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After three years of high rates and inflation, there is very little left to say about how much money we’re spending in daily life.
So, let’s shift for a moment to how we spend. You can do a lot of good for your finances by understanding the latest trends in how we pay for what we buy. For details, check out the latest annual report from Payments Canada.
As owner-operator of the system for moving money in this country, Payments Canada processed 21.7 billion transactions in 2023 with a total value of $11.9-trillion. Here are five trends that stand out in these numbers:
Prepaid cards are the growth story among cards
The new generation of prepaid cards is a sort of a hybrid between debt and credit cards. Load money on a prepaid Mastercard or Visa and then use it to buy things wherever these cards are accepted. Several financial industry innovators use the prepaid format, including EQ Bank, Koho, Neo Financial, Wealthsimple and Wise.
Payments Canada’s numbers show prepaid cards made up just a 0.2-per-cent sliver of the total value of transactions last year, but a year-over-year growth rate of 10 per cent beat out both credit and debit cards. Big growth off a small base – does that even matter?
The answer is yes because prepaid cards can save you money in two ways. One, they give you access to accounts where you can typically bank for free and earn a competitive rate of interest on your money. Two, some of these cards allow you to pay for purchases outside Canada without the 2.5 per cent foreign currency fee tacked on by the vast majority of credit cards.
Suggestion: Open an account based on prepaid cards, add a few dollars and then test drive the technology.
Cash is alive and kicking
A cashless society would disenfranchise people without access to banking and those who fixate on privacy and fraud concerns. Fortunately, the cashless dystopia isn’t happening. With the easing last year of pandemic-related worries about touching money, the volume of cash transactions jumped 15 per cent.
Use of cash and cheques is down sharply over the past two years, but a core of users remains. “There’s almost this stubbornness of paper payments that features significantly when we look at payment trends and payment options,” said Jon Purther, director of research at Payments Canada.
Mr. Purther said a survey by his organization suggests one in 10 people abandoned a purchase in the past 12 months because their preferred payment method was unavailable. The lesson here for business is that they risk losing business if they do not offer both cash and digital payments.
Thirteen per cent of people used smart home devices or social media to make a purchase
Payments Canada has so far been unable to tell if people are spending more using new payment avenues on social media or through smart devices, or if they’re just rerouting purchases that would been made elsewhere. But being able to buy things using a smart watch or through Facebook, Google Home or Amazon/Alexa opens the door to more spontaneous buying.
The longer you have to wait to make a purchase, the more time there is for reflection on whether you really need to follow through. A thought if you regret your spontaneous purchases: Give yourself 24 hours to reflect before buying anything beyond staples like groceries, and confine your payments to a single device such as physical cards, phone or computer.
Online transfers are the fastest-growing payment type
Online transfers include e-transfer and PayPal. Mr. Purther said people like online transfers because they’re fast, convenient and let you access your own funds directly. Underlying the growth in online transfers is a five-year 35 per cent decline in the volume of cheques and a 20 per cent decline in the value of cheque transactions.
E-transfers make a lot or sense in an aging population where people may not want to run around chasing envelopes, stamps and mailboxes to send cheques.
One-in-five people sent money abroad last year
The number of people sending money internationally jumped 33 per cent over 2022 levels, a trend that partly reflects growth the number of newcomers to Canada with family members back home. Mr. Purther said another factor feeding this growth is the rise of cheaper and easier-to-use money transfer services. The Savvy New Canadians blog recently looked at the 10 best international money transfer apps.
Are you a young Canadian with money on your mind? To set yourself up for success and steer clear of costly mistakes, listen to our award-winning Stress Test podcast.