Prepaid Card Market in Canada – Achieving the Next Phase of Growth

Q&A with Jennifer Tramontana, Co-founder and Board Member, CPPO

Data from Payments Canada indicates that prepaid cards rank second among payment methods in terms of percentage of total payment volume growth. The Canadian open-loop prepaid market is nearing CA $9 billion and has recorded 80 per cent growth in two years, fueling the transformation to a digital banking and payments ecosystem that is inclusive and accessible for all Canadian consumers and businesses.

In this interview with FSS, Jennifer Tramontana, Co-founder and Executive Director of the Canadian Prepaid Providers Organization, elaborates on how prepaid is increasingly being harnessed as the platform to drive innovation in the Canadian consumer banking ecosystem and is the core offering with which most challenger banks launch in the market.

Can you tell us how Canadian Prepaid Providers Organisation drives prepaid card adoption in Canada, and the key initiatives we can look forward to in the year ahead?

The Canadian Prepaid Providers Organisation (CPPO) is the only association solely focused on this growing industry and includes the major players in open-loop prepaid in Canada. Because our members include issuing banks, networks, fintechs, program managers, processors and service providers, our organization is represented by everyone across the entire financial ecosystem. We provide a platform for these members to gain the intelligence, education, access, and network to expand the role of open-loop prepaid solutions across Canada.

The CPPO also works closely with a public affairs advisory group to support our government relations efforts. This includes monitoring and providing feedback on developments as it relates to payments modernization, regulation and compliance, national retail payments framework and consumer-directed finance. We work to maintain relationships with provincial and federal regulators to provide education session on the open-loop prepaid market, while at the same time promote prepaid solutions for more efficient government payment delivery, and to encourage greater harmonization of provincial and federal regulations.

What does your research tell us about prepaid markets in general and specifically how is Canada leading the way?

Our latest research, which we conducted in collaboration with the Aite- Novarica Group, indicates the Canadian open-loop prepaid market is nearing a CA$9 billion industry, which is an 80 per cent growth in two years. The value of this market is projected to nearly double to CA$17.2 billion by 2025. Although the prepaid market in Canada is a sliver of the U.S. market, it’s clear Canada’s market is poised for immense expansion.

Data from Payments Canada also indicates that prepaid ranks second among payment methods in terms of percentage of total payment volume growth —boasting a 34.2% payment volume growth between 2015 and 2020. That same research shows prepaid also had the second highest growth in percentage of total payment value at 32.7% growth in that same time period.

What we’ve seen in the prepaid market is that consumers and businesses in Canada are looking for payment methods that can help them participate in the digital economy without having to use credit. Prepaid solutions are increasingly playing a larger role in the digital economy as more and more companies across the payments ecosystem launch prepaid programs that help everyone gain access to more goods and services online, and through digital wallets.

Progressive regulators are encouraging the use of prepaid cards through favorable policy initiatives. What furthers changes would you like to see from a compliance perspective?

CPPO is working to shape the conversations at the provincial and national level around compliance and security to reinforce the public policy benefits that prepaid can provide.

For example, we are continuing our advocacy efforts to create a consistent national regulatory model for open-loop prepaid products so that they become a more universally accepted form of payment between consumers, businesses (both online and in-person) and governments. Through the harmonization of consumer protection regulations prepaid networks, issuers, and program managers would have a more predictable and consistent regulatory environment in which to bring new products to market.

We are also involved in discussions regarding the recent changes to Canada’s anti-money laundering and terrorist financing regulations to ensure they respond to the realities of the prepaid market. We are eager to work with the Government of Canada as it establishes its new Financial Crimes Agency to ensure that the benefits of prepaid are well understood by the regulator.

We have seen governments increasing use of prepaid, particularly for salary and grant disbursements. Is this trend set to continue? In what areas would you envisage the government leveraging prepaid for the growth of the economy?

Given the number of Canadians that continue to receive government benefits through paper cheques we’d also like to see the federal government embrace prepaid as a primary payment and disbursement method in its push toward payments modernization. The Canadian government has taken the initiative to begin modernizing its payment delivery mechanism, and we believe prepaid can help meet its public policy objectives.

We think it is imperative we ramp up our embrace of prepaid through partnerships between the Canadian government and fintech companies to make this possible. By following in the footsteps of international markets – and working closely with governments and embracing prepaid solutions, we believe prepaid solutions can quickly, securely and equitably serve all Canadians.

The good news is that the Canadian federal government wants to make its disbursements more efficient and wants to include prepaid cards as part of its government payments toolkit. This should help the use of prepaid across several sectors. For instance, every year there is CA$400 million in uncashed government checks as well as government check fraud. Because they are more efficient, we’ll see a significant increase in the use of prepaid cards for Canadian government disbursements. I expect there to be a tipping point for government payouts to prepaid cards.

What emerging segments would you see becoming stronger in the next two-three years. As an example, healthcare, forex cards?

Where we see potential for growth with prepaid is through innovative payments solutions that help streamline payments between employers and employers and businesses and consumers. For instance, leveraging prepaid to support earned wage access solutions that allow workers — including gig and contract workers — faster access to their wages, is a core use case for prepaid cards. Prepaid cards provide a platform to support fintech solutions that align with initiatives that increase financial access, boost financial wellness, and allow people to access their funds faster and easier.

We’re also seeing increased use cases for prepaid in the B2B world. Prepaid cards have allowed for the development of many innovative use cases across a number of business segments, including everything from real-time B2B payouts, supplier payments and expense management to disbursements and insurance payments and beyond. The continued development of this market is laying the foundation for further innovative offerings to be developed and brought to market across more business segments.

With consumers increasingly adopting remote payments, what are some of the counter fraud measures that prepaid issuers should address?

When it comes to addressing fraud measures, prepaid issuers must work toward sharing more education about how prepaid itself works. There’s a lot of misconceptions out there those prepaid cards are connected to increased fraud. From an open-loop prepaid perspective, prepaid solutions already account for fraud, authentication, and tracking controls.

For instance, prepaid cards, which can be either physical plastic cards or used via digital methods on mobile devices, are issued by federally regulated entities under the Bank Act or Trust and Loan Companies Act (as applicable). Prepaid is also governed by the Payment Card Network Rules and subject to regulation by OSFI, FinTrac and the FCAC.

Issuers must clearly explain how prepaid solutions work to consumers, businesses and governments. Prepaid solutions are issued by major card networks (Visa, Mastercard) and run on existing payment rails. Not only does prepaid maintain the same fraud and loss protection in accordance with the Zero Liability protections of the payment networks, but the funds also don’t expire and there are few restrictions on what can be charged to cardholders. Prepaid also adheres to all applicable consumer protection, AML and privacy requirements.