs after 31 December 2012, and magnetic stripe transactions will
not be permitted in the IDP service at POS terminals after 31
December 2015. The Canadian payments system will utilise the
established EMV chip standard.

In November 2006, Interac, MasterCard Canada, Visa Canada and
many issuers and processors announced their commitment to conduct a
chip technology trial in Kitchener-Waterloo, Ontario. The first
chip transactions will occur in the autumn of 2007. Card issuance
and device deployment will increase over the following months,
reaching a sufficient volume for research by March 2008.

According to Interac, the migration from magnetic stripe to chip
and PIN cards is taking place in response to rising levels of debit
card fraud, particularly skimming. “It’s fair to say that the
decision to move to chip is based on security, but there has been
interest in exploiting the opportunities that chip creates to offer
products not feasible in a magnetic stripe environment,” said
Kirkland Morris, assistant vice-president for strategic policies
and programmes at Interac.

The announcement that Canadian card players have committed
themselves to chip and smart card technology, and have put a time
line in place to achieve this, has attracted a flurry of
initiatives from issuers, processors and other players in the card
industry. In December 2006, MasterCard Canada announced that Chase
Paymentech Solutions had become the first acquirer in Canada to
receive approval from MasterCard to process chip transactions.

The issuers are busy showing that they are preparing for the
introduction of chip technology. National Bank of Canada recently
announced a smart card pilot scheme for the summer of 2008. This
project will enable the bank to “test the compatibility of its ATMs
and systems with this new technology in a controlled environment,
while ensuring the reliability of various other elements involved
in payment and transaction processes”, it said.

Other recent announcements make it clear that the shift to chip
is well under way. For example, in May of this year, retailer
Canadian Tire and MasterCard Canada announced that all of Canadian
Tire Retail’s 468 stores will be ready to accept MasterCard chip
cards by the end of 2008. Canadian Tire, a major national retailer,
claims its stores are visited by 40 percent of all Canadians every

Canada: ATM transactions by type, 2006


Product differentiation

Many marketing initiatives in the Canadian market centre on
earning loyalty points (linked to airlines, hotels, etc) or
donations to charities. Other cards highlight the access to events
they can give cardholders.

Canadian consumers are regarded as quite price-sensitive. A
survey carried out in 2007 by card issuer Capital One Canada, for
example, found that 82 percent of respondents preferred cards that
offered one low rate and “had no give-aways or time-limited offers
on interest rates”.


In the debit card market, there is an interchange fee for cash
withdrawals from ATMs, whereby banks pay a fee to allow their
cardholders to use a machine that is not part of the bank’s ATM
network, but interchange has been set to zero for debit card
transactions at the point of sale. As a result, Canada’s regulators
have not been as interested in debit card structures as have
regulators in other countries.

However, surcharges have attracted government attention as these
can be levied on both ATM and POS transactions for both financial
institution and white-label transactions. There are no rules in
Canada that regulate the nature or size of surcharges, but there
are rules that demand full disclosure to customers. Surcharges at
ATMs range from C$1.50 to C$2.

Canada’s federal government has asked the country’s top five
banks to explain why they charge their customers a fee for using
another bank’s ATMs. However, although the federal opposition party
is calling for Canadian banks to abolish these so-called
‘convenience’ fees, a ban has not been imposed.

Processing and merchant acquiring

The largest acquirers in Canada include First Data Loan, Global
Payments, Moneris, Chase Paymentech Canada and United Network
Payment Solutions. TNS Smart Network is Canada’s largest privately
owned transaction processor. Credit Union Electronic Transaction
Services is a provider of MasterCard issuing and acquiring products
and services to over 450 credit unions, caisses populaires
(a type of credit union located mainly in the province of Quebec)
and other organisations throughout Canada.

Canadian financial institutions have traditionally handled
issuing, merchant acquiring and processing themselves. Over the
past decade, this has changed and there has been a fairly rapid
shift to third-party processing.

As in a number of other markets, some consolidation is under way
in the Canadian processing sector. Moneris, created in 2000, is a
50/50 joint venture of the merchant acquiring businesses of RBC
Royal Bank and BMO Bank of Montreal. It processes more than 1.8
billion credit card transactions a year and processes card
transactions for 350,000 small- and medium-sized merchants in North

In other recent transactions, Global Payments acquired the
processing businesses of CIBC and National Bank of Canada, while
Paymentech purchased the acquiring arm of Scotiabank. Other banks
such as TD Bank do their processing in-house.

First Data International continues to make inroads in the
Canadian market. In October 2006, the global payment processor
became a member of Interac. As an Interac member, First Data will
have the ability to capture and process debit transactions in
Canada, allowing First Data merchant clients to accept the
Interac-branded card at the point of sale. In May 2007, First Data
signed a merchant acquiring agreement with WestJet, Canada’s
second-largest airline.

Local players are fighting their corner hard. In April 2007, for
example, Desjardins Group, Canada’s largest integrated co-operative
financial group, announced that its card services business, DCS,
had signed an agreement with GE Money to supply MasterCard payment
solutions to merchants. This means that Desjardins is now the first
traditional Canadian financial institution that offers merchants an
integrated MasterCard and Visa service.

Innovations in the market

Apart from the migration to chip-enabled cards, the main
innovation currently in the Canadian market is the introduction of
contactless technology. In May 2007, Visa Canada announced that it
was introducing its contactless payWave technology to the Canadian

Visa payWave in Canada is based on EMV chip technology, which
can securely store and encrypt confidential information.
MasterCard is pressing ahead with the introduction of its PayPass
technology. In September 2006, telecommunications giant Rogers
Communications announced that it would be conducting a market trial
of the Mint PayPass MasterCard at its Toronto headquarters.

Mint, in partnership with Peoples Trust, is the first to deploy
and support MasterCard PayPass-enabled card products and prepaid
payment cards in Canada.

Another PayPass roll-out was a 2006 venture between Citi Cards
Canada and petrol retailer Petro-Canada. The PayPass feature was
added to the Citi Petro-points MasterCard. In the future,
cardmembers will be able to tap their MasterCard PayPass-enabled
cards at Petro-Canada pumps.

Contactless payment options are becoming increasingly popular
with consumers. For example, in March 2006, RBC Royal Bank began
rolling out Speedpass with Debit, a key-ring device that transmits
payment instructions to specially fitted terminals at ExxonMobil
petrol stations in Canada.

Major players
RBC Royal Bank

RBC Royal Bank is Canada’s largest bank as measured by assets
and market capitalisation. It has over 5 million credit card
accounts and says its market share of Canada’s credit card purchase
volume is around 20 percent. Overall card balances were C$9.9
billion in 2006, calculated on an average daily basis, up from
C$8.8 billion the previous year. Loans outstanding in its Canadian
credit card business were C$6.9 billion in 2006. The bank also
securitised C$1.2 billion in credit card loans. Card service
revenue amounted to C$496 million in 2006, a fall from C$579
million in 2005.

RBC Royal Bank operated 3,847 ATMs in Canada at the end of 2006.
It has around 3.5 million online and 2.5 million telephone

TD Bank

TD is Canada’s second-largest bank by assets. Card services
revenues increased in 2006 by C$104 million, or 37 percent, from
2005, primarily due to increased net retail sales and fee
initiatives. The net interest income on average earnings balances
was C$3.83 billion in 2006. Income from card services (TD Bank Card
Services) was C$383 million. Credit card lending volume grew by
C$700 million or 18 percent in 2006. Credit card purchase volume
and outstanding balances increased 15 percent and 18 percent,
respectively, over the previous year. As of 31 October 2006, the
bank had outstanding securitised credit card receivables of C$800
million compared with C$1.3 billion as at 31 October 2005.

TD has a network of 1,014 branches and 2,400 ATMs.


CIBC is the country’s third-largest bank. Its managed loans
amounted to a total of C$11.5 billion in 2006 (of which C$7.04
billion was reported and C$4.4 billion was securitised). CIBC card
fees were C$251 million in 2006, down from C$317 million in 2005
and C$407 million in 2004. This was primarily due, the bank said,
to higher levels of securitised assets, partially offset by higher
purchase volumes. Card fees comprise mainly interchange income,
late fees, cash advance fees and annual fees. CIBC total revenues
from cards amounted to C$1.4 billion in 2006.

CIBC has a national network of around 3,800 ATMs. It has a deal
in which it operates almost 500 ATMs in 7-Eleven shops across the

BMO Bank of Montreal

BMO Bank of Montreal is part of the BMO Financial Group, which
had total assets of C$320 billion as of 2006. Its Personal and
Commercial Banking division provides bank accounts, loans and
credit card to over 8.5 million customers across Canada and the US.
In 2006, card fees rose C$62 million or 19 percent to C$396
million, driven largely by the success of the Mosaik MasterCard and
by the 2005 maturity of a portion of credit card loans that were
previously securitised.

Scotiabank is Canada’s most
international brand, being represented in more than 50 countries.
Its card revenues were C$307 million in 2006 (up from C$251 million
the previous year); however, it should be noted that this includes
international business. Total loans outstanding for personal and
credit cards was C$32.6 billion in Canada for 2006.