Prepaid payments are primed to be the main innovation rail for the Canadian payments market, as developments in automated banking and consumer technology make headway and market size grows.

The Canadian prepaid market in 2019 had $3.74 billion in loads, or one-time placements of money into prepaid cards or accounts, and grew 50% in 2020; it is expected to reach $6.77 billion in loads by the end of 2021, a near 100% increase, according to an October 2021 joint study by the Canadian Prepaid Providers Organization (CPPO) and Aite-Novarica Group. This comes as welcome news for a market that has traditionally lagged behind its neighbors in digital payment innovation, said CPPO co-founder and Executive Director Jennifer Tramontana.

“What I think this data truly shows is that prepaid is the payments innovation rail in the Canadian market,” Tramontana told Bank Automation News. “I say that because Canada lags behind some of its global peers in terms of there is not a real-time rail at this point. Innovative payment players have been able to innovate on the existing payment rails using prepaid solutions.”

Prepaid creates measurable impact

Prepaid card accounts are modeled to see a 15% compound annual growth rate (CAGR) between 2020 and 2025, according to the report, eventually reaching 93 million. The market is expected to grow to $13.39 billion in loads by 2025.

The rise in Canadian prepaid use will provide consumers with new opportunities for digital payments, Aite-Novarica analyst Francisco Alvarez Evangelista told BAN. Consumer experience innovations like buy now, pay later (BNPL) and gig economy solutions have all been fostered by the prepaid boom.

“A lot of the new hot topic things like buy-now, pay later or gig economy solutions, without the legacy play platforms that prepaid provides those virtual card platforms, none of that would be possible,” Evangelista said. “Prepaid enables Canadian consumers to find new ways to pay for things, but also find new ways to hold and manage their money.”

Prepaid has also helped Canadian consumers navigate a relatively expensive legacy-based banking market, CPPO’s Tramontana told BAN.

“Banking and checking accounts are fairly ubiquitous in Canada, and very safe, but banking is really expensive to the average Canadian consumer,” she said. “So, bank account alternatives that are cheaper and meet the needs of consumers are here and will continue to proliferate. Earned wage access, getting access to your pay at the end of every shift or the end of every day, those solutions are going to make a big difference to the average Canadian consumer.”

Government disbursements

There remain sectors of opportunity in the Canadian prepaid market, Tramontana noted. Government disbursement — such as tax refunds or government relief — is an area that has gone untapped even as the COVID-19 pandemic strengthened the need for contactless solutions.

“We see that as a huge market opportunity for our members and something that will be incredibly valuable to Canadian consumers, because not everybody has access to direct deposit, nor do they want it,” she said. “For those who would prefer a check, this is a much safer and more viable solution.”

Internal and external business-to-business (B2B) is another opportunity for the prepaid market, Evangelista noted. The U.S. market has already adopted B2B prepaid virtual cards with big banks using them for corporate expenses and account management, and Evangelista said he expects Canada’s larger banks to follow suit with a trend of “debit, credit and prepaid” as benchmark banking sectors.

“There is opportunity for large commercial banks in Canada to find ways to leverage either existing platforms or up-and-coming platforms to provide new ways for corporations to remit funds,” he said.

Prepaid and automated payments will continue to be leveraged as solutions for short- and long-term payment dilemmas, especially as adoption of contactless digital payments becomes widespread, both Tramontana and Evangelista said.

“Prepaid is … playing a leading role in digital payments and banking transformation,” Tramontana added.

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