Payments

How Canadian banks dominated peer-to-peer payments

  • Interac e-transfers, Canadian banks' peer-to-peer payments tool, have the lion's share of the market because the banks got in the game early and acted in a coordinated fashion
  • Well before the peer-to-peer payments tool was launched, Interac was a known and trusted payments brand in Canada -- an important factor driving adoption
close

Email a Friend

How Canadian banks dominated peer-to-peer payments
In Canada, banks rule the roost when it comes to peer-to-peer payments. Bank-led innovation came out of Canadian banks working together to define the peer-to-peer payments experience with the formation of Interac. U.S. banks were late to the party, unifying under the Zelle brand this year, but long after Venmo gained its dominance. "On the Canadian side, the banks got together early -- you're talking about a 10-year head start [over U.S. banks], and again, you didn't see much traction with clearXchange until it was purchased by Early Warning and rebranded as Zelle," said Hisham Salama, vice president and head of emerging payments and innovation at TD Bank. A Canadian bank-backed peer-to-peer payment is called an Interac e-transfer. With all major institutions on board 15 years ago, the banks captured the lion's share of the market before Venmo-like non-bank alternatives could enter -- and Canada only has a handful of major banks. "If there are a few banks that own most of the deposit relationships, they can really dictate the digital behavior [of the customer]," said Mike Landau, payments research lead at PwC. "It works out quite nicely relative to the U.S., where the biggest problem was 'What platform do you use? Who do you bank with?' It just made it more complicated." The Interac brand has been around for more than 30 years. It was created in 1984 as a cooperative venture among major Canadian financial institutions with the goal to create a shared payments network that would give Canadians access to cash from ATMs across the country. In addition to peer-to-peer transfers, debit card payments on the Interac network at the point of sale have existed since 1994. They've long been a default way to pay for consumers (the Interac logo features prominently debit cards of participating banks). So since Interac has been entrenched in Canadians' payment habits, others haven't been able to make major inroads. "If you’re already banked with any of the institutions, and most Canadians are, why would you need another solution?" said Debbie Gamble, vp of digital product and platform development at Interac. In 2017, Interac reported $58 billion in transaction volume across 14.5 million unique users, and were on pace to reach $70 billion by the end of 2017, according to the company. By comparison, Zelle's transaction volume for the first three quarters of 2017 was $51.1 billion; Venmo's was $24.2 billion. For Scotiabank, the success of Interac peer-to-peer payments was the result of major bank players operating in a coordinated fashion for product launches and marketing efforts. "We all worked together as part of this association. We defined the service and how it would function," said David Metcalfe, director of day to day products at Scotiabank. "We didn't approach it as a competing service; we wanted our customers to have the capability to send funds to anyone who has a bank account." The Interac peer-to-peer payments tool was clunky at first. But getting people to adopt it was easy because most were used to using Interac for debit purchases at the point of sale. "The challenge is you have to have ubiquity," said Gamble. "A cool front end is great, but you have to be able to deliver those transactions in a secure way right across the ecosystem to be relevant." So far, nonbank players have failed to challenge Interac, with startup Tilt's peer-to-peer payments tool shut down in June following an acquisition, and a similar product from Payso (now finn.ai) was phased out last year. PayPal wouldn't provide Canadian peer-to-peer payments numbers.

In its 15 years, the Interac e-transfer evolved from an online money transfer tool to a peer-to-peer mobile payments feature that lived within financial institutions' mobile banking apps. Initially, a customer could send a payment to an individual by identifying them with an email address that was linked to the receiving individual's bank account. As mobile penetration increased, institutions began to accept phone numbers as account identifiers. Interac recently did away with a mandatory security question designed by the sender. Banks are now rolling out the next-generation of Interac e-transfers, with some institutions (RBC and Scotiabank, for example) rolling out e-transfers within iMessage. Others are embedding the feature within Facebook messenger. RBC has enabled Siri-based Interac payments. So, given that Interac solved the customer's peer-to-peer problem -- making it easy to pay back a friend, for example, -- a new entrant has no compelling reason to persuade the consumer to change their behavior and start using a new tool. "Our banking ecosystem is a tight knit group of a few banks, and it would be tough for a new player to come in and disrupt that market, unless the value proposition was significantly better," said Zishan Mohyuddin, senior director of payment strategy and services at CIBC.

0 comments on “How Canadian banks dominated peer-to-peer payments”

Payments

How American Express and Microsoft’s new AI-powered solution facilitates business travel payments

  • Expense reports are a critical component of any business -- however, business travelers and expense processors often face challenges in keeping track of their expenses while on the go, leading to missing receipts, lost records, and missed reimbursements.
  • In a move to evolve the way business travel payments are processed, American Express and Microsoft have partnered to develop a portfolio of solutions built on Microsoft Cloud and AI technologies – aimed to minimize the stumbling blocks in business travel for employees and businesses.
Sara Khairi | March 14, 2023
Payments

5 questions about ACH payments with Plaid’s John Anderson

  • Visa's acquisition of Plaid was blocked because the firm was interested in facilitating ACH payments.
  • Fast forward a few years and the firm is already doing a billion ACH transactions a year and it's just getting started.
Zachary Miller | March 14, 2023
Payments

With growing partnerships, what’s next for Wise in the US market?

  • Wise extends its features via its APIs to its partners – banks, fintechs, and corporates – which they can integrate and build directly within their own offering.
  • Folley Ogundele, VP of Wise Platform at Wise, provides insights on how Wise solutions are integrated within its most recent partner companies in the US — AvidXchange, Brex, and Ramp.
Sara Khairi | March 10, 2023
Payments

Out with the neobank and in with Dubai : 5 questions with Remitly’s Bridget Abraham

  • Changes are afoot at Remitly. Its neobank called Passbook is being discontinued, ad. As the company drills down on its core-remittance customers.
  • The company is continuing to grow its footprint, as it addingadds Dubai to its growing outbound remittance network.
Rabab Ahsan | March 09, 2023
Payments

‘Relevance and Vibrancy are two levers in our business’: 5 questions with American Express’ Mohammed Badi

  • American Express recently launched Business Link, a B2B payments ecosystem.
  • We asked the firm's Mohammed Badi, head of the network business, about what it means and more.
Zachary Miller | March 08, 2023
More Articles