MasterCard Worldwide may be in a position to gain market share in Canada as Wal-Mart Stores Inc. strives to make inroads with its new cobranded MasterCard credit card and other banks contemplate offering dual payment-network brands, according to a report from Mercator Advisory Group.
The introduction this year of two significant rewards-based MasterCard credit cards, plus the fact that Canada’s banks recently gained the opportunity for the first time to offer customers cards from both MasterCard and Visa Inc., could provoke some key changes in Canada’s credit card market, Patricia McGinnis, a principal analyst at Maynard, Mass.-based Mercator, writes in “Tough Sledding,” an analysis of the Canadian credit card market released last month.
“Card-network market share has not budged much in Canada in several years. But with Wal-Mart entering the picture with a new MasterCard product, we could begin to see shifts in some consumers’ wallets,” McGinnis tells PaymentsSource.
Wal-Mart’s newly licensed Wal-Mart Canada Bank in June launched the Walmart Rewards MasterCard, which likely could lure middle- and lower-income consumers and drive more credit card accounts to MasterCard, Canada’s No. 2 credit card network, McGinnis contends.
Visa, Canada’s longtime market leader, continues to claim a 61% share of the nation’s credit card market by purchase volume, accounting for approximately $164 billion (C$174 billion) of $268 billion in total credit card spending last year, while MasterCard claims a 31% share with $82 billion and American Express Co. has about 8% share with $22 billion, according to Mercator estimates.
MasterCard also is most likely to benefit from banks’ ability to issue cards on multiple networks, but that effect may only be slight, McGinnis says. The cost to banks of maintaining multiple network relationships in Canada would most likely outweigh any gains, she speculates.
Canada’s Competition Bureau in late 2008 announced it was relaxing competitive rules that previously prohibited banks from issuing both Visa and MasterCard. The bureau decided the rules no longer were necessary when the two largest card networks switched to publicly held corporations from member associations.
The first major move into dual-brand issuing by a large Canadian bank occurred in June, when the Canadian Imperial Bank of Commerce purchased Citigroup Inc.’s Canadian MasterCard credit card portfolio for C$2.1 billion (US$1.97 billion) (
Visa issuer RBC Royal Bank of Canada also branched into issuing the MasterCard brand with the March launch of the cobranded WestJet RBC MasterCard in association with WestJet Airlines Ltd.
But it is unlikely most banks will rush to embrace duality because Canada’s credit card market is highly saturated, and any competition between brands would require “heavy” new rewards programs, McGinnis says. Duality instead may have a “slight re-distributive effect” on the market in the near term, she contends.
“It is common for Canadians to have both a Visa and a MasterCard in their wallet, but people tend to prefer one card over another for the rewards program, and there is no great opportunity for a bank to win over a customer by simply offering another network brand,” McGinnis says.
Catherine Johnston, president and CEO of the Advanced Card Technology Association of Canada, tells PaymentsSource that although Canadian banks have made “some tentative steps” toward issuing both Visa and MasterCard, “we haven’t seen a great rush toward duality.”
Indeed, more than half of Canada’s open credit card accounts lay dormant last year. Only 40% of the nation’s 70 million Visa and MasterCard accounts generated charges last year, down from 45.9% that did in 1999, Mercator said, citing Canadian Bankers Association data.
Some 90% of Canada’s consumers hold debit cards from Interac, Canada’s debit card association, which accounted for 59% of 6.6 billion card-based transactions last year. Consumers pulled out debit cards more often, but credit cards accounted for 65% of total card purchase volume, which suggests they use credit cards for larger purchases and for generating rewards, McGinnis says.
The data underscore the importance of rewards programs in stimulating credit card use, McGinnis says.
“Rewards programs are the key driver of credit card usage in Canada, but habits are deeply entrenched, and getting people to pull out a different card from their wallet to participate in a different rewards scheme is not easy,” McGinnis says.
The majority of Canada’s credit card programs provide cash-back rewards delivered as a credit to customers’ bills at the end of each year, Mercator says. Rebates typically range from 0.5% to 1% of total purchase volume, depending on the rate or annual fee. Many large banks maintain a partnership with a merchant, enabling cardholders to earn an extra 25% to 100% on certain transactions.
The Walmart Bank MasterCard enables cardholders to earn rewards worth 1% of their total purchases and an extra 0.25% on Walmart purchases. Cardholders may redeem rewards only as cash for new purchases at Walmart Canada stores.
“Heavy Walmart shoppers will be most likely to adopt the new MasterCard, although the rewards program alone probably will not drive new business to Walmart,” McGinnis contends.
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