GOING PLASTIC

October 2000

By Maureen Hughes

Your Office, Canada's Small Business Magazine,

 Will that be cash or Chargex?  Consumers have embraced and fallen in love with the idea of

plastic money since this question first hit the airwaves more than 30 years ago. Credit cards are an

integral part of our economy and are accepted to the extent that when asked, "Why should small

business owners accept credit cards?" one industry expert replied: "I didn't know anyone thought

about it anymore. Everyone just does it."

In fact, those tempting pieces of plastic are used to complete almost 70 per cent of consumer

spending in Canada and will become even more indispensable as e-commerce (electronic

commerce) and e-tail (electronic retail) become more common. Most businesses completing

transactions over the Internet couldn't conceive of working without credit cards. Ted Shado, an

entrepreneur and artist who recently opened artAficionado.com, one of Canada's first e-galleries

selling original works of art over the Net, intends to run a paperless business. Credit cards are an

integral part of his company's financial plan. They are the way to sell," he enthuses.

 Shado and his computer-wizard business partner Shaun Rossi feel that they are able to run a more

streamlined, cost-effective operation by using all of the e-commerce technology available,

including accepting credit card payments electronically over the Net. "You don’t have to spend on

a physical place, staff, time or energy," says Shado. However, he does admit to being a little

apprehensive about venturing into the new world of e-commerce. "It's uncharted water," he says.

But off the Net, the numbers chart a course that clearly illustrates the magnitude of credit card

business in Canada. By the end of fiscal 1999, financial institutions had approximately 37.7

million credit cards in circulation in Canada - that's one and a half for each man, woman and

child in the country. In 1999 consumers used Visa and MasterCard to ring up $67-billion in sales,

with Visa sales alone accounting for 14 per cent of all purchases in Canada. While the number of

transactions varied throughout the year, last December 23 Canadians used their plastic at a

lightning quick rate of 110 times a second. The average value of the sale per swipe was $90.

With numbers like these, it would seem as though credit card use must have hit a ceiling, but this

is not the case. Credit card sales rose by 11 per cent last year and show no sign of slowing down.

Where do we do all this spending? In the 627,000 outlets that accept credit cards. Ever since credit

cards were first introduced, consumers have enjoyed the security, convenience and power to bail

themselves out of emergency financial situations. But some experts believe that consumers'

perception of credit cards is changing. Whereas in the past we mainly used credit cards for big

purchases and in emergencies, we are now coming to view them as extensions of our income.

Credit cards are now used to allow us to maintain a comfortable lifestyle during lean times,

whereas in the past we would have just tightened our belts. Cards can be broken down into two

categories: charge cards, including American Express and Diners Club, which require users to pay

off the balance each month; and credit cards, such as Visa, MasterCard and most retail cards,

which allow users to carry a monthly balance. More than 600 different organizations in Canada,

 including 18 financial institutions, issue Visa and MasterCard credit cards. The remainder are