Canada is a leader in electronic payment adoption and has a sophisticated financial system. Canada’s payment processing sector supports a wide range of payment methods, from traditional bank transactions to innovative digital platforms. Major banks, credit unions, and specialized payment service providers are central to this market.

The “Big Five” banks—the Royal Bank of Canada (RBC), Toronto-Dominion Bank (TDB), Scotiabank, Bank of Montreal (BMO), and Canadian Imperial Bank of Commerce (CBIC)—dominate payment processing in Canada. These banks provide advanced payment solutions such as online banking, mobile payments, and contactless transactions, and their efforts have propelled widespread adoption of digital payment technologies, with ongoing investments in areas such as blockchain and artificial intelligence.

Beyond traditional banks, a growing number of fintech companies and startups are making substantial contributions to the payment processing landscape. These companies often focus on specialized segments of payment processing such as peer-to-peer systems, ecommerce transactions, or instant payment services. Smaller startups have developed new technologies such as payment gateways, digital wallets, and cryptocurrency payment solutions.

Below, we’ll cover Canada’s top payment methods, popular payment processing services, how payment processing works, and payment processing regulations.

What’s in this article?

• Top payment methods in Canada
  
• Stripe’s payment processing services in Canada
  
• How payment processing works in Canada
  
• Canada’s payment processing regulations
  

Top payment methods in Canada

The top payment methods in Canada include traditional and modern options that reflect shifting consumer preferences and business needs.

• Credit and debit cards: These remain the most common payment methods in Canada and are widely accepted both in-store and online; there were 6.8 billion credit card transactions in 2022. Major networks such as Visa, Mastercard, and American Express are ubiquitous. Contactless payments (e.g., Tap to Pay), which consumers prefer for their speed and convenience, are the norm.

• Cash: Cash ranked fourth in payment volume in 2022. However, the average cash transaction value was $29—signaling that cash is primarily used for small, everyday purchases.

• Interac: Interac is Canada’s national debit network, a secure and convenient way to make payments directly from a bank account. Interac e-Transfer is a popular method for sending and receiving money between individuals and businesses. In April 2022, Interac reported that it surpassed 1 billion e-Transfer transactions over 12 months.

• Digital wallets: Digital wallets such as Apple Pay and Google Pay have gained traction in Canada as a secure and contactless way to pay with a smartphone. In the first half of 2023, 51% of Canadian consumers used digital wallets for in-store payments and 26% used them for payments in apps. Consumers appreciate the ease of use of digital wallets, as well as their easy integration with loyalty programs.

• Buy now, pay later (BNPL): BNPL services are becoming increasingly popular in Canada, especially with younger consumers. These services allow customers to split purchases into installments for greater flexibility and budgeting options. A 2022 report found that 14% of Canadians had used a BNPL service, and projected the country’s BNPL market would surpass $17 billion USD by 2028.

• Cryptocurrency: While adoption rates are relatively low, cryptocurrency payments are slowly gaining acceptance in Canada. Several businesses now accept Bitcoin and other cryptocurrencies as payment.

Cheques and prepaid cards are still in use in Canada, although they are not as popular as the above methods. Cheques remain a viable option for certain types of payments, particularly for B2B transactions, and prepaid cards are an option for individuals who don’t have bank accounts or want to limit their spending.

Stripe’s payment processing services in Canada

Canada’s service providers in the payment processing industry facilitate a range of payment methods. Stripe, a global payment service provider that caters to different business needs and sizes, is known for its developer-friendly platform and customizable solutions. Stripe has a comprehensive suite of tools for online businesses including payment processing, recurring billing, and fraud prevention. Businesses using Stripe in Canada can accept payments in a number of ways—from digital wallets to Interac payments.

How payment processing works in Canada

Payment processing works via a network of systems and processes that transfer funds between consumers, businesses, and financial institutions. Payment processing involves the following hardware, software, and technological processes.

• POS terminals: Hardware used in stores to accept card payments

• Payment gateways: Software that securely transmits payment data

• Encryption: Technology that scrambles sensitive data for security

• Tokenization: Technology that replaces sensitive card data with unique tokens for security

• Fraud detection systems: Algorithms and tools that identify and prevent fraudulent transactions

Here’s how payment processing works, from initiation to settlement.

Transaction initiation

A customer initiates a payment, either in store or online.

• In store: This typically involves tapping or inserting a card (e.g., credit, debit, prepaid) or smartphone at a point-of-sale (POS) terminal. The POS terminal reads the card or device data and securely transmits it for processing.

• Online: The customer enters payment details (i.e., card number, expiry date) on a secure checkout page. The data is encrypted and sent to a payment gateway.

Transaction authentication

For added security, some transactions require additional verification. This might involve:

• Entering the card verification value (CVV), a three or four-digit code on the back of the card

• Entering a personal identification number (PIN) for debit or chip transactions

• Going through 3D Secure (3DS), an additional layer of security for online transactions, often requiring a one-time password

• Verifying via biometrics such as a fingerprint or facial recognition

Transaction authorization

The payment processor (e.g., Moneris, Stripe) receives the transaction information and sends an authorization request to the customer’s financial institution. This request includes details such as the card number, transaction amount, and business information.

Transaction clearing and settlement

The customer’s financial institution confirms the funds are available and authorizes the transaction. Transactions are cleared through Payments Canada, which acts as a central clearinghouse for interbank settlements.

Transaction funding

The customer’s financial institution transfers the funds to the business’s acquiring bank (the bank that handles the business’s payments). The acquiring bank then deposits the funds into the business’s account.

Record keeping

The payment process maintains detailed records of each transaction, including the date, time, amount, and parties involved. These records are important for accounting, reconciliation, and dispute resolution.

Canada’s payment processing regulations

Canadian regulations that govern payment processing are designed to protect consumers, stabilize the financial system, and maintain fair competition. Payment processors must adhere to relevant legislation and dictates from key regulatory bodies outlined below.

Key regulatory bodies

• Financial Consumer Agency of Canada (FCAC): The FCAC oversees consumer protection in Canada’s financial sector. The agency enforces the Code of Conduct for the Credit and Debit Card Industry, ensuring fair practices for businesses and consumers.

• Payments Canada: This organization operates Canada’s national clearing and settlement system. It establishes rules and standards for payment processing and risk management.

• Bank of Canada: This central bank monitors systemic risks and oversees the stability of the payment system.

Key legislation

• Payment Card Networks Act (PCNA): The PCNA sets out rules for the operation of payment card networks and protects businesses and consumers from unfair practices.

• Personal Information Protection and Electronic Documents Act (PIPEDA): PIPEDA governs how private sector organizations collect, use, and disclose personal information, including during payment processing.

• Retail Payment Activities Act (RPAA): The RPAA provides a framework for regulating payment service providers (PSPs), with the goal of improving competition and innovation in the payments sector.

• Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA): The PCMLTFA requires payment processors to identify and report suspicious transactions to help combat money laundering and terrorist financing.

Compliance requirements

• Security: Payment processors must maintain strong security measures such as encryption, access controls, and fraud detection systems to protect sensitive customer data.

• Consumer protection: Payment processors must adhere to the Code of Conduct for the Credit and Debit Card Industry, which includes provisions on transparency, disclosure, and dispute resolution.

• Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF): Payment processors must implement AML/ATF programs to detect and report suspicious transactions.

• Privacy: Payment processors must comply with PIPEDA and other privacy laws to responsibly handle personal information.

• Reporting and record-keeping: Payment processors must maintain accurate records of transactions and submit reports to regulatory agencies as required.

• Registration: Payment processors must register with the Bank of Canada as a payment service provider under the RPAA.