The changing face of payments
The Payments Council’s latest report, The Way We Pay, shows rapid changes in use of payment methods over the past decade – but cash is still in the mix.
The Payments Council statistics show that, though decreasing in its use, cash is still very important in people’s daily lives, and it “continues to hold its grip on frequent, low-value payments”. It made up three out of five of one-off payments in 2011, of which 44% were between £1 and £5. The average value of a one-off cash transaction was £11.
There is some evidence that people are now using debit cards to pay for small transactions: Less than two thirds of payments in shops are made in cash (56%), compared to 75% in 2001.
Debit cards are currently making gains in sectors previously dominated by cash and are likely to take a greater share as contactless cards reach mass adoption. More than one in four (28%) of spontaneous transactions are made on a debit card (a rise of 59% over the last five years), with the average transaction size at £42 and falling.
Nearly three in five debit card purchases (56%) are between £10 and £50. 91% of all one-off cash transactions were under £25, so the contactless payment limit of £20 will allow many cash payments to potentially migrate onto cards. Debit card use is widespread across all ages and socio-economic groups.
Cheques account for just 1% of spontaneous transactions, but have an average value of £375, as they are more likely to be used for high value payments such as financial transfers There is now a quite narrow demographic profile for cheque usage which reflects its diminishing status as a mass payment method. According to the Payments Council cheques tend to be favoured by “older people who are used to paying that way”, the self-employed and families with children who have to pay for childcare and children’s activities.
Among regular payments for household and other commitments like car insurance, mobile phones and donations to charity, Direct Debits and standing orders comprise three quarters of the total (76%) of which Direct Debits alone account for 66%. In 2001, cheques and cash accounted for 37% and Direct Debits only 50%.
Figures on overseas spending by UK citizens reveal some interesting changes in the changing patterns of use between cash, credit and debit cards
In total, spending abroad roughly doubled between 2000 and 2011 to £21.6 billion. As other countries increasingly accepted cards their use abroad exploded, almost tripling to 415 transactions between 2000 and 2011.
Even more dramatic was the expansion in the use of ATMs. Getting cash out of ATMs abroad increased by 130% between 2000 and 2008, when it peaked at £7.9 billion. This fell in each subsequent year to a total of £6.5 billion in 2011, in contrast to plastic card spending, which despite a fall in 2009 registered growth in 2010 and 2011. This is likely to have been driven by ever more widespread card acceptance abroad at hotels, restaurants and cafes, leaving travellers much less dependent on carrying foreign cash.
In 2001, debit card use abroad totalled £1.6 billion which was approximately 18% of credit card spending abroad. The growth in debit card ownership in the UK, coupled with wider acceptance of UK cards in foreign locations has driven some of the switch from credit card to debit card , with spending in 2011 amounting to £9.3 billion which was approximately 75% of credit card spending.
“As in the UK, the traditional ways we pay abroad are falling by the wayside,” says the report. “In the next 10 years it will be interesting to see whether other countries adopt contactless technology and develop the same mobile payment technologies as the UK.”
“We scarcely notice the steady changes in the way we pay, yet someone in their thirties today will see more change in their lifetime than in the entire history of money. Even recent innovations such as payment via a mobile phone, which ten years ago some felt to be science fiction, will soon be commonplace,” said Adrian Kamellard, chief executive of the Payments Council. “The 2000s were the decade of the debit card. The 2010s are likely to be the decade of the mobile phone. Just as we can’t imagine how we ever did without the internet, many people will soon wonder how we used to be so dependent on cash and cheque. Twenty years from now even cards may seem archaic. It’s easy to imagine a future where we merely pat our pockets for our keys and phone. The wallet could become a historical curiosity.”