E-commerce is nothing new for Canadian consumers. The internet penetration is among the highest in the world and more than half of the population has embraced online shopping. Not being an especially populous country, the market is still relatively small at just over USD 20 billion, but cross-border e-commerce dominates the industry, with eMarketer reporting that 7 out of 10 online purchases in Canada are made to international merchants.
Canada’s culture of e-commerce and cross-border shopping is firmly established, so there’s no race to catch the wave. The growth will be slow and steady – instead of the excitement of cashing in on a new trend, the market offers a solid, low-risk, long-term investment. In this article we’re going to take a look at some of the reasons why Canada is the first choice for so many merchants selling across borders, and how to decide if it is the right market for you.
In the “Everything You Need to Know” series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.
Unless otherwise noted, figures in this article are sourced from:
When deciding whether to expand your business across borders, you need to consider which countries you are targeting and what each one can uniquely offer you. If you’re selling a niche product or service and your target audience is very specific, you need to identify which markets have a demand for what you provide. But in terms of sheer growth, Canada is an obvious first choice for international expansion.
Canada is in fact the single most popular market for cross-border merchants around the world by a significant margin. According to Multichannel Merchant’s MCM Outlook 2014, 84% of international merchants said they sell into Canada, well above the runner-up, Australia, at 54%. This fact is a double-edged sword, since it both represents the reality that Canada is a very attractive market for cross-border e-commerce and suggests that the market may be flooded and highly competitive.
- Total population: 35.1 million
- Internet penetration: 87% (29.8 million)
- Mobile penetration: 78.9%
- Online shoppers: 18.5 million
- E-commerce sales: USD 20.6 billion
- M-commerce sales: USD 1.3 billion
- E-commerce annual growth rate: 15.5%
The widespread popularity of cross-border commerce in Canada can be traced back to the country’s geography. Canada was not settled in the same way as the US – it never had a frontier. Instead, Canada was settled primarily by boat, through the St. Lawrence Seaway and the Great Lakes, which is where the border between Canada and the US was drawn, the world’s longest continuous border between two countries.
As a result, the vast majority of the country’s population lives within a short drive of the American border, and throughout the 20th century cross-border shopping was a very popular weekend activity among Canadians of all demographics. By the time e-commerce came along in the 21st century, most Canadians were already highly accustomed to buying from international merchants, and once that was no longer limited to the US, they embraced it even further.
What You Need to Know
Media products – books, music, film and TV – dominate the Canadian online retail market, accounting for a value 21.4 billion USD, nearly triple the next most popular category, apparel and footware. One third of total e-commerce spending goes to American merchants, with Amazon.com being the most popular.
There are three main drivers for cross-border purchases among Canadian consumers. 41% cite lower prices as their primary reason for buying from international merchants and 23% cite better selection. Free or discounted shipping is also a key motivator, with merchants offering free shipping seeing a 69% increase in their conversion rates.
Preferred Payment Methods
As with most of the world’s e-commerce markets, credit cards are the most popular method of online payment, with MasterCard being the most popular scheme in Canada. E-wallets account for nearly one-fifth of online transactions and prepaid cards for 11% of the total.
Canada also has one of the most mature national debit card networks in the world, the Interac network. Debit cards have contributed significantly to decreasing the country’s dependence on credit cards at the point-of-sale, and the more recent development of Interac Online has received widespread adoption in the e-commerce sphere, representing 9.1% of the market after only its first two years. The increased security and lack of debt concerns associated with debit and prepaid cards has encouraged the growth of Canadian e-commerce.
Similarly, Canadian consumers have been more ready to embrace new m-commerce technologies than Americans and Europeans. More than a third of the populations uses mobile banking and over 5 million Canadians shop online using their smartphones.
The eagerness for emerging technologies among Canadians is clear: the average Canadian spends nearly twice as much time on the internet as the worldwide average (23 hours per month); almost half have said they are ready to embrace m-commerce on wearable devices; and 47% have said they want retailers to provide more secure mobile payment options. All this has contributed to Canada scoring #2 on the Mobile Payments Readiness Index (MPRI).
Partly because debit card use in Canada is among the world’s highest, payment card fraud in Canada is relatively high. When the major credit card schemes began migrating to EMV chip and PIN systems, Interac was slow to catch on since debit cards were always perceived to be more secure. However, fraudsters caught on to this and began targeting debit cards.
After the rollout of EMV, online fraud grew from 31% of the total in 2008 to over 64% today. In Canada, 3D Secure is mandated to counteract online payment card fraud, but international merchants in particular need to be careful when accepting payments from Canadian-issued cards since they are one of the most commonly targeted by fraudsters.
Canadian E-Commerce in Brief
- The most popular e-commerce market for international merchants
- Canadians, on average, spend the most time on the internet
- More than two-thirds of online purchases are cross-border
- High mobile penetration and m-commerce acceptance
- Relatively low growth rate
- Highly competitive market for international merchants
- High payment card fraud rates
The interesting thing about Canadian consumers is how readily they will purchase from an international merchant. Lower prices and better selection will always trump most Canadians’ desire to purchase from a domestic retailer. Canadian consumers even buy from Amazon.com 2.5 times more often than they do from Amazon.ca, the company’s Canadian arm.
One of the world’s largest countries with a highly mature online retail sector, Canada is a seller’s market wherever you may be located. Though it is competitive, it’s relatively easy to begin selling into the country and, with its strong economy and steady e-commerce growth, Canada could serve as a low-risk, long-term investment with a steady return to help you fund future international expansions.
Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook, Twitter and LinkedIn for the latest industry news.