What trends are shaping Canada’s payments landscape? What innovations are likely to emerge over the next years?
In the last decade, Canadians have embraced new payment methods such as mobile wallets, contactless cards, and even cryptocurrencies. These innovations have changed the way consumers pay for goods and services, but these only mark the beginning of the digital evolution of payments. As Canada races to match pace with other countries’ banking and financial practices, such as the UK, Australia and Singapore, we can use these as case studies and predictors for the potential movement of the payments industry. Through our industry research and findings, we have compiled a list of the top 6 payment trends that you should be aware of as we move into 2023.
1. Phase One of Open Banking in Canada is Set to Start
Anticipation builds as the first phase of open banking in Canada is set to roll out in the latter half of 2023, with many lucky Fintechs being granted data access and testing abilities beginning as early as January. With phase one predicted to span the course of 18 months, it will focus on accreditation, privacy, liability, and security. But what does this mean for the future of payments?
Open banking is set to be the beginning of a better payment experience for both consumers and businesses alike. The open framework will allow for Fintechs and other B2B businesses to step in and support the payments process. Open banking will have a hand in all aspects of personal banking and create a payments system that is built on third-party service providers bringing value and a better customer experience to the payments journey. These benefits include more financial freedom for consumers with their personal banking, increased competition in the banking industry, faster payment speeds, better data and analytics, greater access to different payment methods and more overall innovation for the financial sector.
2. Rise of the Digital Wallet
Although digital wallets have been around for a few years now, a few prominent ones being Apple Pay, Samsung Pay, ZenGo and Coinbase, many users have yet to discover and leverage the full potential behind them. Beyond being a conveniently accessible place to store numerous types of card data and supporting contactless payments, digital wallets allow consumers to push and pull funds through any type of payment method without relying on major banks. This form of digital transformation has a substantial impact on the future of the banking and financial services industry, especially with 49% of consumers currently utilizing digital wallets to make online payments and transfer money. As consumer adoption grows, the impact this has on Canadian Banks will become more prevalent. With pressures for a faster, easier and more customer-centric experience being offered through these new omnichannel payment providers, it will become more important than ever for Canadian banks to utilize the benefits offered by the Fintech industry to provide a greater customer experience for their users.
3. Growing Adoptions of Virtual and Cryptocurrency
Functioning alongside the increase in digital payments comes the adjacent use of virtual currencies and cryptocurrencies to make those payments. With the movement of money happening primarily through mobile devices and electronically, the need for tangible currency has reduced accordingly. Currently, there exist over 20,000 cryptocurrencies in circulation with an overall market value of over $1.025 trillion. With an ever-growing number of cryptocurrencies being created, there are an estimated 300 million cryptocurrency users across the globe. With such an astounding number of users, many businesses have caught on to the global popularity and reception of this new form of digital currency, with approximately 18,000 businesses now accepting it as a valid form of payment.
Unlike traditional forms of payments, cryptocurrencies have proven to be more volatile and prone to massive fluctuations in value within short spans of time, making them harder to evaluate. As Canada moves toward a more open system of banking framework, it is likely that many businesses will be opening up their payment channel to accept these higher-risk forms of currency in an attempt to reap the high reward in conversion value.
4. Master Data Management and Actionable Insights
Data management is one of the biggest challenges facing banks today. Banks often struggle to keep pace with the massive amount of information generated by customers and transactions. In 2023 and beyond, they face the challenge of consolidating disparate systems and processes into a single system that provides actionable insights for their customers. In addition, there is a growing need to capture, organize, integrate and maintain data. This includes identifying and categorizing data, building data catalogs for use throughout the organization, and creating a common framework for capturing data across multiple channels.
In addition, mastering data management provides actionable insights for both internal and external customers. Internal customers include the bank’s employees, partners, vendors, and clients. External customers are those outside the organization, including regulators, investors, and consumers. Especially when handling large quantities of data, users want to see the key data points without being bogged down by the weight of long lists of numbers. Using third-party software can help to clean and keep reports easily accessible with financial metrics and evaluations.
5. Automation, AI and Machine Learning Aid in Cybersecurity
Cybercrime has been a challenge we have all faced since the rise of the internet itself. With cybercrimes affecting one in five consumers, it is no wonder that it is a growing topic of concern. Especially with the launch of open banking in Canada and increased transparency with consumers’ financial data, there is an increase in security concerns around the use and safety of personal data. With 78% of consumers concerned about their data privacy, we predict that there will be a greater emphasis on Cybersecurity in 2023, as well as new technology and software to support these efforts.
Some emerging technologies in the cybersecurity sector are artificial intelligence (AI) and machine learning (ML) as a way to automate the verification and fraud identification process. These technologies allow organizations to detect suspicious activity before it happens, identify threats faster, and prevent breaches. They also provide better security solutions for individuals and enterprises alike. For example, ML models could be trained to recognize patterns in network traffic or other data sources. Once trained, these models would be able to analyze data at a much faster rate than humans.
6. Sourcing Value Add Partnerships
With all the changes to the Financial sector in 2023, it will become more important than ever to form partnerships that go beyond diversifying and possess strong organizational alignment. Businesses will continue to focus on a more customer-centric approach, which will both start and end with the payments process. When looking to venture out and source new partnerships it is important to keep the entire payments journey in mind and what aspects truly benefit the customer experience. Whether it will help to speed up, secure or create a more convenient payments experience, it is important that the value a potential partner will bring in the eyes of the end customer will justify the cost of the partner, both in the monetary sense, as well as the time spent. Similarly, with the transition to a new open banking system and the convergence of both banks and Fintech providers, the expectations of what is deemed to be exceptional customer service will reach new heights. As businesses reflect on their own offering, how it contributes to the payments journey, and notice gaps, these will spark an opportunity for them to gain a competitive edge through the formation of partnerships.
In short, the future of payments looks bright. The industry is evolving rapidly, with new entrants entering the market and existing players innovating to stay ahead. We expect to see continued growth in mobile payments, digital wallets, and blockchain adoption. However, the biggest change will come from the shift towards open banking and the emergence of new payment methods such as cryptocurrencies. This will lead to a more transparent and efficient payments ecosystem where customers can choose the best option for them. With the benefits of open banking, comes concerns for data security and a prominent need for intelligent cybersecurity technology and practices. Finally, forming partnerships to create more value for consumers will be at the forefront of innovation in 2023.
