Cash might make the world go ’round right now, but it may lose its spot as the top transaction type between Canadian merchants and consumers within the next five years, according to a new report.
Although cash is the most common form of payment, it may soon be eclipsed by other up-and-coming transaction types like mobile payments, near field communication (NFC), contactless payments, and digital wallets, according to Technology Strategies International Inc. (TSI). The market analysis company produced a 150-page report called the Canadian Payments Forecast for 2013, made up of four different surveys polling more than 4,000 respondents in all.
In 2012, there were 6.4 billion cash transactions between consumers and merchants within Canada, followed by 4.4 billion debit transactions and 3.3 billion credit transactions. Yet by 2017, online payments are expected to exceed $40 billion, the report says, meaning the number of transactions done with paper money and coins is most likely going to decline.
In the meantime, in 2012, more than half of Canadian smartphone owners had used their phones at least once to make payments, but there are at most about 100,000 users who regularly use their phones in-stores to make payments.
Still, the ranks of the mobile payment users should swell when smartphone manufacturers make more of their phones NFC-compatible, says Christie Christelis, president of TSI. He estimates that by 2017, there will be almost three million consumers who use mobile payments regularly at the coffee shop or their local grocery store.
“The sweet spot for cash is under $25 in terms of transactions. With contactless and mobile payments focusing on that space … the usage of cash is going to decline,” Christelis says, adding that for more expensive transactions, consumers typically turn to their debit or credit cards, since most people do not carry large amounts of cash with them.
As consumers begin to expect more payment options besides the traditional cash, debit, or credit mainstays, businesses will begin feeling the pressure to meet that need, he adds. While providing new kinds of payment technologies might seem like an extra constraint, especially for small-to-mid-sized businesses, there are ways of leveraging mobile payments to build brand loyalty, such as giving customers instant coupons to encourage them to return and shop again.
And if businesses use contactless payment technology for their terminals, allowing customers to pay by waving their debit or credit cards over a sensor to pay for purchases, they should also be able to build on that technology. Adding an NFC reader to a terminal shouldn’t pose any problems, he says.
Still, it’s hard to make any predictions as to what the mobile payment space will look like in the next few years, Christelis says. NFC may prove to be less and less useful if major, cloud-based, digital wallet providers like PayPal and Google move into Canada.
However, that still means cash will gradually disappear from most people’s wallets, he says.
“[Mobile payments] won’t be universal overnight, but there’s a lot of convenience that goes with having payment credentials on a phone,” he says. “It’s going to take quite a while for it to happen in Canada, but I’m pretty sure it’s going to happen.”