Update on developments in online payments
Vol. 6 Issue 4, 22 March 2013
The Paypers’ special:
Canadian e-commerce - on the right track 5 Experts’ Corner
“Canada will be riding the same wave as the US”, Brian Crozier, E-commerce Entrepreneur 2 “Canada is more than ready to compete in omni-chan nel e-commerce, Drew Green, Shop.ca 3 “1 Source Payment Online”, Debitway.ca 6
For years, the dominance of credit cards in online transactions remained unchallenged. However, changing market trends have created new opportunities for alternative (non-credit card) payment methods and practices, which have evolved considerably and have made rapid headway among consumers and merchants.
This is the case with Canada. In the mid-90s, the credit card industry was at the forefront of e-commerce and online merchants were running transactions as card not present Mail Order Telephone Orders (MOTO). The online businesses learned that with at least 30-40% of consumers without credit cards they had to find other payment methods for all those
people that did not have or want to use their credit card online. Innovations and developments in the payments industry have resulted in a greater variety of payment methods in regular use by Canadians.
For example, e-wallets and electronic P2P payments have experienced strong growth in Canada in recent years. This category covers non-card based, online and mobile payments, which use direct deposit or closed loop funds. The Canadian Payments Association estimates that there were 24 million e-wallet/P2P transactions in 2011, worth almost USD 10 billion, up from about USD 3 billion in 2008.
Technology Strategies International has predicted that in Canada, alternative online payment mechanisms (i.e. non-credit card payments) will account for one third of all online payments made by Canadians by 2014. Cross-border payments are expected to also increase apace, with the entry of scheme debit stimulating growth in both the outbound and inbound cross-border payments segments. In this context, mobile payments will continue to attract the interest of payment companies, banks and acquirers, especially in the face of increased smartphone usage in Canada.
OVERVIEW OF THE E-COMMERCE CANADIAN SPACE
Number of Online Shoppers:
Nearly 10 million online shoppers in 2010
E-commerce Spending:
USD 22.3 billion in 2012, up 10% from 2011
E-commerce Growth Rate:
The state of e-commerce in Canada and the multi-channel convergence
E-commerce in Canada is growing as a result of the fact that a massive number of people are currently using smartphones and tablets. Therefore, Canada will be riding the same wave as the US, as ever more customers are interacting with e-commerce via mobile devices, which leads to an increase on global e-commerce.
My opinion is that, in terms of multi-channel convergence, Canada is following the same trend as other countries. I have heard from companies who develop applications, espe-cially in the travel industry, that these applications are specifically designed for tablets, because the experience people have on these devices is different from the one on the mobile phones or computers.
Even the way information is displayed in the apps and everything else is moving towards tablets and mobile devices because currently, that is the fastest going access point on the internet.
PSPs and payment methods
Most major PSPs in Canada are expecting major growth to continue in e-commerce sales over the next few years and are vying with each other to add more countries and their local payment solutions. Alternative payment systems will continue to gain popularity and market share as online transactions continue to increase. With more online payment options than ever before, merchants are learning to offer as many methods as possible to gain a competitive advantage.
A recent study by CyberSource found that websites providing four or more payment methods other than credit cards had a sales conversion rate 12% higher than those offer-ing just one online payment option in addition to credit cards.
When making a purchase online, Canadian consumers can choose to use credit/debit cards as well as electronic payments services such as PayPal and Interac Online's 4 major banks. Credit cards are still the most preferred online payment method with over 75 million Visa and MasterCard cards in circulation in Canada. Accepting multiple payment methods increases conversion when you let your customers know as soon as possible they can pay with their preferred method.
Europe versus Canada
In my opinion, Europeans are more advanced than Canadians, when it comes to using e-commerce. I believe what is actually going on in North America is that a lot of people look on the websites, but actually go to the physical stores to make a purchase because people are closer to all these outlets. So, they might be looking online, but they prefer to go to the store to buy.
And I think this was actually a great opportunity for Shop.ca to enter the market because it needed the strength of an aggregator to present such a strong proposition to consum-ers to shop at one destination.
EXPERTS’ CORNER - MERCHANTS’ PERSPECTIVE
“CANADA WILL BE RIDING THE SAME WAVE AS THE US”
By Brian Crozier, E-commerce Entrepreneur Brian Crozier founded Net Payments Solutions specializing in "card-not-present” cross -border payments business in 1996. Pioneering some of the first online bank payments with UseMyBank and Pay900 services for e-commerce, Brian brings all the experiences accumulated from working with the worlds’ lea ding e-commerce processors, payment service providers and global merchants.
Brian currently offers a global payout platform to deposit funds to any local bank ac-count, Visa or MasterCard anywhere.
SHOP HAPPY at Canada's #1 shopping destination. SHOP.CA has become Canada’s leader in online shopping, providing a unique Canadian experience that combines an authoritative selection of products, unparalleled service and a social loyalty program that rewards mem-bers on every purchase. Launched in July 2012, SHOP.CA has become the fastest growing retail website in Canada and top 10 most visited Canadian owned e-commerce website. SHOP.CA provides Canadians with the brands, products and services they want and expect from trusted retailers, manufacturers and service providers, through a universal shopping cart and one account. Through a cloud-based Marketplace-as-a-Service (MaaS) platform, SHOP.CA makes it easy and FUN for certified partners to list, price and sell their products and services to Canadians, through a single destination committed to the highest level of consumer satisfaction.
Which are this year's main trends in shopping behaviour in Canada?
Drew Green: There is a lot of interest and innovation in Canada in terms of e-commerce
transactions as more and more of the retail spending is now made online. 2012 has really reached a tipping point in the adoption of e-commerce by the Canadian public. For the first time, many Canadian retailers have embraced Black Friday and Cyber Monday. What is striking about this is the fact that Black Friday has its roots in the US Thanksgiving tradi-tion, but retailers have adapted and adopted Black Friday sales here as a way to keep Ca-nadian money north of the border. From my point of view, this trend will increase in 2013.
The pace of retail change and expansion is another key trend for 2013. The first store openings of Target have happened in 2013 and this is the first of several US major retail chains that have announced Canadian launch strategies. As a result, domestic retailers are responding with better products and better prices and focusing on selection and innova-tion. Another trend worth mentioning is the shift towards mobile and social commerce. Canadians are number one in the world in terms of social media consumption.
What do European web retailers need to know before doing business in Canada? Drew Green: On the one hand, Canadian consumers are a lot like their American
neigh-bours, in terms of product categories that are bought online, but, on the other hand, there are some significant differences.
Canada is the second largest country in the world by landmass, but is only one tenth of the US population. As a result, Canada is sparsely populated with several major population centers (Toronto, Montreal, and Vancouver for example). These major urban centers have very different needs throughout the year and the weather differences alone between To-ronto and Vancouver can lead to different buying behaviours. This geographical aspect presents logistics challenges, hereby it is recommended to partner with logistics leaders that understand the complexities of shipments in Canada.
As a result of this geography and frankly some complacency by retailers in Canada, the Canadian consumer has endured lower service levels than their US consumer counter-parts. But this is changing rapidly, the days of Canadians accepting sub-par customer ser-vice are over.
While Canada does not have a universal VAT tax rate as certain European countries, the tax situation as a whole is much simpler than in the US. Most provinces are aligned with harmonized tax and those that are not, only have 2 tax rates that are for the most part applicable to all goods sold. French and English are the two official languages in Canada and providing customer support in both official languages is a must to succeed.
“CANADA IS MORE THAN READY TO COMPETE IN OMNI-CHANNEL E-COMMERCE” By Drew Green, SHOP.CA Drew Green is founder, CEO and chairman of SHOP.CA and is respon-sible for overall corporate strategy, sales, marketing and operations. Having spent his entire career connecting online audiences with re-tailers through digital media, marketing solutions, mobile marketing and marketplace platforms in the US, Drew is now focused on his homeland, with a vision to significantly improve and ease the online buying experience for the millions of Canadian that SHOP online.
How do the European and Canadian online retailing markets compare in size and growth potential?
Drew Green: Canadian e-commerce is a USD 20 billion market, growing at double-digit
CAGR rates (12-15 percent) and growing faster than in the US where the market is more mature. Europe is dominated by the UK, France and Germany for online sales and Canada would fall roughly between France and Germany in terms of growth rate and market po-tential. By 2015, Canada is predicted to be a USD 30 billion market, while Germany will be a USD 40 billion market growing at 9 percent CAGR and France a USD 25 billion market in 2015 growing at 11 percent CAGR.
By way of comparison, the online market in Canada is roughly the same size as the cellular wireless market; 3 carriers with a combined market share of 85 percent dominate that market. For online retail, no retailer has so far achieved more than 10 percent of the mar-ket.
What is driving e-commerce development on the Canadian market?
Drew Green: First and foremost, it is the increasing demand from consumers. Canadians
love to shop online and spend as much per capita online as US consumers, but so far are spending two thirds of that south of the border on US websites. Primarily this has been because of a lack of domestic Canadian retail e-commerce websites and greater selection available in the US. While the selection has historically been greater from US retailers for Canadians, there are often added shipping costs and duty getting products shipped from the US into Canada. As a result, Canadians incur many unforeseen costs when they shop online. That frustration has made Canadians demand more from Canadian retailers and they are responding with increased focus on providing local e-commerce options.
What factors are holding back developments in the online retailing space?
Drew Green: There are several misconceptions with regard to selling online in Canada that
are holding back development. Probably the biggest misconception is that it is too difficult to sell online and that as a large country, the logistics for selling online in Canada are pro-hibitive. From a logistics perspective, Canada Post, Hopewell Logistics and both large and small courier companies have long ago solved the complexities of managing delivery to Canadians.
In your opinion, what are the differences and similarities from an online payments per-spective between the US and Canada on one hand and Europe, on the other?
Drew Green: There is much wider usage of 3D-Secure (Verified by Visa for example) in
Europe than in Canada or the US. In North America, credit card is the most common form of payment followed by PayPal and in Canada Interac and more recently Visa Debit. While COD/Payment on Delivery is more common in countries like Germany, it is virtually non-existent in Canada. There are also more payment gateway options in Europe with several country-specific vendors, whereas in Canada large gateways such as Moneris lead the North American market.
What is your opinion on the level of customer/merchant readiness for change in Cana-da? In other words, is Canada ready to prepare a context for the advent of an omni-channel experience?
Drew Green: Customers are more than ready for increased selection and innovation in
world-wide and one of the highest broadband penetration rates. Canadians are active users of smartphones and mobile devices and mobile commerce is already commonplace here. Canada is a world leader in mobile commerce and mobile technology with pioneers such as Blackberry invented here. Canada is more than ready to compete and participate in omni-channel commerce.
How can innovation on “customer-not-present” solutions for e-commerce transactions be intensified in Canada?
Drew Green: Payment processing in Canada is already quite advanced thanks to the
coun-try’s strong banking sector than created a common payments backbone for all financial institutions in Canada. As a result, Canadians have had online debit processing for years through Interac and most recently with Visa Debit. Our mobile consumption and innova-tion is world-class with companies like Blackberry calling Canada home. Looking to the future, we see more innovation in NFC, digital wallet payment services and chip and Pin security advancing customer-not-present transactions.
The Canadian e-commerce sector has always been compared with the US one as both countries have similar market-oriented economic systems, patterns of production and standards. However, online retailing in Canada has been lagging behind the US and other developed countries for many years.
The slow progress of the sector may be influenced by small cultural differences, including shopping preferences among others: more specifically, the fact that Canadian shoppers prefer to see the goods before purchasing them, so they are more likely to shop from a traditional store rather than via the internet.
Another aspect worth mentioning in this context is the fact that online businesses and consumers in Canada have faced limitations with regard to paying online. Banks have cre-ated an environment where almost all online purchases are paid by credit card. Most Ca-nadians have Visa and MasterCard branded credit cards and Interac PIN debit cards. Visa and MasterCard debit has only recently been introduced by a few major banks and the vast majority of non-credit card transactions at POS in Canada are Interac debit. An Interac survey, conducted by The Strategic Counsel, has indicated that in 2012, 55 percent of pay-ment card transactions in Canada have been carried out with Interac Debit.
Yet, nowadays, as the market is developing and is forced to face the increasing global com-petition, alternative payment methods have started to gain traction. E-commerce entre-preneur Brian Crozier mentions in our Online Payments Market Guide 2012 that PayPal leads the way in terms of alternative payments usage in Canada with more than 4 million accounts that are linked to credit cards or bank accounts. Ukash as well, has launched its well-known e-money service in Canada, enabling consumers to buy online more easily. Most recently, payment solutions provider Comdata has also expanded its payment solu-tions into Canada. Comdata offers Canadian-based companies access to programs with universal acceptance and controls, similar to those used throughout the US today.
As the Canadian market matures, the e-commerce sector is also registering a valuable in-crease. A report by Euromonitor International unveils that in 2011 and 2012 more tradi-tional retailers have made considerable investments in e-commerce. Moreover, online-only retailers have emerged to further drive e-commerce in Canada.
The same study mentions that the Canadian e-commerce segment is expected to see a 14 percent CAGR growth over 2012-2017. Still, as the survey points out, the success of e-commerce in Canada is mostly dependent on retailers’ readiness to invest in online shop-ping to ensure user-friendly website designs, product assortment, convenient shipshop-ping and return options, competitive prices and reward programs to encourage repeated purchases.
According to predictions made by Euromonitor, e-commerce is expected to continue to grow in Canada, with an increasing number of retailers switching from offline to online in order to reach a larger customer base, both inside Canada and internationally.
Another study released by research company eMarketer also predicts that by 2016, Cana-da should account for about 6.3 percent of the estimated total of USD 548.62 billion in online sales across North America. However, with a population size that is just under 11 percent of the US population and a less competitive marketplace, Canada is certainly holding its own and showing great potential.
Taking into account the current trends in online shopping and the success and permanent expansion of many retailers towards the Canadian market, we can state that the Canadian e-commerce sector is on the right track.
As the Euromonitor’s survey also mentions, it is becoming increasingly important for Cana-dian retailers to appreciate the opportunities in online retailing, assess where they fit in best and move with the times, times where digital communications and technologies are increasingly defining consumer shopping behaviour.
I was asked recently by one of our merchants "How can you help me eliminate the transac-tion problems that I have with my agents?” and I responded right away that the best and only way forward for an online payment business model to survive is to have all your ser-vices in one compact silo, instead of being spread across a dozen different farms for your agents to deal with. The answer was “1 Source Payment Online”.
I believe that any Canadian e-commerce or online payment business that can provide an end-to-end solution to their merchants that takes away the nightmare of having to deal separately with direct bank transfers, mobile financial solutions, virtual credit cards, EFTs, credit card payments, identity verifications, POS transactions, mobile POS transactions, discount incentive services, digital wallet or white labeling of their payment solutions, is going to position itself as a successful industry leader.
Taking logistical headaches out of the hands of merchants, and replacing them with one step approach solutions is where the real path forward is.
EXPERTS’ CORNER - PSPs’ PERSPECTIVE
“1 SOURCE PAYMENT ONLINE”
By Rod Tomita, Debitway.ca Rod Tomita has over 30 years as a marketing professional and over 8 years of direct experience in the Payment Processing Industry. He has worked with Fortune 50 corporations to increase sales and initiate creative sales and marketing strategies that are still being used to-day. Prior to Debitway.ca he has worked with Moneris, Elavon and Bank of America. Additionally, he was a Senior Coordinator for the American Express (Amex) New Business Account Unit.
NAPCP European Corporate Card & Payment Conference June 13, 2013, London
This conference will showcase organizations with highly effective B2B payment strategies that leverage a range of Corporate Card and Payment solutions. Individuals who have a major influence over their organisation’s payment strategy and decision-making processes will benefit from attending this conference. This would include CFO level, Treasury, Ac-counting, Procurement and Accounts Payable professionals. Through educational sessions, one-on-one, small group discussions, demonstrations, and exhibit hall, practitioners will share their secrets to successful payments navigation and lessons learned. Hear how or-ganizations have leveraged little-to-no-cost solutions to:
• Streamline payments processes and achieve major cost savings
• Gain increased visibility and spend control
• Optimise working capital
The National Association of Purchasing Card Professionals (NAPCP) is a membership-based professional association committed to advancing Commercial Card and payment profes-sionals and industry practices worldwide. Individuals tasked with managing card programs (Purchasing Card, Travel Card, and Fleet Card) and electronic payment solutions gain edu-cation, access to resources/tools, year-round networking, and exposure to the provider community through the NAPCP website, events, webinars, and online networking.
IMTC WEST 2013 will be the third annual Money Transfers conference on the West Cost.
IMTC WEST 2013 will take place on April 3-5 at the Hyatt Regency Orange County. The con-ference and trade fair bring together companies that offer a wide array of products and services for the international payments industry. Participants come from a variety of fields, such as Money Transfer Organizations, Banking, Marketing, Mobile/Communications, Technology, Government, and Legal Services. Throughout the three days, we will explore topics such as “Global Remittance Trends,” “Internet/Mobile Remittances,” and “Payment Innovations” with industry experts.
In addition, participants will have plenty of chances to network and form business partner-ships during our coffee breaks, lunches, night events, and cocktail parties. All in all, IMTC WEST 2013 is a great place to promote your business, to continue learning about the in-dustry, and to meet other professionals in the Payments space.
UPCOMING EVENT
About: Online Paypers is a bi-weekly update on developments in online payments by The Paypers, the portal for payment professionals.
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