Canadians to See Dramatic Shift in Credit Card Offerings

TORONTO, ONTARIO, Apr 22 (MARKET WIRE) --
In the wake of record industry losses, consumer bankruptcies and the
recently announced voluntary Code of Conduct for the Credit and Debit
Card Industry in Canada, the credit card industry has been transformed
from one of the most profitable areas of lending to one of the least.
According to a new Deloitte report, Charting a new course for the credit
card industry, two things are clear: issuer strategies need to change
and, in many cases, consumers will benefit.

"The industry is at a turning point and forward-looking issuers will
use new market dynamics as an opportunity to innovate, introduce new
products, and improve relationships with consumers and merchants. This
will bring about a new generation of card and payment services - many of
which will directly benefit Canadian consumers," explains Pat Daley,
Leader of Deloitte Canada's Payments Practice.

"In response to existing and emerging market forces, credit card
issuers are considering a number of options, from redefining their
business and operating models to exiting the business altogether,"
says Daley. The credit card industry has been caught in a perfect storm:
record net losses driven by increased debt and rising consumer
bankruptcies have occurred at a time of increased government regulation.

"Some companies have set up project management offices to execute a
number of quick changes to products, pricing and lines of credit, while
others are taking a longer-term approach, revising business, governance
and operating models to reflect the needs of today's new
marketplace."

Trends emerging within the Canadian credit card industry

As forces such as the growth of Internet commerce transform the industry,
Deloitte suggests that the concept of a credit card and the form it might
take are likely to change significantly over time and assume both a
physical and virtual dimension.

According to Deloitte, there are eight emerging changes to the payments
landscape:

1. Credit cards and bank accounts will start to merge - Combining credit
cards with other banking relationships could make credit cards more
relevant to a new generation of thriftier consumers. Credit card issuers
could provide deposit services by allowing consumers the opportunity to
prepay their credit cards and/or receive interest or more favourable
credit terms. Issuers might also consider offering deposit services,
where the balance could support existing borrowings, justifying lower
interest rates or higher credit limits based on the demonstration of the
borrower's liquidity.

2. Social networking sites and PDAs will be used as payment platforms -
Canada will begin to see the deployment of online payment services to
Generation Y or Generation X consumers through personal digital
assistants (PDAs) and social networking sites. These sites provide
functionality for consumers to make online purchases through various
mechanisms such as the introduction of a virtual currency (purchased via
debit/credit transactions)-mechanisms which will continue to see
widespread consumer adoption. Also, "e-wallets" such as PayPal may
extend their online dominance by developing micropayments solutions for
platforms like Facebook, and replace local payment systems such as
Interac.

3. Mobile phones will be used as payment devices - Electronic payment forms
such as mobile phones are already beginning to replace traditional card-
based payments in some parts of the world, such as Europe and Japan-
especially for person to person transfers, point of sale, and m-commerce
transactions. Convenience for consumers will drive the adoption of
mobile payments using near field communications. Consumers concerned
about providing credit card details over the Internet for m-commerce are
likely to prefer the mobile e-purse form of payment

4. Loyalty programs will increase significantly between card issuers and
retailers - Many Canadians choose credit cards based on rewards.
Consumers will see issuers start to proactively partner with retailers
to make relevant offers that are more attractive to existing and
potential consumers. This is a popular approach in the UK where some
issuers create targeted offers jointly with merchants, market the
rewards electronically, and automate redemption.

5. There will be a rise in the use of prepaid cards for recurring payments
- The pay ahead payment concept of prepaid cards (as opposed to the pay
later concept of credit cards) is on the rise as a way to distribute
rewards or benefits to particular classes of consumers, and especially
as a way of delivering government payments to individuals.

6. Credit card holders will see an increase in security features that
prevent fraud - The implementation of security features such as chip-
based credit cards (that require PIN authentication) will become
widespread and will help minimize fraud. These security measures are in
part due to the significant increase in credit and payment card fraud
over the last few years. Further security mechanisms will be layered on
top of chips to continue to prevent fraud over time.

7. Consumers will be educated on responsible debt management - Credit card
issuers will be introducing a number of innovations in their approach to
client relationships to help champion consumer concerns with the goal of
establishing lasting consumer confidence, trust, and loyalty. This will
include new approaches to educating consumers on responsible debt
management.

8. Some credit cards will be cancelled, but there will be new ones to
choose from - Given the significant challenges and future uncertainties
facing the credit card industry, some issuers will exit the credit card
business entirely, while others will choose to remain in the credit card
business, but retrench by eliminating product lines and redefining
operating models. However, there will also be new entrants in this
market, particularly well-known retailers and e-wallet providers.

For a more detailed discussion of the top issues emerging in the
credit card industry and the full report, Charting a new course for the
credit card industry, go to
http://www.deloitte.com/view/en_CA/ca/industries/financialservices/2e7c8e9ef6f37
10VgnVCM100000ba42f00aRCRD.htm.

About Deloitte

Deloitte, one of Canada's leading professional services firms, provides
audit, tax, consulting, and financial advisory services through more than
7,700 people in 58 offices. Deloitte operates in Quebec as Samson
Belair/Deloitte & Touche s.e.n.c.r.l. Deloitte & Touche LLP, an Ontario
Limited Liability Partnership, is the Canadian member firm of Deloitte
Touche Tohmatsu.

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss
Verein, and its network of member firms, each of which is a legally
separate and independent entity. Please see www.deloitte.com/about for a
detailed description of the legal structure of Deloitte Touche Tohmatsu
and its member firms.

Copyright Deloitte & Touche LLP and affiliated entities.

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Gwen McGuire
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