The Benefits of Electronic Payments in the Canadian Economy a White Paper Prepared by IHS Global Insight and Visa Canada

The BenefiTs of elecTronic PaymenTs in The canadian economy A White Paper Prepared by IHS Global Insight and Visa Canada tHIrd edItIon editor’s note The Benefits of electronic Payments in the canadian economy, Third edition is a white paper designed to explore the social and economic benefits of electronic payments to the Canadian economy. Commissioned by Visa Canada, a wholly owned subsidiary of Visa Inc., this white paper is based on research conducted by IHS Global Insight, an econometric forecasting agency. For more details on IHS Global Insight’s methodology, please refer to the Methodology Appendix. Third Edition - 2012 Table of contents executive summary 2 electronic Payments in canada 4 Benefits to Consumers and Merchants Usage Trends in Canada The Big Picture 7 The Macroeconomic Value of Electronic Payments in Canada Electronic Payments in a Global Context Working with Governments to Increase Efficiency inbound Travel To canada: The impact of electronic Payments on Travel and Tourism 11 The efficient enterprise: The impact of electronic Payments on canadian Business 14 everything Within reach: The impact of electronic Payments on the digital economy 16 Protecting the system 17 Payment Card Industry Chip Technology conclusion 18 Visa: advancing the future of electronic Payments 19 Ways to Pay The Foundation for Innovation Visa Invests in the Security of the System Visa: a responsible Partner 23 Ensuring Financial Literacy executive summary over the last decade, Canada has benefited from strong • enhancing economic transparency and reducing the economic foundations: our highly-skilled workforce, “grey economy” of underreported cash transactions. modern infrastructure, natural resources, disciplined • Broadening participation and inclusion in financial financial system, and technological innovation have all services. contributed to healthy economic growth. Among these strong foundations, innovations in the way we pay for this white paper uses an economic model developed goods and services have also contributed to the Canadian for Visa by IHS Global Insight, a leading economic and economy. the way we pay has evolved dramatically over financial consulting firm, to quantify the total value the years – from shells, to coins, to paper, to data capable and impact of electronic payments in Canada. this of moving around the world at the speed of light. digital information and results demonstrate that the economic currency is transforming Canada – making our lives easier value of electronic payments has been measurable and and allowing us to leave behind the inconvenience of substantial. research by IHS Global Insight demonstrates: cheques and the risks of cash. • Electronic payments have contributed C$196 billion, digital currency includes electronic payments – or nearly a quarter of total growth in Canadian transactions made with a credit, debit or prepaid Gross Domestic Product (GDP) over the last 25 account – and related services, like pre-loaded transit years.1 fare, money transfers or bill payments. Whether it’s in • During that same 25-year period, electronic the form of a card, an online account or a mobile device, payments contributed to a $107 billion increase in digital currency makes commerce more efficient by Personal Consumption Expenditures (PCE).2 providing Canadians with a fast, dependable and secure • This increase in consumption has paralleled the means of doing business. the shift to digital currency growing popularity of electronic payments among has tremendous benefits for Canadians and promotes consumers. From 2006 to 2010, the value of credit economic growth by: and debit transactions in Canada grew 25%, from $363.4 billion to $455.4 billion. • Providing a safe and predictable international payments network connecting buyers and sellers the benefits of this shift to digital currency are distributed within Canada and around the world. across the entire Canadian economy, but one need • Increasing consumer empowerment and look no further than three key sectors to see how it has economic stimulation. contributed to growth. For this white paper, IHS Global • offering greater convenience and security than Insight took an in-depth look at the impact of electronic cash and a stronger assurance of guaranteed payments on three segments of the economy: travel and payment than cheques. tourism, Canadian business and eCommerce. 1 canadian Bankers association and IHS Global insight, 1986 – 2010. Unless specified otherwise, all dollar amounts in this report are in canadian dollars. 2 2 Personal consumption expenditures is the official measure of consumer spending in canada’s national accounts. PCE (or sometimes simply called “consumption”) • Travel & Tourism: As international visitors are • eCommerce: online growth has nearly doubled over particularly reliant on electronic transactions when the past five years, from $7.9 billion in 2005 to $15.3 traveling away from home, these expenditures billion in 2010, encompassing 114 million Internet provide significant economic benefits to the orders.4 Canadian economy. electronic payments have been a steady component to this critical economic sector, contributing nearly $3.1 billion from 1991 to 2010. • Canadian Business: Commercial card programs can lower internal transaction costs for businesses by as much as US$71 per transaction, when compared to a traditional purchase-order process. In north America, commercial card use accounted for overall transaction cost savings of approximately US$38 billion per year. 3 3 2010 Purchasing Card Benchmark Survey Results richard Palmer and mahendra Gupta, rPmG research corporation, , 2010. 3 4 Jeffrey Grau, Canada Retail Ecommerce Forecast: Measured Growth Ahead, emarketer, february 2011. electronic Payments in canada Advances in technology not only improve goods Global acceptance and services, but also how we buy and pay for Fundamental to this convenience is global acceptance them. Innovation in payments has taken us from – whether it’s at an apparel store in toronto or a crafts crude barter arrangements – up to today’s digitally shop in Vancouver. Payment cards work in brick-and- interconnected global markets. mortar environments, over the phone, by post or over the Internet. Acceptance of electronic payments continues In the 1980s Canadians were using cash or cheques to expand, with many vending machines, car parks and for the majority of consumer transactions (by dollar other daily small-ticket purchases made simpler with volume). Since 1999, cheque volumes are about 37% digital currency. With every transaction, electronic lower, while electronic payments are approximately payments give consumers secure and immediate access 85% of all non-cash volumes.5 By this measure, debit to funds as well as creating information-rich records for and credit card transactions have expanded at a 12.1% better budget tracking. compound annual rate over the past 15 years – more than two-and-a-half times the pace of nominal GdP efficiency and reduced risk growth. As digital currency replaces these paper Additionally, merchants avoid the risk and expense of forms of payment, it makes a measurable positive handling cash and cheques. Credit cards allow small impact on the economy as a whole, while spreading businesses to extend immediate unsecured credit to their benefits to Canadian consumers, merchants and customers, expedite the check out process, and increase governments. sales without bearing the credit risk, as they have in the past with store credit programs. electronic payments convenience allow merchants to better manage cash flow, inventory electronic payments make transacting more efficient and financial planning due to swift bank payment. recent for consumers and merchants. Consumers waste less applications of digital currency also support insurance time going to the bank, counting cash and fumbling and payroll disbursements, as well as other uses. for exact change at the point of sale. they also gain access to credit, which smooths consumer spending security between pay periods, and can use debit products A lost or stolen card is replaceable – lost or stolen cash to manage their money more closely, paying for is not. Many electronic payment companies, like Visa, purchases directly from their bank accounts. provide Zero Liability programs in the event of misuse Merchants have an increasing number of choices in or theft. electronic payment companies are committed how to be paid, and are freed of the additional costs of to protecting cardholder information and ensuring the handling large amounts of cash and the uncertainty of integrity of the payment system. With the vigilance of cheques clearing. In addition, they also gain access to payments companies like Visa, consumers have a strong hundreds of millions of consumers who use payment assurance that their financial information is protected. cards worldwide. Payments companies have pursued technological 5 Tower Group, Global Payments: Trends, Opportunities and Impacts on the Canadian Payments Industry, february 2008. 4 innovations in data security and advances in risk debit cards, due to increasing penetration and management that have brought fraud rates down by more acceptance, are leading the way with a compound annual than 50% in the past decade. growth rate (CAGr) reaching 16.1% between 1995 and 2010. In Canada, debit card spending makes up about Usage Trends in canada 39% of total card spending and generates many of the over most of the past decade, credit card transaction same benefits

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