In Canada, Fast-Growing Debit Gets Further Impetus Via a New Rule That Opens More Acceptance Venues

A new rule took effect this week in Canada that is expected to enable more debit card transactions by opening up venues such as buses, trains, parking meters, and vending machines for acceptance. 

The regulation, called Rule E5, comes from Payments Canada, the country’s clearing-and-settlement operator, and amends a prior requirement that merchants maintain “consistent” online channels for debit payments. That rule made it virtually impossible for certain mass-transit operators and other venues to accept debit cards because such connectivity was impractical. 

Now, with Rule E5, these venues will be able to bypass the requirement for consistent connectivity, accept debit, and request delayed authorizations, Payments Canada said. “Public transit operators, whose business models require quick authorization, were a key reason behind the development of Rule E5,” the organization said in a news release Thursday.

“We know Canadians want easy, fast, digital payment options and fewer and fewer are carrying cash,” said Andrew McCormack, chief information officer for Ottawa-based Payments Canada, in a statement. “Modernizing the rules framework for payments in Canada will enable merchants and service providers to deliver on these evolving consumer needs.”

By opening acceptance in applications in which continuous Internet connectivity isn’t practical, observers expect Rule E5 to open up more potential for transaction traffic, particularly for Toronto-based Interac Corp., operator of Canada’s national debit network. “Interac welcomes the adoption of this new rule which will support acceptance of debit in a broader range of settings including transit fare payments,” said Kirkland Morris, vice president for enterprise initiatives and external affairs, in a statement.

In 2018, the latest year for which Payments Canada has figures, debit card transactions accounted for 29% of a total of 21.1 billion payment transactions, a share that had grown 29% over the previous five years. In terms of value, the cards accounted for a 3% share of $9.9 trillion (Canadian) that year. That share had risen 24% since 2013. By contrast, cash use was down 40%, to a 21% share of transactions. Debit card usage passed that of cash for the first time in 2017. 

The new rule, known formally as “Exchange of Point-of-Service Delayed Authorization Debit Payment Items for the Purpose of Clearing and Settlement,” was approved by Payments Canada’s board in November and became effective Jan. 27.