Viewpoint: The Canadian Opportunity for U.S. Prepaid Providers

By John Pals, Peoples Trust Company

Driven by consumer and business demand for new ways to pay and get paid, Canadians are choosing prepaid more often than ever for travel, business expenses, check replacement and every-day spending. A recent study conducted by the Canadian Payments Association revealed that the Canadian prepaid market reached more than US$9.9 billion in 2014. Vancouver and Toronto stand as two of the largest global fintech hubs where startups are delivering innovative payment products to the global market. U.S. prepaid program managers should take note. With an estimated $3.75 billion in open-loop prepaid transactions in 2015 alone, the Canadian prepaid market might be the most addressable market for U.S. companies looking to expand.

Take Peoples Trust, the largest federally chartered prepaid card issuer in Canada, issuing more than 30 million cards in 2015. We’ve experienced significant increases in 2015 with the addition of 150 new prepaid programs, and a nearly 19 percent jump in dollar volume from 2014. Peoples specializes in helping card program managers establish, launch and grow card programs across Canada based on our licenses with global payment schemes, through BIN sponsorship, regulatory expertise and market guidance.

Here are the top three reasons why U.S. program managers should look to Canada for their next growth market:

Increasing Popularity. As one of the fastest-growing prepaid markets in the world, thanks in part to a rise in the millennial workforce and fintech hubs such as Vancouver and Toronto, Canada is at the forefront of payments innovation. New use cases and emerging entrants have contributed to rapid prepaid growth. Total prepaid transaction volume surged by 30 percent between 2011 and 2014, and the open-loop market alone is expected to increase by an additional US$7.2 billion from 2015 to 2020. That’s a CAGR of 18 percent.

Both banked and underbanked Canadians and businesses, are turning to prepaid, quickly solidifying the country’s prepaid market as one of the fastest-growing in the world according to a 2012 MasterCard study. Payroll, travel (foreign currency), expense management, insurance payouts, rebates, health care, money share, gaming and check replacement are some examples of the applications that are moving into the market today.

Regulations and Security. Canadian prepaid laws and regulations differ from those in the U.S. Canada has its own set of government bodies, network rules and payment product regulations. The country also has two official languages, which understandably creates federal and provincial nuances that U.S. program managers must consider.

Daunting? Sure. But here’s the good news: The prepaid regulatory environment in Canada is more stable now than ever. That’s because the Canadian federal government released its long-awaited guidelines governing prepaid products in 2014, putting in place the first full federal regulatory structure. (Editor’s note: In the U.S., the CFPB in May pushed the release of its final prepaid rules to late summer.) These requirements likely will stand for the foreseeable future, which means prepaid payment program managers can focus on their businesses instead of worrying about potential regulatory changes that could impact the market. Leveraging the expertise of established Canadian partners can help U.S. program managers navigate the regulatory system and have a better understanding of how to implement a program that’s fully compliant in English and French.

Compared with the U.S., Canada was an early adopter of EMV (and in most cases chip and PIN) for credit and debit cards, with prepaid adoption quick on its heels. Peoples Trust, for instance, was the first to market EMV-enabled prepaid cards in Canada and has issued 200,000 cards in the first quarter of 2016. With newer prepaid technologies such as dual-interface, Canadian prepaid consumers benefit from the look and feel of a traditional credit card, with the added security and convenience of personalized embossing, chip and PIN, and contactless processing.

The Canadian Dollar. Let’s face it, the Canadian dollar has dropped 18 percent in the past two years against the U.S. dollar and an immediate recovery seems unlikely. While this isn’t making Canadians too happy, it presents an opportunity for U.S. prepaid program managers. U.S. companies can expand to Canada with less friction and more cost-efficiency due to the relatively high value of the dollar and compatible language and cultural considerations.

In addition, Canada’s prepaid community is a network of strong, connected and qualified prepaid and payments players that can support program managers’ needs. In addition to knowledgeable potential issuing and distribution partners, MasterCard and Visa are active in the Canadian prepaid market, along with two trade organizations supporting the industry—the Canadian Prepaid Providers Organization and the Canadian Payments Association. Leveraging this strong prepaid network offers U.S. prepaid program managers extensive regulatory, market and payments solutions expertise and resources that enables them to successfully launch their card programs across Canada.

When done right, Canada is the most favorable prepaid market for U.S. program managers looking to expand. It is essential for program managers to choose partners that provide comprehensive issuing services, regulatory expertise and market guidance to help establish, launch and grow successful card programs. With the right partners, program managers can avoid the pitfalls of entering a new geographic market and remove many barriers to entry—getting to market faster and more cost-effectively.

John Pals is chief operating officer of Peoples Card Services, a subsidiary of Peoples Trust Company. He is a seasoned executive with more than 25 years of experience in financial services in North America, Europe, Middle-East and Asia-Pacific, and has held senior positions in product development, operations and marketing from startups to multinationals across multiple industries. He has expertise in innovation and product development in heavily regulated industries. He may be reached at: [email protected].

In Viewpoints, payments professionals share their perspectives on the industry. Paybefore presents many points of view to offer readers new insights and information. The opinions expressed in Viewpoints are not necessarily those of Paybefore.