Introduction to Canada
As the world has struggled to regain its footing in the midst of the current financial crisis, Canada’s economy seems to be recovering faster than others. Not only did its recovery begin quickly in comparison, it also appears it will have little long-term impact on its citizens. Because of this, other G20 countries have begun to look closely at Canada as an example to learn from when addressing their own economies.
Though not unscathed by the recession, Canada is benefitting from more conservative approaches to lending. Canadians do not generally believe home ownership is for everyone, so mortgages are tightly controlled and taken more seriously. Although unemployment rose to 8.1 percent in April 2010, up from 6.2 percent in January 2007, it was still lower than other industrialized nations.  In 2008, the return on equity for Canadian banks was positive, while in the United States, the United Kingdom and other European banks, it was negative. Therefore, Canada is experiencing better health in the banking industry than its G20 partners. 
While its American neighbors were enjoying astronomical growth in payment cards during the 1990s and early 2000s, Canada grew at more modest rates of 7 percent annually , largely due to a higher preference for debit products over credit. In fact, a typical adult Canadian cardholder has 2.7 credit cards, including bank-issued cards, retail cards and gas cards, which is half as many as their U.S. equivalent. This conservative approach has served Canada well during the recent recession, as its charge-offs remained at about half of the rate of the United States. Credit card performance compares favorably to both the United States and the UK. 
Canada conducted a survey in 2005 and discovered that Canadians tended to use credit cards wisely. As many as 73 percent of Canadian households paid balances off in full every month. This number increased annually in the first half of the last decade. Canadians who did carry a balance on their credit card made payments of 32 percent to 35 percent of the balance monthly (rather than simply paying the minimum). 
Beside the conservative approach to lending, the Canadian market is closely managed by the central Bank of Canada and Parliament. Regulatory pressures in Canada are nothing new to Canadian issuers. In recent years, regulation has been loosening and tightening in turns.
In November 2008, the Competition Commission announced the elimination of the rule preventing issuers from issuing both Visa and MasterCard cards. Prior to that, Canadian credit card issuers had to choose between membership in Visa or MasterCard. Visa Canada has a bylaw that prevented duality in Canada. With the change by the networks from associations to publicly traded companies, the structures changed so that influence by a single issuer to both associations was contrary to competition. In the words of the Commissioner, “the Bureau is no longer concerned that there is a potential for a member, or group of members, of one credit card network to negatively influence the competitive operations of another card network through dual governance.” The announcement cleared the way for issuers to begin issuing cards for both Visa and MasterCard. In 2009, Royal Bank of Canada announced their plans to be the first dual issuer in Canada. They launched their first MasterCard product with WestJet in the fall of 2009. In March 2010, Canadian Imperial Bank of Commerce countered by acquiring Citi’s Canadian MasterCard business, making it the largest dual issuer of Visa and MasterCard credit cards in Canada. Other Canadian issuers continue to identify and implement dual offerings for their customers.
The Canadian Payments Association is a not-for-profit organization created as part of the Canadian Payments Association Act (CPA), which was passed by Parliament in July 1996. It was formed to create and operate a national system for the clearing and settlement of payments, regardless of payment instrument, and gives the Bank of Canada responsibility for the oversight of payments and other clearing and settlement systems in Canada. They include cash, checks, debit and credit cards and e-money.  As such, the CPA owns and operates the Automated Clearing Settlement System (ACSS) and the Large Value Transfer System (LVTS), which are responsible for setting the rules and managing the clearing and settlement of payments. Parliament reviewed the concepts of interchange as the primary funding in payments during 2009, while simultaneously reviewing a petition by Interac to change from non-profit status to for-profit to allow competition with the global networks (Visa and MasterCard). They concluded that Interac would not change their status, and they issued a new “optional” Code of Conduct for the Credit and the Debit industry in April 2010. The code addresses the cost of debit acceptance and other retailer interests, as well as prevents cards from encompassing credit and debit products on a single card. Therefore, the Chase BluePrint product or the TSYS Hybrid functionality may be considered problematic in Canada and must be vetted fully prior to implementation within the country.
Unlike the duality rules discussed above, the Canadian Code of Conduct limits a card to carrying only one debit card network brand to protect the Interac brand from Visa and MasterCard debit processing. Due to this limitation, the likelihood of the Canadian market welcoming and flourishing for Visa and MasterCard debit products is low and will not be an easy road. As such, it is widely believed that the global networks will focus on other products in Canada and in other countries for debit.
Canadian consumers are avid adopters of technology and are greatly interested in transacting in new and better ways, regardless of whether they are mandated, i.e., chip & PIN, or preferential, i.e., mobile technology. Internet activity in Canada is very high, with 93 percent of the population accessing the Internet for e-mail, and 66 percent for online banking or bill payment in 2009, versus 94 percent of U.S. adults using the Internet and 36 percent using the Internet for online bill payment in the same period. 
In the period between 2004 and 2009, fraud losses had more than doubled for debit cards, even though it was almost exclusively PIN-based traffic for debit transactions. In 2005, the payment industry in Canada agreed to move all card products in Canada to chip & PIN technology, with a five-year implementation mandate. In early 2007, certification of programs began. According to a report titled EMV Migration in Canada: Opportunities and Challenges in 2007, the number of EMV payment smart cards in circulation in Canada was expected to reach 54.8 million cards by 2010, representing 43.6 percent of all payment cards in circulation in that year. By 2011, payment smart cards were expected to account for 90 percent of the annual demand for smart cards in Canada. 
Additional innovation is expected in coming years due to regulatory pressures, cultural interest in Canada and opportunities by entities like Visa and MasterCard. Recently, Canadian telecom companies Bell Mobility, Rogers and Telus created a new venture, called Zoompass, to enable person-to-person money transfers from stored-value accounts, including checking or credit card accounts. In addition to eCommerce opportunities for merchants in Canada, the Canadian Revenue Agency has begun acceptance of the Interac debit card network. Citizens in Canada are being encouraged to pay taxes and fees via the Internet. However, they are not allowed to use credit products for paying taxes. In 2009, the payments of taxes via the Internet rose by 22 percent from the prior year.
Due to the new Code of Conduct in Canada, the prepaid market is the most attractive opportunity for Visa and MasterCard to establish a debit card presence, since Interac hasn’t established an equivalent product offering. So far, itsPAID, DirectCash and Vancity Credit Union have begun designing and issuing prepaid products. In 2009, Aite Group performed a survey that estimated that the prepaid debit and payroll card market would quadruple by 2014. In 2009, the combined revenues of payroll card programs by Wal-Mart, Green Dot and NetSpend was US$44 billion. By 2014, Aite expects that figure to raise to US$164 billion, with factors including the housing market bust, the financial crisis, a surge in unemployment and general economic downturn contributing to the industry’s expansion. 
It is likely in Canada that card-based products will eventually follow checks into the desk drawer, replaced by mobile and eCommerce channels. However, they will not be able to disappear. During the 2010 Vancouver Olympic Games, Coca-Cola added payWave technology to the Coke machines in the Olympic Village to test technology in vending machines. To support the technology, payWave fobs resembling the Coke bottle were issued to athletes, coaches and trainers. These fobs were attached to keychains for use in the Village. Also, Royal Bank of Canada issued a few hundred thousand payWave cards during 2009 to see how acceptance would progress. But Bank of Montreal (BMO) partnered with MasterCard to test BlackBerry contactless transactions at the point of sale with the PayPass technology. Toronto Dominion’s iPhone application for mobile banking was reporting more than 10,000 downloads per day two weeks after its April 14, 2010 launch.  It’s a very innovative time in payments in Canada, and with the technology-savvy population of Canada, it is expected to be a great wave of change. In fact, Deloitte expects that Canadians will see dramatic changes in credit cards. They see possibilities in consolidation of customer accounts, social networking and PDA payment platforms, mobile payments, loyalty programs, prepaid accounts, security features and debt management. 
 The World Factbook, Vanier Institute, CGA Canada, Pew Internet
 The Canadian Debit Market, Warning: Contents Under Pressure, June 2010, Mercator Advisory Group
 “Canadian credit cards growth outstrips U.S.”, Lafferty Group, October 22, 2007
 “Canadian credit card market to stabilize in 2010 – Moody’s”, Payments Business News, March 20, 2010
 Bank of Canada, 2010
 The World Factbook, Vanier Institute, CGA Canada, Pew Internet
 “EMV Migration in Canada: Opportunities and Challenges”, Technology Strategies International, February 2007
 “Prepaid Debit and Payroll Cards: Winning in the Void”, Aite Group, September 2010
 “TD’s Mobile iPhone App Averaging More Than 10,000 Downloads/Day”, Payments News, April 26, 2010
 “Deloitte: Canadians to See Dramatic Shift in Credit Card Offerings”, Payments News, April 22, 2010