Prepaid in 2021: Fueling an Accessible Digital Payments Ecosystem

Building from the momentum in 2021, the prepaid payments industry is poised for significant growth for years to come — fueling the transformation to a true digital banking and payments ecosystem that is inclusive and accessible for all Canadian consumers and businesses. 

Prepaid is no longer just a payment product, or mechanism to make a transaction. Following the trends seen across the entire payments ecosystem, prepaid as a platform has become a foundation for digital financial services enabling fintechs and traditional FIs to  bring new and innovative solutions to market and allowing fintech partnerships to quickly launch and scale.  

The Canadian open-loop prepaid card market will grow to CA$8.7 billion in 2021, up 80 percent from 2019. This value is projected to nearly double to CA$17.2 billion by 2025. What’s driving this rapid growth is the investments in the prepaid space that continue to cross into various segments of the payments industry. 

Canada’s payments and commerce markets continue to be disrupted by the introduction of new and innovative prepaid solutions. The rise in buy-now-pay-later providers, challenger banks and gig payment platforms are largely due to the accessibility of prepaid card rails, a nimble platform to innovate and adherence to existing regulations.

“Prepaid is increasingly being harnessed as the platform of choice to introduce new and innovative products and services for Canadians, playing a leading role in Canada’s digital payments and banking transformation. As consumer preferences shift towards more convenient, cashless and contactless payment methods, prepaid provides both incumbents and new fintech entrants an avenue to introduce new products and services, while still adhering to stringent regulatory requirements.” – Jennifer Tramontana, Co-Founder and Executive Director, CPPO

Canadian Open Loop Prepaid Market, 2020-2025

According to the Canadian Open Loop Prepaid Market, 2020-2025 analysis, there were approximately 46 million open-loop prepaid accounts in Canada by the end of 2020. It is expected that this will grow by a five-year compound annual growth rate (CAGR) of 15 percent, reaching 93 million accounts by 2025. Prepaid solutions provided a safe and simple online payment option during the pandemic, enabling access to the benefits of ecommerce which has proven to be a critical channel for the purchase of goods when access to retail stores has been reduced or discouraged.

“The prepaid payments industry is steadily growing in Canada as payments innovations continue to uncover more prepaid card uses. Prepaid cards have historically been perceived as a tool to reach Canada’s under- and unbanked market segments, but this is expanding. The rise in buy-now-pay-later providers, challenger banks and gig payment platforms are largely due to the availability of Canadian prepaid card rails.” – Francisco Javier Alvarez-Evangelista, Advisor, Aite-Novarica Group

In 2021, the tide continued to turn for prepaid being recognized as a key tool for fintechs. Prepaid has also become the core offering for most Canadian challenger banks to best support their banking models and bring accessible products to their customers. Due to its ability to boost financial inclusion to the essential and growing gig economy by offering immediate wage payments daily or after every shift — and prepaid’s ability to embedded payments that disappear into the background of the solution being offered to a customer — this has attracted everyone from tech giants and big retailers to e-commerce players. 

Payments Canada Report: Prepaid Second Fastest Growing in Payment Volume and Value

What was noteworthy for prepaid in that report is that prepaid ranked second among payment methods for percentage of total payment volume growth — boasting a 34.2% payment volume growth between 2015 and 2020. Prepaid also had the second highest growth in percentage of total payment value at 32.7% growth in that same time period. Although prepaid accounted for the smallest percentage of payment volume, compared to seven other payment methods, the rate of growth is worth noting. Prepaid continues to innovate across the digital payments ecosystem as it offers a cost-effective, regulatory-friendly replacement for cheques and paper cheques (a category that’s seeing more than a 50% drop in payment volume in that same five-year period).

Prepaid solutions provide an easy path to digital payments innovation for companies looking to integrate embedded finance solutions quickly — while satisfying regulatory requirements. Prepaid’s ability to innovate quickly, thanks in part to low regulatory hurdles, has cemented its place as part of the digital payments market.The report also pointed toward the shift in credit and debit card usage as consumer spending habits changed. According to the report: “Despite an increase in credit card use as part of an e-commerce boom (which demonstrated 20 percent year-over-year growth in 2020), credit card use declined by 11 per cent and debit card use declined by nine per cent year-over-year.”

The Canadian Prepaid Ecosystem Report 2021

To showcase the evolution of the prepaid ecosystem, The Canadian Prepaid Ecosystem Report 2021, produced in collaboration with FinTech Growth Syndicate (FGS), provides a deeper understanding of the innovative offerings, market forces and trends, as well as to build a heatmap of all players in the Canadian prepaid space. Bellow is an analysis of the prepaid value chain, what type of companies are driving the market growth the innovation prepaid is enabling in Canada

CPPO 2021 Heatmap

“The market insights included in the report showcase how prepaid is enabling innovation and competition in the space, thus playing a key role in Canada’s digital payments and banking transformation.” – Surinderjit Kaur Bhatti, Managing Director, FGS

The Canadian Prepaid Ecosystem Report 2021, produced in collaboration with FinTech Growth Syndicate (FGS), is an analysis of 90 companies operating in the Canadian open-loop prepaid ecosystem to develop a deeper understanding of the innovative offerings, market forces and trends, as well as to build a heatmap of all players in the Canadian prepaid space.

Top prepaid market trends highlighted in the report:

  • Kids/Teen banking is gaining traction in Canada to allow parents to easily give money to their children, track children’s spending, set tasks that need to be completed for earning allowance, and help kids learn about savings
  • Real time/early earnings access continues to grow in Canada and globally, by transferring payment to a prepaid card which can be used immediately
  • Rewards moving away from traditional loyalty programs, including immediately accessible cashback and personalized discounts
  • Cryptocurrency marketplaces are launching prepaid cards for easier funding, withdrawing, and spending
  • Emerging consumer and SME ecosystems are creating competition in the space, enabling early movers to serve a larger portion of consumer financial needs, all within a singular digital platform or super app

Prepaid cards have allowed for the development and introduction of numerous innovative use cases to the Canadian ecosystem, for both consumer and small business segments. The use cases that have gained prominence within the market employ a wide range of value propositions while laying the foundation for further innovative offerings to be developed and brought to market.

According to The Canadian Prepaid Ecosystem Report 2021, Canada is starting to see early movers offering integrated consumer ecosystems that represent the opportunity to become super apps enabled by payments. Non-banks have also been able to launch banking for their customers as an alternative to credit, and capture their spending data for further innovation in predictive services.

Top prepaid market trends highlighted in the report:

  • Kids/Teen banking is gaining traction in Canada to allow parents to easily give money to their children, track children’s spending, set tasks that need to be completed for earning allowance, and help kids learn about savings
  • Real time/early earnings access continues to grow in Canada and globally, by transferring payment to a prepaid card which can be used immediately
  • Rewards moving away from traditional loyalty programs, including immediately accessible cashback and personalized discounts
  • Cryptocurrency marketplaces are launching prepaid cards for easier funding, withdrawing, and spending
  • Emerging consumer and SME ecosystems are creating competition in the space, enabling early movers to serve a larger portion of consumer financial needs, all within a singular digital platform or super app

“Among the many benefits of the growing prepaid industry in Canada, prepaid offers increased financial inclusion to our essential and growing gig economy, while also offering more choice and convenience to all Canadians. In support of post-pandemic economic recovery, we anticipate that prepaid usage will ramp up quickly over the next few years in Canada.” –  Jennifer Tramontana, Co-Founder and Executive Director, CPPO.

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