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Fintech Can Solve Our Universal Overspending Problem.

 Canadians are lauded as being almost universally banked, fiscally responsible, conservative and even downright sensible. So why the growing consumer interest in alternative payment tools? 


A recent study by The Canadian Prepaid Providers Organization found that while 99 percent of Canadians have a bank account there is a growing interest, especially amongst younger Canadians, to adopt alternative payment tools that they view as more convenient. Prepaid cards continue to grow in both usage and popularity. At the same time, 13 percent of consumers are using bank accounts less.    


The open loop prepaid market in Canada is $3.1 billion dollars. Not small for a country with 1.6 trillion GDP (about the same size as the gross state product of Texas). Prepaid cards topped the list as the fastest-growing payment product and boasted the highest level of satisfaction among payments tools. 


So why is this highly banked country adopting financial tools they don’t “need”? The answer may be in the gaps and failures of their current products, namely bank accounts and credit cards. While these products serve their needs in many areas, they don’t stop Canadians from overspending.  


Canadians now hold record amounts of debt, owing $1.67 for every dollar of disposable income and nearly half of Canadians have struggled to stick to a budget in the last year.  


92 percent of Canadians have credit cards, but 31 percent do not want to have one. 26 percent often keep a running balance on their credit card, and 25 percent have struggled with their credit score. 40 percent have had credit card debt. These numbers are reflected in other developed nations as well.  

Canadian fintech companies are looking to fill the convenience and service gaps that banks and credit cards are ignoring and some are even aiming to directly repair the harm they believe conventional providers are causing consumers.  

Last week, Mogo Finance Technology Inc. launched a new spending account to help consumers control their discretionary spending alongside their bank account. The Mogo Spending Account allows members to transfer their monthly spending money from their bank account to a prepaid Visa card and track their budget and balance in real-time through an app. Monthly recurring payments and delayed settlement make it challenging for consumers to monitor their spending money and manage their finances in real-time through a traditional bank account.  This product provides a solid way to stop consumers from overspending which traditional banking and credit products aren’t designed to do.  


This is new for Canada. Canada has not had a full-scale prepaid GPR product aimed at consumers. Many believed it wasn’t needed because of Canada’s highly banked population. But recent research has shown that 33 percent of Canadians do not want to use traditional banks because alternative providers and new tools are cheaper and more convenient. 


With other countries, such as the UK, US, Japan, France, Germany and Italy, also struggling with huge levels of household debt, it is clear that the most commonly used conventional financial tools – bank accounts, credit cards, mortgages and loans – aren’t effectively working for consumers worldwide. Fintech companies have a huge opportunity to focus on the overspending problem by offering lasting solutions that complement consumers’ current habits and tools, making them easy to stick to. While there are many fintech companies focusing on one piece of this puzzle, building a comprehensive digital banking experience that tackles all of these financial needs will be the best way to truly help consumers better manage their financial picture.  


Jennifer Tramontana is President of The Fletcher Group and Founder and Executive Director of the Canadian Prepaid Providers Organization 

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