By Jon Springer
Easier than a check, safer than cash, cheaper than credit, accepted almost everywhere -- Canadians just love their debit cards.
No country in the world shops as often or spends as much with debit cards than Canada, according to figures from Interac, the Toronto-based conglomerate of banks that runs the national on-line debit payment system.
Canadians outperformed the United States per capita by making more than 1 billion debit transactions last year -- amazing considering the country has around one-tenth the population. Just under 3.5 billion debit purchases were made in the United States in 1997, according to Don Davis, the editor of Debit Card News.
Interac officials expect the number of debit transactions in Canada to climb to more than 2 billion by 2000.
| Number of debit transactions in Canada | |
| 1994 | 200 million |
| 1995 | 400 million |
| 1996 | 700 million |
| 1997 | 1 billion |
| 2000 | 2 billion (projected) |
| Preferred form of payment in Canada (all purchases) | ||||||||
| 1995 | 1996 | 1997 | 1998 * | |||||
| Cash | 58% | 57% | 50% | 45% | ||||
| Credit | 16% | 15% | 17% | 18% | ||||
| Debit | 9% | 17% | 22% | 31% | ||||
| Check | 12% | 7% | 7% | 5% | ||||
| * Year to date. | ||||||||
Since it was launched nationwide in 1994, the debit transaction has been gaining favor as a form of payment in Canada, while cash and check transactions have dropped considerably. Thirty-one percent of shoppers now list debit as the preferred form of payment for all store transactions, up from 9% in 1995. In the same period, cash dropped from 58% to 45% and checks fell from 12% to 5%. Credit-card purchases remained fairly stable, rising from 16% to 18% during that time period.
For purchases between $50 and $75, debit is now the most preferred method of payment, with 41% overall to 30% for credit, 20% for cash and 5% for checks. In supermarkets, debit also leads the way, preferred by 44% of shoppers, outperforming cash (42%), credit (9%) and checks (5%), according to Interac.
Canadians cite ease of use, along with security, as major reasons for debit's popularity. The fact that Canada is linked to a single on-line network, rather than regional on- and off-line systems, such as those in the United States, has also contributed to its widespread use, experts say.
"There are 17 million adult Canadians using ATMs," said Jim Kenney, vice president of marketing and business development for Interac, who added that around 13 million people now use Interac. "It's the same card, same buttons to push."
This differs from the United States, Mr. Kenney explained, where debit payment use varies from bank to bank and is administered by a variety of regional networks. Debit card use is however also quickly gaining favor in the United States -- transactions in 1997 were up nearly 40% from 1996, said Mr. Davis.
Increased debit use has produced mixed results for retailers. On the upside, debit transactions can be cheaper to process, the number of bouncing checks has been reduced, and in some cases shoppers are spending more with the card than they would with cash. But concerns remain. Debit has not replaced cash or checks, but merely added another form of payment, retailers point out. Retail Council of Canada, a 7,500-member, Toronto-based trade association, has also expressed concern that fees charged per transaction and equipment rental fees place a heavy burden on some retailers, particularly small merchants.
Retail Council president Diane Brisebois said her group, which represents 60% of the retailers in Canada, and Interac have clashed on several issues since the program was first launched on a regional basis in 1992.
"Our big challenge is to make the banks understand that when a customer walks into your store with a debit card, he's the retailer's customer, not the bank's customer," she said. "We [retailers] don't use the debit, we offer it."
Retail Council argued in court before Canada's Competition Tribunal last year and won several concessions from Interac, Ms. Brisebois said. One of these allows retailers the option of buying or renting card-readers from other providers than Interac; previously, retailers had no choice but to rent equipment from Interac at rates of around $30-$35 a month. Retail Council also convinced the Tribunal that there should be other stakeholders on the Interac board, including retailers.
Despite the changes, Ms. Brisebois said the Interac system is still "a very costly system for smaller retailers."
"They're charged 10-15 cents a transaction and $30-$35 a month for the equipment, plus they pay communication costs for a special line and training costs," she said. "While the financial institutions say [Interac] is cheaper than handling cash, we have to point out that this did not eliminate a form of payment, it just added another form of payment. For many [retailers], at the end of the month their costs have gone up, not down."
Retail Council helps its member companies by pooling their resources and negotiating on their behalf, Ms. Brisebois said.
Its imperfections aside, Interac has had some positive effects for retailers, Ms. Brisebois said. Grocery stores are big winners, as 36% of their sales now are by debit card.
"In the grocery sector, average purchases are higher," Ms. Brisebois said. "If you have a debit card and a healthy bank account, you will do more spontaneous shopping."
General merchandise retailers have seen less effect, she added, though it is apparent that debit is preferred among younger shoppers. "If you're a retailer targeting young people, you'd do better offering debit than not," Ms. Brisebois said.
Jacques Charbin, director of corporate planning for Cambridge Shopping Centres Ltd., a Toronto-based mall owner and developer, said his company has not been able to determine whether increased debit card use has affected sales at Cambridge centers. However, he added that if Canadians want to shop with debit cards, merchants should provide that service.
"We encourage our point-of-sale terminals to be more efficient, and if we were able to determine that debit cards make it easier then we would certainly encourage it," Mr. Charbin said. "But to our knowledge, we've seen no significant effect [on sales from debit card use]."