Debit cards will be the ‘King’ of payments by 2021, thanks to businesses and consumers embracing technology
Thanks to small and medium size businesses embracing card payment technology over the last few years, the total volume of non-cash payments overtook cash in 2014 – 52% non-cash compared to 48% for cash payments.
Despite accounting for less than half of all payments, cash has continued to remain the most preferred method of payment in the UK – 45.1 per cent of payments made in 2015 were still made in cash. However, according to industry experts cash payments are now forecasted to significantly fall further in popularity over the next five years, losing its title as ‘King’ of payments to debit cards.
Advances in technology mean you can now pay for a wide range of goods and services including taxis, pasties, buses or flowers with contactless debit or credit cards, even your mobile phone. There has been phenomenal growth in certain sectors accepting payments via phones (“tap and go”), contactless debit and credit cards, with discount stores, gift card and novelty shops benefiting massively from the new tech.
Also with the continued growth of online shopping which shows no sign of slowing, it has further helped cash payments to fall. Currently the average UK adult makes around twenty card payments per month, of which around one in 10 were contactless. Back in September 2015, the limit for a single payment using contactless tech was increased by £10 to £30, making it an increasingly handy alternative to cash. But cash still remained the most popular method of payment in 2015, accounting for roughly half (45.1%) of all payments.
The tipping point for the most popular payment method will be reached in 2021, according to an industry trade association, UK Payments, when 14.5 billion debit card payments are predicted, overtaking the forecasted 13.0 billion cash payments for the first time. By 2025 payment other than cash will go up to 79,044 payments every minute (or 42 billion in the year), with increasing card usage playing a major part.
Payments UK also forecasts another landmark in 2025, when credit, debit and charge cards will account for more than half of all payments made (50.2%) – driven in large part by the increasing popularity of contactless. It is predicted that by 2025 notes and coins will drop to being used for just over one in four (27%) payments.
By 2025 consumers are expected to use a debit, credit or charge card virtually every day (30 times per month) and almost half of these transactions – 14 per month – will be contactless. Also, payments made using a mobile phone are expected to grow due to the benefits of consumers not needing to carry their plastic cards with them.
Adrian Buckle, Chief Economist from Payments UK, said: “Technology, consumer choices, business behaviour and market developments are major factors in how we choose to pay, and will have a major impact on how things change over the next ten years.
“This year’s UK Payment Markets report reveals a picture of consumers and businesses more ready than ever to reassess how they make payments and make the most of the convenient, cost effective and innovative options that are available.
Mr Buckle, continued: “We have a long tradition of accurately predicting payment behaviour and forecasting what’s going to happen with existing ways to pay. However, with so much innovation happening in payments at the moment – not just from traditional payment providers but increasingly from new players such as retailers, FinTechs and other technology providers – it is very difficult to predict which of these new innovations will change the face of the way we pay.
“How their fortunes fare rests in the hands of consumers and businesses but one or two of them are bound to be big winners and potentially losers in the next decade.”
Source: UK Payments
Recent research by Barclaycard found consumers aged 60 and over are embracing contactless technology with the use of contactless cards by the over 60’s increasing by 116 per cent in the last months, resulting in the biggest increase of any age other age group.
Other forms of non-cash payments in 2015, included more than five out of six (85%) current account holders using Direct Debits, totalling 3.9 billion payments in the UK, worth a total of £1,215 billion. Limited growth is expected over the next ten years, with 4.3 billion payments forecast in 2025.
Driven by the increasing popularity of online and mobile banking, continued growth is also predicted in the Faster Payments Service which is used to process these payments. In 2015 over two-thirds of adults regularly used online banking, and a third used mobile banking. This contributed to 903 million one-off and forward-dated Faster Payments being sent, with a further 344 million standing orders processed using the service. These payments will more than double over the next 10 years, with 1.9 billion one-off and forward-dated payments forecast to be made in 2025.
As for cheques, there were 13 per cent fewer cheques written in 2015 compared to a year earlier. In total more than 546 million cheque payments were made in 2015, showing they are still valued as a convenient and secure method of payment. In value terms, the CHAPS payment scheme, which is used primarily for wholesale financial and corporate treasury payments, accounted for £68.4 trillion – or more than 90% of the total value across all payment types.
Chris Hargreaves, founder of AngryPolicyholders.com, commenting on the report said: “Embracing technology is not only advantageous for consumers. Businesses who embrace tech, such as contactless payments, online or mobile phone “tap and go” can benefit from attracting new customers and improved cash flow.
“Businesses who accept card payments have seen their fees reduce following a ruling by the EU against card providers. The new rules stopped card providers passing on the cost of perks they offer cardholders to merchants (businesses), who were penalised with higher transaction fees.
“Speaking to small businesses who are using various methods to accept cards, all admitted ‘they wished they had done it years ago’. Frightened by the myths of fees and paperwork involved in accepting card payments found that these fears were misplaced. In fact, most have even seen an increase in customers using their business, especially since the contactless limit was increased to £30.00.”
As for cash payments falling, Mr Hargreaves said: “Debit card payments have advantages, including consumers only being able to spend their account balance, but at the same time there’s little protection for consumers, compared to credit cards. I just hope the ease of paying with credit cards doesn’t lead to consumers racking up debt because they fail to pay off the balance at the end of the month.”
Mr Hargreaves concluded: “The annual growth rate of consumer credit hit 9.3 per cent in February 2016, the highest pace since December 2005, with households in the UK owing £63.3billion on credit cards, plus a further £115.3billion in other loans excluding mortgages.
“There are obvious concerns about the current level of personal debt in the UK and it can only be hoped that making it easier for consumers to spend on cards doesn’t have an adverse affect, creating unsustainable personal debt levels.”