Strategy
May 2024 — 13 min read
The Future of P2P Payments in Canada
Financial transactions weave a pattern of necessity and convenience in the tapestry of our daily lives. The simplicity of splitting bills at a weekend brunch, sharing expenses between friends for a shared getaway, paying rent, or the practicality of transferring funds into a savings account are just a few threads in the financial fabric of our day-to-day experiences.
For many Canadians, these seemingly routine transactions are often tinged with friction and inconvenience. The familiar hurdles of security questions, the limitations imposed by daily transfer caps, and the often tedious process of inputting contact details, form a trifecta of challenges that can dampen the efficiency of transferring money. These frictions derail what should be a simple, social interaction between friends, into tasks that feel more like chores, stripping away the joy and spontaneity of these shared moments.
“P2P transfer” was coined to describe money transfers between individuals. They facilitate paying back debts (among friends, family, coworkers, etc.) and allow individuals to send and receive money easily and securely, typically through a mobile app or online services, directly linking to the recipients' bank accounts, cards, or digital wallets.
This blog post explores the dynamic landscape of Peer-to-Peer (P2P) payments in Canada, providing insights into the current offerings and comparing them with international alternatives. We delve into the exciting possibilities that lie ahead, potentially shaping the future of P2P payments, and share our perspective on what this evolution means for users and the industry at large.
How do Canadians currently move money digitally?
In Canada, the shift toward digital and contactless payment methods has accelerated notably since the onset of the COVID-19 pandemic.1 Over the last five years, the use of cash and cheques has significantly declined, plummeting by 59% and 45% respectively, marking a dramatic turn in the country's payment revolution.1
Despite the evolution in payment habits, the solutions available to Canadians for conducting P2P payments have seen limited advancement. Let's take a highway analogy to understand these methods better. At present, Canadians primarily have two methods for digitally transferring money to friends and family: the traditional and slower "highway" of Electronic Fund Transfers (EFT) and the faster but toll-laden "expressway" of Interac e-Transfer.
1. Electronic Fund Transfers
The current Canadian banking system for payments operates on a network known as Electronic Fund Transfers (EFT). Imagine EFT as a major highway that was built a long time ago. This highway is crucial and heavily relied upon, carrying a large volume of traffic, but due to its age and design, the traffic moves slowly. This traditional method schedules money transfers at specific intervals throughout the day, much like traffic signals that only allow cars to pass at certain times. Consequently, when one sends money, it only embarks on its journey to the recipient during the next available EFT slot. Typically, this process spans 1 to 3 business days. Rooted in outdated and intricate systems, combined with sluggish progress in regulatory reforms, this framework has curbed the effectiveness of money transfers across the nation. According to the Canadian Payment Methods and Trends Report 2023, EFTs make up 60% of all payments by value in Canada, surpassing other payment types like cash, cheques, credit cards, and debit cards combined.1
2. Interac e-Transfer
Interac e-Transfer has stood out as the predominant platform for P2P transactions by utilizing its distinctive Interac payment rail technology, setting it apart from conventional EFTs. Think of Interac e-Transfer as an expressway. This expressway is sleek and faster compared to the old highway (EFT) and is designed to handle everyday P2P financial transactions with ease. However, it comes with high tolls. This tool, which is directly integrated into banking apps, is widely used for activities such as transferring money between accounts (35% of users), repaying friends for meals (43% of users), and sending cash gifts for birthdays (36% of users).2 Interac e-Transfer holds a substantial portion of the P2P market in Canada, approximately 95%, representing a consumer base of about half of the Canadian population.3 This level of penetration in Canada's financial sector, coupled with the lack of competition, has resulted in a stagnant environment, hindering radical innovation. As a result, Canadians are experiencing a partial spectrum of new and innovative ideas emerging in the fintech world, leading to a growing sense of frustration among them.
The frustration is evident, as seen when 20% of users express annoyance at having to create a new security question for each Interac e-Transfer.2 Over 15% of users find adding a new contact to be irritating and tedious.2
Furthermore, Canadians have daily and weekly transfer limits with Interac e-Transfer - ranging from $3,000 a day to $10,000 a week. Hence, Canadians still need to reach for their checkbooks or perform a cumbersome bank transfer (via EFT) when sending large sums of money.
Despite its widespread adoption and dissatisfied user base, Interac e-Transfer has demonstrated minimal innovation over the past two decades, leading to concerns about its capacity for adaptation and future enhancement. While offering nearly instant money transfers, the service falls short in delivering an optimal user experience, lacking modern and social functionalities that are becoming increasingly essential.
Nonetheless, in collaboration with other key players, Interac is reportedly on the cusp of a significant breakthrough, poised to introduce a new payment infrastructure in Canada, known as Real-Time Rail (RTR). This development focuses on the creation of innovative, next-generation real-time payment rails4 designed to meet the evolving needs of both consumers and merchants, signaling the enablement of more advanced and user-centric financial solutions.
RTR enables instant financial transactions, allowing immediate funds transfer without waiting for scheduled EFT windows. This significant advancement improves financial infrastructure by offering swift, anytime transactions, thereby increasing efficiency and flexibility in the movement of money. By establishing a foundation ripe with opportunities, Interac paves the way for a future where other innovators can finally reimagine and transform P2P payments and wider payment needs.
What solutions are available in the US and Europe?
Compared to their counterparts in the United States and Europe, Canadian P2P payment solutions are noticeably falling short.
The US market, known for its early adoption of technology, has seen a rapid integration of P2P payment solutions like CashApp, Venmo, and Zelle, reshaping how people perform everyday money transfers. Europe, meanwhile, leads in regulatory frameworks that foster innovation in fintech, evident in the widespread use of platforms like Lydia, Wise, and Revolut. These regions have and are continuing to merge financial transfers with daily social interactions, a feat yet to be fully realized in Canada.
Venmo, a mobile-first payment app owned by PayPal on which you fund a wallet before transacting, has carved a niche in the digital payment landscape with its blend of financial transactions and social interaction. Initially launched with a strategic focus on university campuses, Venmo's growth has been largely fueled by its popularity amongst digitally-savvy demographics who are early adopters of innovative financial solutions. Today, the app has more than 90 million users. Venmo’s user-friendly interface, where users can share and comment on transactions, has become a staple in daily financial interactions. This approach has not only increased engagement during a period when social interactions are frequent but has also helped in retaining users and integrating Venmo into their broader financial routines. The phrase “Venmo me” has become synonymous with quick and easy P2P payments, illustrating its profound impact and widespread adoption. Venmo’s success lies in its ability to make financial transactions seamless, social, and a part of the everyday vernacular in the United States.
Zelle is a leading P2P payment network in the United States, designed to modernize and simplify the process of transferring money digitally. Jointly owned by a consortium of prominent banks, Zelle stands out by offering a cost-free service that does not require a digital wallet (a digital space to store money), making it accessible to a wide range of users. Its primary objective is to provide instant, safe, and convenient account-to-account money transfers. Zelle's innovative approach is evident in its integration with existing mobile banking applications and its standalone app, allowing users to conduct transactions within the familiar environment of their bank's app.
Wise, formerly known as TransferWise, is a global financial technology firm that has significantly transformed how money is moved internationally. Founded in 2011 with a mission to make international financial transactions instant, convenient, transparent, and eventually free, Wise has rapidly expanded its user base to 16 million users worldwide, processing over CAD 15 billion in cross-border transactions monthly and saving customers around CAD 2.5 billion annually in fees compared to traditional banks.5 Europe is its primary market, accounting for over half of its revenue, with substantial growth in North America and the Asia-Pacific region.6 Wise’s flagship offering, the multi-currency Wise Account, enables users to send, spend, receive, and hold money in over 50 currencies.
Revolut has the mission to revolutionize traditional banking by offering a seamless, technology-driven financial experience. Known for its comprehensive digital banking app, Revolut provides customers with an array of financial services, including currency exchange, budgeting tools, and cryptocurrency trading. A key feature of Revolut is its P2P payment system, which allows users to transfer money instantly and without fees to others within the Revolut network. This feature is particularly appealing to a mobile-first, international audience, offering a convenient solution for both domestic and cross-border transactions. Revolut has expanded its services across the globe, with a significant user base in Europe and a growing presence in other markets. Their success can be largely attributed to their ability to integrate traditional banking services with innovative financial technology while remaining a stand-alone app and creating a versatile platform that caters to the modern, digitally savvy consumer.
The adoption of these main P2P payment solutions in the US and Europe has been influenced by their respective technical and regulatory landscapes, which have been conducive to innovation. In Europe, the payments industry has undergone substantial transformation and is further amplified by regulatory efforts. The adoption of the Revised Payment Services Directive (PSD2) has been a crucial factor in fostering payment innovation.7 Similarly, in the United States, a progressive regulatory environment and advanced technological infrastructure have facilitated the growth of fintech companies.
What’s slowing Canada down?
In contrast, the Canadian banking, tech, and regulatory environments have posed significant challenges to achieving the same level of FinTech innovation. The Canadian regulatory framework wasn’t initially designed with modern FinTech functionality in mind, leading to uncertainty in the applicability of legislation for FinTech companies. Recent legislative proposals, such as the Consumer Privacy Protection Act and the Retail Payment Activities Act, hint at long-awaited regulatory clarity but are still in the development phase.8
Additionally, Canadian regulators are still setting up open banking, posing challenges for FinTech companies in safely accessing critical user data. This regulatory landscape, combined with a banking sector led by a few major banks, has resulted in a less competitive environment that can stifle innovation.
Despite lagging regulators, Canadian user readiness for real-time P2P payment systems is high, with 66% of the population expressing willingness to utilize such services if made available.1 This enthusiasm underscores a significant shift in consumer preferences towards more efficient, mobile-first, and instantaneous financial transactions.
What’s next for Canadians?
In addition to the regulatory frameworks just mentioned, the introduction of real-time payments in Canada planned for 2026 will mark the most significant milestone and market shift of the last two decades in banking, unlocking the potential for more innovative, user-friendly, and secure financial solutions. The implications of this innovation are profound. As these systems become more integrated into society, Canada is poised to rapidly move towards a cashless society, mirroring transformations seen in other countries.9 This evolution will challenge traditional payment infrastructures and networks to evolve and devise new strategies to remain competitive against the backdrop of instant payment systems.
Interac's dedication to developing Canada's core payment infrastructure, while not directly focused on improving the end-user experience, presents a continuous opportunity for collaborative players to revitalize Canada's digital financial services sector. There is both demand and readiness for efficient and innovative digital money transfer methods, which, in turn, could yield substantial economic and societal benefits to the population's financial activities.1
Canadians, traditionally cautious with their finances, are increasingly embracing digital and contactless payment options, seeking seamless, real-time, social experiences. A survey by the Bank of Canada revealed that nearly two-thirds of small businesses now accept online payments, and contactless transactions have seen significant growth.10 This evolving landscape suggests that Canadians are ready for a standalone P2P payment solution that combines the social aspect of platforms like Venmo with seamless integration into banking activities akin to Zelle.
One thing is for certain - we stand on the brink of a new era in digital transactions, ready to redefine the very fabric of our day-to-day monetary interactions.
1 Payments Canada Canadian Payment Methods and Trends Report 2023. / 2 Leger/Payments Canada. 2022 Consumer Payments Tracker Survey. / 3 eMarketer 2024. / 4 Definition: Real-time refers to the exchange, clearing and settlement processes that take place instantaneously or no longer than one minute. / 5 Wise: Wise unveils new look as it reaches 16 million customers served worldwide and continues global expansion. March 1 2023. / 6 Jacobsen, L., Wise (TransferWise) Statistics: Key Facts and Numbers for 2024. Euro Nerd. December 19 2023. / 7 Martino, P., Eber, P., Alexandre, H.,.Key players in the EU payments landscape. Deloitte. 2023. / 8 Molino, T., Hollinger, M., Walter, N., Fintech future: How financial technology firms are building Canada’s new economy. LEXPERT: Business of Law. June 21 2021. / 9 Ceurvels, M. Pix Explainer 2024: How Brazil’s Instant Payment System is Revolutioning Financial Services. Insider Intelligence. February 2024. / 10 Lane, T. Payments innovation beyond the pandemic. Bank of Canada. February 10 2021.