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Canadians’ Spending Habits and Payment Preferences Are Changing

Feb. 10, 21
7 mins
A man sits on a couch and types his credit card details into his phone

According to a recent study by Payments Canada, credit card use exceeds debit for the first time, increasing 16% year-over-year.

Paper-based transactions continue to decline, as cash payments drop 9% and consumer cheque volumes drop 12% from the year before.

“The migration to digital payments, a trend that we have observed for a number of years, has been accelerated by the COVID-19 pandemic,” Tracey Black, President and CEO of Payments Canada, said in a release.

Key findings from the report:

  • Electronic payments represent roughly 77% of total payment volumes.
  • Contactless payments are becoming increasingly popular, growing 15% in volume and 20% in payment value.
  • Online transfers gain traction, particularly for peer-to-peer payments, growing 36% in volume.

These shifts in payment method preferences and spending behaviours are likely to stick around as Canadians become more comfortable with these consumer options.

Select a rewards credit card based on your spending habits

As Canadians’ spending habits change, it may be time to update what is in your wallet so you can benefit the most from your credit card.

According to insights from RBC’s COVID Consumer Spending Tracker for January 2021, Canadians are spending less. Spending was down 5% year-over-year in the second week of January and decreased 9% from the week before.

Some retail slid, mainly clothing; however, other categories like electronics and household goods returned.

Travel remains subdued and may further decline as the new rules come into effect this month. Although gas and automotive purchases are down over last year, they are consistent month-over-month.

This consumer data suggests travel-focused credit cards may not be rewarding cardholders presently. So, is it time to switch?

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Groceries

Many Canadians continue to bake up a storm and shop for their ingredients and groceries online or in-store. Some big retailers offer co-branded credit cards with rewards specifically to their brand. However, not all grocery reward cards offer loyalty points; some offer cash back, which you can spend anywhere you like.

The BMO®* CashBack Mastercard®* offers cardholders 3% cash back on grocery purchases, 1% back on recurring bill payments, and 0.5% unlimited cash back on all other purchases.

Plus, for a limited time, get 5% cash back in your first three months. Conditions apply.

Gas

Gas prices jumped 3.3% in December 2020, the first increase since the summer (July). Still, filling up your tank is around 8.5% cheaper than it was around the same time in 2019, and there are more ways to cut costs. Saving money on gas is simple with the right credit card.

For loyal shell customers, the no-fee Shell CashBack MasterCard® from BMO is a smart choice. Earn 1.5% cash back per dollar spent at Shell locations across Canada and 0.5% cash back on all other purchases.

Although this next option usually has a $120 annual fee, the Scotia Momentum® Visa Infinite* Card offers cardholders 4% cash back on groceries, recurring bill payments and subscription services, 2% back on gas and daily transit, and 1% back on everything else. For a limited time, new cardholders can get an annual fee waiver for the first year when they apply by February 28, 2021.

Takeout, delivery, and subscriptions

Many Canadians are making a conscious effort to support local businesses and restaurants struggling with ongoing restrictions. If you find yourself ordering in more often, you should consider your payment choices. Some credit cards offer rewards for dining out and dining in, earning rewards for both groceries and delivery.

The Scotiabank®* Gold American Express® Card offers five Scotia Rewards points for every dollar you spend on grocery, restaurant, fast food, delivery, and food subscription purchases. Get three Scotia Rewards points for every dollar you spend on eligible gas, transit and streaming services, and one point per dollar everywhere else.

Online shopping

Although credit cards typically don’t reward users for online shopping specifically, some reward programs allow members to spend their rewards through online partners. Cardholders can use American Express Membership Rewards for purchases through Amazon.ca.

AIR MILES Cash Rewards offers customers the opportunity to shop for groceries and order food delivery.

The BMO® AIR MILES®† Mastercard®* offers cardholders 3X the Miles for every $25 spent at participating AIR MILES Partners and one Mile for every $25 spent everywhere else, all for no annual fee. Plus, you can double-dip on points when you use your AIR MILES Collector Card.

Shopping with your credit card can have its perks

More Canadians are resorting to using e-commerce platforms and online shopping, which can be convenient but somewhat risky. Sometimes, orders get lost in the mail, get damaged, or arrive not as described. Often, companies have excellent customer service, but when they don’t, it can pay off to choose your payment method wisely.

Paying for purchases with your credit card can have additional benefits and safety features to safeguard your spending. Perks will vary by the credit card provider, but here are some terms you may see.

Extended warranty

Extended warranty, sometimes referred to as extended protection, will increase the manufacturer’s warranty for items you purchase on the card. The length of time and requirements vary by issuer.

Purchase protection

Purchase protection, sometimes called purchase assurance or purchase security, may cover purchases against damage or theft. Typically, there is a monetary threshold that a cardholder can claim — for example, $500 per claim, up to $50,000 per account holder.

Price protection

Some credit cards offer a price protection guarantee. If cardholders purchase a qualifying item within Canada and the product goes on sale within a timeframe, the difference may be eligible for a refund. Generally, there is a cap for the amount that can be claimed per purchase or annually.

Additional security features

Most Mastercard and Visa credit cards offer Zero Liability coverage, so cardholders won’t be held responsible for unauthorized transactions on their account. This feature adds another layer of protection against credit card fraud.

Should you cancel your current credit card if you apply for another?

Choosing to open another credit card does not necessarily mean you should cancel the card you are currently using. Having a primary and secondary credit card can be beneficial if used responsibly.

Consider these details before cancelling or keeping your credit card:

  • Variety of rewards. Using your credit cards strategically can help you earn a variety of rewards faster. For example, you may choose to pay for grocery purchases with one card and use another for travel. That way, you can earn the top value for each spending category.
  • Credit score. Keeping your credit card active and in good standing can positively affect your credit score from the payment history perspective, the amount of available credit and your credit utilization ratio.
  • Annual fee. If your current credit card has an annual fee and you don’t plan to use the card, it may not be worthwhile to keep it active. However, if your credit card has no annual fee, it won’t cost you anything to keep the account open.
  • Rewards balance. Depending on the card you currently use, you may forgo your rewards balance when you cancel your credit card.

If you have a credit card from one of the three leading issuers in Canada — Mastercard, Visa, and American Express — consider choosing a credit card from the other two providers. Doing this can ensure you always have a payment method that is accepted.

Rewards are not always the top credit card feature

A balance transfer credit card can be more valuable than a rewards feature for those looking to consolidate their debt or take advantage of a low-interest rate. A balance transfer can help you put all your debt onto one card and manage it more comfortably.

The Tangerine Money-Back Credit Card offers cardholders an introductory interest rate of 1.95% on balance transfers made within 30 days of opening the account for six months. A 1% balance transfer fee does apply.

Although these types of cards typically charge a balance transfer fee, the amount you pay would be far less than you would otherwise owe in interest. If you face financial hardships, being proactive about debt management can help you work toward a more positive financial future.

Rates, product information, and reward estimates are subject to change at any time and do not constitute financial advice. This post was not sponsored. The views and opinions expressed in this review are purely those of RATESDOTCA. Information in this article is accurate as of the date of this posting, February 10, 2021. Read our full disclaimer.

Hayley Vesh

Hayley Vesh is a creative, resourceful, and knowledgeable content producer who is passionate about financial literacy, storytelling, and generating ideas. She writes about credit cards, savings, debt management, and personal finance. In her spare time, Hayley can be found wandering in the woods, hunting for second-hand treasures, or curled up with a steeped tea and a good podcast.

Find Hayley Vesh on LinkedIn.

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