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