By landmass, Canada is the second-largest country in the world. By population (almost 38 million people), Canada is 39th. This combination makes Canada one of the least densely populated countries on the planet.
That fact is somewhat misleading, however, as much of the Canadian population (90% according to one estimate) lives within 100 miles of the southern border with the U.S. That includes the major cities of Toronto and Montreal, both of which are among the 10 most populous cities on the continent.
As is true in the U.S. and other developed countries, Canada has become an online culture. Just over 94% of the population – nearly 31 million people – are internet users. 99.2% of the population uses a mobile device to go online. And by 2025, 77.6% of Canadians are expected to buy goods and services online.
However, they're not buying everything online. When it comes to small-ticket items (less than $200) Canadians over the age of 45 prefer to shop in-store, presenting challenges for ecommerce businesses targeting Gen X or baby boomers, especially in smaller-purchase markets like health and beauty or pet supplies.
The ecommerce market in Canada has been growing steadily for the past half-decade or more, but the COVID-19 pandemic and its resulting stay-at-home orders created an ecommerce explosion:
All of this adds up to a promising ecommerce market, with Canadian ecommerce revenue expected to climb from USD $34.9 billion to $40.3 billion between 2022 and 2025.
As late as June 2019, Canada’s ecommerce market was considered “developing.” But in 2020, Canada went into lockdown to arrest the spread of COVID-19. Brick-and-mortar retail shopping came to a halt throughout most of the country, with more consumers than ever before turning to ecommerce.
The result was a massive surge in online sales that one observer called a “digital tipping point” for the country. Online revenue almost doubled between March and May of 2020.
During the coronavirus pandemic, online sales increased in the following categories:
(Year-on-year growth in these categories shows a similar upsurge in online sales.)
Meanwhile, the apparel category grew by a mere 21%, perhaps because that category already saw a significant amount of online sales.
As of January 2022, restrictions across Canada are easing and 82.56% of the population has received at least one dose of a COVID-19 vaccine, with over three-quarters of the population fully vaccinated. As stores open back up and the population feels safer about browsing in stores, ecommerce growth is anticipated to keep growing...but at a considerably slower pace than in 2020.
In June 2021, Statistics Canada released results from its Canadian Internet Use Survey, revealing some interesting trends.
And what of their shopping habits? They've changed.
In 2019, only 10% of people shopped online frequently enough (13 or more purchases a year) to be considered "hyper" shoppers. In 2021, 44% of Canadians shopped online once or twice per week.
In 2021, ClearSale commissioned Sapio Research for its second annual survey of over 1,000 Canadian consumers to understand how the pandemic impacted their online shopping habits. Among other things, the study discovered that:
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With its high internet penetration rate and technology adoption, the benefits of doing business in Canada are similar to the benefits of selling in the U.S. or any other developed country. The customers are online; it is simply a matter of understanding their preferences and shopping habits.
However, while Canadians are online, they tend to stick close to home when it comes to shopping: In 2021, all of the top 10 online stores in Canada were Canadian sites.
The pandemic caused many Canadian communities to shop hyper-local, to help save small businesses from the effects of lockdowns. In a 2021 Interac Corp. survey, 75% of Canadians said the pandemic has made shopping and supporting businesses in their community more important, and are even willing to wait longer for delivery and pay higher prices to support local businesses.
If you're not in Canada, however, don't lose hope: There are still plenty of Canadians who love a good cross-border deal, to the tune of $1.6 billion spent on online purchases from foreign companies during the second and third quarters of 2020 combined.
Another consideration when selling into Canada is payment methods. Credit card penetration is high in Canada, with credit cards used for 55% of all ecommerce transactions, but alternative methods like digital wallets are rapidly growing in popularity.
As we noted above, merchants can't expect to directly transpose their ecommerce operations from the U.S. or other markets to Canada. Selling profitably in Canada requires overcoming some unique challenges and taking advantage of opportunities, such as:
As have consumers in the U.S., Canadians have fallen hard for the ease, selection, and low cost of shopping on Amazon sites. Amazon.ca is considered the best online site with the largest selection and fast delivery. It's also the most popular online store in Canada by a wide margin.
As Canadians wade further into the waters of ecommerce, they like to do their research before taking the plunge: 55% read several product reviews before making a purchase. If your ecommerce site doesn't have user reviews (and ideally, user-submitted product photos), you'll struggle to gain trust with this market.
There is good news. COVID-19 has shifted more Canadians online for purchases, especially those in the younger generations. Older generations, specifically, Baby Boomers still held onto their preference for in-store shopping.
Our 2021 survey found that 48% of Canadians, increased their average online spending during the pandemic with 38% spending at least $200 more.
With 79% of the population fully vaccinated, some regions opening back up to relatively normal activities, and consumer optimism improving, those numbers should continue to increase. Canadian ecommerce revenue is predicted to top $40 million by 2025.
Canada has a multilingual culture and two official languages: English and French. Over 86% of the population knows enough English to participate in a conversation. Nearly 12% of the population has a working knowledge of French.
However, half of the residents of Quebec (Canada’s second-most populous province) speak French only. French is the only official language in Quebec. There is also a significant population of French-only speakers in New Brunswick (8.6% of provincial residents).
Ecommerce merchants wishing to reach customers in Quebec should be prepared to launch French-language online storefronts and apps.
To make things even more interesting, the French spoken in Quebec diverges in many significant ways from the French spoken in France. So online merchants need to be aware of the dialectical differences in each French-speaking region and country. (Canadian English also has a few differences from American English.)
Taxes in Canada differ based on the province. All provinces are subject to the national Goods and Services sales tax rate of 5%. In most provinces, this is combined with a Provincial Sales Tax (PST), ranging from 6% to 10%, to create a total Harmonized Sales Tax (HST) rate.
Canadians LOVE free delivery (86% of online shoppers will shop more often with a retailer offering free shipping), and most merchants oblige—if they don't, 67% of Canadians will abandon cart.
However, in a country as large as Canada, getting purchases to consumers quickly and affordably isn’t always easy, especially in more sparsely populated or remote areas.
The explosive growth in ecommerce activity in Canada we discussed earlier has resulted in a similar increase in ecommerce fraud. Canadian ecommerce retailers reported a 52% increase in 2020.
Part of the reason for this is Canadians' own risky behavior: A 2021 Moneris/Leger survey revealed that nearly a quarter of Canadians have provided their credit card number over the phone to a store or restaurant—a high-risk activity for both consumers and businesses. As more Canadians focus on shopping local, this type of behavior is likely to increase.
About 19% of Canadians say they are reluctant to shop online for safety reasons. Not surprising when you consider that Canadians are more than twice as likely to experienced fraud online than in stores (according to our survey).
Canadians, in general, appreciate fraud prevention efforts. 85% of our survey respondents said they feel more secure shopping on a website that clearly communicates its security and fraud prevention measures.
This underscores the need for any business entering Canadian ecommerce to provide an overtly safe and secure experience.
When CNP fraud occurs, merchants (in Canada and everywhere else) are typically subject to chargebacks.
A chargeback is initiated when a cardholder notices an unauthorized payment on their account. The cardholder will notify their card-issuing bank. If the bank determines the claim is legitimate, the bank will refund the payment and debit the merchant – usually with an additional fee.
Chargeback fees can range from $50 to $100 or more per transaction. The more chargebacks a merchant incurs, the higher their fees will be. In some cases, banks will remove a merchant’s ability to accept credit card payments entirely.
To prevent chargebacks and other fraud-related damages – such as harm to their reputation – e-commerce merchants doing business in Canada have four basic options for fraud protection:
Fraud filters on ecommerce platforms are designed to identify potentially fraudulent orders and stop them from being processed.
Fraud filters can function in a number of ways, such as by:
While these common filters can prevent a high amount of fraud, they may also stop even more legitimate transactions.
When a fraud prevention measure denies a legitimate transaction, it is called a false decline. We explain the risk of false declines in Canada below.
An alternative to automatic fraud filters is secondary review, which involves a more critical look at the transaction(s) in question to detect fraud.
A secondary review goes beyond what filters can do because it considers the context of each situation instead of blindly adhering to preset rules.
However, secondary review on its own can be time-consuming and resource-intensive. That will likely annoy customers who are eager to complete their orders.
Software that applies machine learning or artificial intelligence (AI) can provide a fast and reliable way to screen out fraud. These applications rely on mathematical algorithms and data to identify fraud trends and patterns. Because no humans are involved, machine learning is scalable and consistent, applying the same level of scrutiny to every transaction.
Unfortunately, like “unintelligent” fraud filters, machine learning can be inflexible. Algorithms can also miss new types of fraud that haven’t yet made it into the algorithm’s database.
Fraud managed services is a “best of all worlds” approach that combines cutting-edge automated technology (including advanced fraud filters and machine learning) with expert secondary analysis.
At no point is an order automatically declined. Instead, when the automated system flags an order, the order is passed on to the team of experts who use their knowledge of human behavior and the latest fraud trends to make a final call. Analysts can also flag new trends for insertion into the AI’s algorithm, thereby helping the machine learn faster.
False declines are a risk anywhere merchants use automated fraud-protection rules, and they are on the rise. In fact, 62% of merchants report that their false decline rates are increasing, costing them hundreds of billions of dollars.
A portion of that cost is attributed to how false declines tend to drive customers away from shopping sites, into the hands of competitors, sometimes never to return.
In high-risk industries, merchants may tighten up their fraud rules, only to lose even more money to false declines.
In our survey of 1,000+ Canadian online shoppers:
While Canadian consumers are wary of fraud and dislike false declines, they still expect a smooth and easy checkout process.
In markets like Canada, fraud analysts typically see the same fraud trends over and over again.
The fraud experts at ClearSale tell us that account takeovers – the unauthorized use of someone else’s personal information online – appear to represent most of the e-commerce fraud in Canada. Typical indications of an account takeover include the use of anonymous proxy servers and mismatches between the country and area of the IP address and the billing address.
Fraud analysts also keep their eyes out for high-risk email addresses and high-velocity patterns between transactions.
Our analysts report a clear increase in cases of “friendly fraud” in Canada. Friendly fraud occurs when the customer makes an online purchase with their own credit card and then requests a chargeback from the bank or financial institution after receiving the item or service in question.
Another trend our analysts have noticed in Canada (and now spreading to the United States) is companies experiencing extremely high volumes of suspicious transactions under the same billing customer but with different receivers and shipping information. In some markets, cases like these might be seen as clear fraud, but they may also indicate authentic resellers.
These are the kinds of cases in which human observation and active analysis of the different variables and the visualization of patterns are necessary. Otherwise, many of these legitimate transactions could be categorized as fraud attempts.
To be successful in the Canadian market, merchants need a fraud prevention solution that stays one step ahead of the most sophisticated fraudsters while eliminating false declines and giving customers a seamless shopping experience.
ClearSale does just that.
At ClearSale, our fraud managed services solution combines advanced statistical and artificial intelligence technology with the world’s largest team of specialized fraud analysts to deliver a balanced, real-world approach that is unlike anything else in the Canadian e-commerce market.
With ClearSale, ecommerce merchants receive:
With our headquarters nearby in Latin America, ClearSale knows the Canadian market. If you’re thinking about expanding the reach of your ecommerce business into Canada, get in touch with us today to talk about keeping your business, your reputation, and your customers safe from fraud.
"ClearSale offers a great service that comes with complete peace of mind. Their staff is easy to reach and pleasant to deal with. I particularly enjoy that I no longer have to spend hours a day investigating customers who purchase from our online store and trying to determine if they are legitimate or not. No more rolling the dice with our business. ClearSale also backs up all their..."
"I don't have to spend time researching orders to see if they are fraud or not. I love that ClearSale backs up their approvals with a money-back guarantee if the order turns out to be fraud."
"The competitive rates, their quick response to customer service"
"I love that it takes the stress away from me worrying about fraud charges."
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