Executive Director, Canadian Prepaid Providers Organization (CPPO)
Consumers, businesses and the government have contributed to the rapid growth of prepaid solutions. These three sectors have discovered the convenience and security of loading money onto physical or virtual cards to buy goods, pay employees, extend incentives or rebates or transfer funds for social assistance, tax refunds and emergency disaster relief.
The industry is growing at a steady pace globally. In 2018, $4.3 billion dollars were loaded onto open-loop prepaid products in Canada alone — up 17.1% between 2016 and 2018 — according to research by Mercator Advisory Group. This growth indicates that prepaid solutions will continue to play a valuable role in Canada’s financial ecosystems, offering Canadians innovative, technology-driven products and services.
The evolution of financial services
Jennifer Tramontana, Executive Director of the Canadian Prepaid Providers Organization, cites two major reasons why the industry is flourishing — innovation and markets. “Prepaid is very well suited to be a platform for innovation in financial services,” she explains.
“Disruption in financial services is big everywhere, including Canada. Prepaid is providing Canadian fintechs and challenger banks a foundation to bring new products and services to market. Its modular and light infrastructure allows for creative and nimble products, swapping in and out capabilities where needed and driving innovation.” Growth of fintech investments in Canada exceeds $750M a year according to KPMG, and prepaid solutions are at the core of many leading fintech players.
Prepaid offers significant advantages over more traditional methods for cashless transfers. Tramontana points to the high price paid for using cheques. According to Deloitte, the average cost of a check issued in Canada is $15. An electronic payment is less than a dollar, yet Canadian businesses and government agencies send more than 550 million cheques annually, primarily due to the need for administrative processes and a clear audit trail, costing the economy $5.8 billion.
“Modern prepaid programs provide security and tractability, combining the record keeping rigor of a traditional cheque audit process with a modern, digital payment product,” she notes. “And it dramatically cuts down the potential for fraud and loss.”
Prepaid is very well suited to be a platform for innovation in financial services.Jennifer Tramontana, CPPO
Prepaid platforms spark innovation
It’s only in the last decade that prepaid options have come to the forefront in Canada. As Tramontana points out, the industry is in still emerging and misconceptions remain.
Tramontana also notes prepaid products are “a very useful tool for financial inclusion” that provides an initial point of financial access to those who are underserved, including new immigrants and people living in remote communities with less access to financial services. Prepaid allows them to manage their cash flow and reduce reliance on more costly alternative financial service providers.
Though over 90% of eligible Canadians have a bank account, many communities have low engagement with financial services offered by traditional banks. The underserved market in Canada is limited in their ability to manage cash flow, save money, and access credit through traditional financial institutions due to economic, technological and geographic barriers.
“Underserved Canadians can pay between $900-$1200 a year for services like cheque cashing, NSF fees and other premiums,” she says. “They can have a much better experience with prepaid products. Deloitte estimates that the same consumer would pay about $60 a year to transact through a prepaid product.”
What has become clear is that prepaid solutions have an important role to play in the Canadian fintech space. It’s a platform that has the ability to be nimble and responsive to the needs of its users while partnering with financial Institutions to ensure regulatory compliance.
“Canada will continue to see growth in disruptive financial products and services over the next decade and prepaid is going to continue to be a very important platform for creation, launch, and growth,” explains Tramontana.
1 Mercator Advisory Group. (2019). The Canadian Open-Loop Prepaid Market: 2018. Retrieved from: https://www.mercatoradvisorygroup.com/Reports/The-Canadian-Open-Loop-Prepaid-Market–2018/
2 KPMG. (2017). The pulse of fintech Q3 2017: Global analysis of investment in fintech. Retrieved from: https://assets.kpmg/content/dam/kpmg/de/pdf/Themen/2017/pulse-of-fintech-q3-2017.pdf
3 Deloitte. (2019). Prepaid market research.