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Country Spotlight: Understanding Consumers and Cross-Border E-Commerce in Canada

Canada is like a blue chip stock. Even though it’s the world’s second largest country, Canada is sparsely populated and its e-commerce market is still relatively small at just over USD 22 billion. Nonetheless, with a stable and affluent population, the Canadian market offers a solid, low-risk, long-term investment. There is no race to be an early adopter or innovator in Canadian e-commerce. Rather, investing in the country is like putting your money in something slow, steady and reliable.

Unless otherwise noted, figures in this article are sourced from:

Canadian Consumers

E-commerce is firmly established in Canada, internet penetration in the country is among the world’s highest. Interac Online is one of the most mature debit networks of its kind and more than half of the population has used it to participate in online shopping.

Canada is the single most popular market for cross-border merchants globally. According to Multichannel Merchant, 84% of international merchants said they sell to Canada, well above the runner-up, Australia, at 54%. This means that the market is highly competitive as well as attractive to international online retailers.

The eagerness for emerging technologies is clear: Canadians spend nearly twice as much time on the internet as the worldwide average of 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 ranking #2 on the Mobile Payments Readiness Index (MPRI).

Clothing is the most popular online retail category in Canada, with 42% of online shoppers purchasing clothes, while Media Products –including books, music, film/TV, concert tickets and video games – also dominate the market, accounting for 5 of the top 10 highest-performing e-commerce categories. One-third of total Canadian e-commerce spending benefits American merchants.

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 in Canada. E-wallets account for nearly one-fifth of online transactions and prepaid cards for 11% of the total.  Interac Online has received widespread adoption in the e-commerce sphere, gaining over 9% of the market in its first two years alone.

Drivers and Barriers

Driver: Consumer Confidence

The Interac network is one of the most mature national debit card networks in the world. The increased security and lack of debt concerns associated with Interac compared to credit card purchases has driven consumer confidence in e-commerce. Similarly, Canadian consumers have been more inclined to embrace new m-commerce technologies than Americans and Europeans. More than one third of the population uses mobile banking and over 5 million Canadians shop online using their smartphones.

Barrier: Shopping In-Store

New data from Statistics Canada has shown a marked reversal in the e-commerce trend, with online sales accounting for 2% of the total retail sales in the first 9 months of 2016. However, in that relatively small proportion of total retail sales, “pure-play” or digital-only retailers (including foreign merchants) dominate, accounting for about 80% of total e-commerce sales. This shows that Canadians are willing to shop online when there are no other options, but still prefer to make their purchases at brick-and-mortar shops when given the opportunity.

Driver: Cross-Border Shopping

The vast majority of the country’s population lives just a short drive away from the American border. 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 accustomed to buying from international merchants. In 2014, eMarketer reported that 7 out of 10 online purchases in Canada are made from international merchants, and the majority of those sales went to merchants from the US.

Barrier: Buying Local

In the last couple of years, the Buy Local movement has moved online. In November 2016, an Ipsos survey found that 43% of Canadian consumers plan to do more of their holiday shopping at Canadian retailers than they had in 2015. The declining value of the Canadian Dollar compared to the Greenback is a big factor in this shift. With that said, Canadians still cite lower prices and better selection as reasons to buy from international merchants, so not all hope is lost.

Canadian E-Commerce Facts

  • The world’s most popular e-commerce market for cross-border retailers.
  • 5% e-commerce annual growth rate.
  • Canadians spend the most time on the internet on average.
  • More than two-thirds of online purchases are cross-border.
  • Merchants offering free shipping gain a 69% increase in their conversion rates.
  • 41% of Canadians cite lower prices and 23% cite better selection as reasons to buy from international merchants.

When deciding whether to expand your business across borders, it is important to consider which countries you are targeting and what benefits they offer. In terms of ease, reliability, and growth, Canada is certainly a seller’s market. As one of the world’s largest countries, its strong economy and reliable e-commerce market make it a low-risk, long-term investment with a steady return that can support future business growth.

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 Payza Blog and follow us on Facebook and Twitter for the latest industry news.