Debit card payments rise but cash remains king

02 June 2014 -

Consumers’ habits are changing as technology offers more convenient incentives, but retailers are growing impatient with charges on transactions

Shoppers are using cash less than ever before as debit card use continues to grow, according to The British Retail Consortium (BRC). Its latest Payments Survey, published today, has shown that a growing proportion of smaller payments previously made in cash are now being made in other ways. Despite remaining the predominant method of payment, cash payments have fallen by 3% over the past 12 months and 10% over 5 years to 53%. Comparatively, debit-card usage has risen 2% to a level of 32% of UK transactions in the past year.

Meanwhile, in terms of overall sales value, debit cards have surged by 11% in the past five years to 50%, helped by incentives such as self-service tills, contactless cards and online sales.

BRC director general Helen Dickinson said: “Customers are taking advantages of new ways to shop and pay. The availability of contactless cards, handy express stores and self-service tills as well as online sales has increased the use of debit cards for smaller payments in place of cash. This is very much in line with the attention customers have paid to price and value during the recent economic uncertainty, as they have sought to minimise payments from their budgets for everyday items.”

Perhaps unsurprisingly, with continued efforts from many households to reduce debts and loans, credit card usage remains static: customers are spending the same amount in total, but for fewer items, suggesting a more considered approach to purchasing.

In parallel, however, there has been a steep rise in bank costs for retailers offering payment conveniences. The average cost to a retailer for processing a credit- or charge-card payment now stands at 40.9 pence – surging by 18.3% in the past five years.

Dickinson added: “The recent pattern of spending on larger but fewer products on credit cards shows that customers are now feeling more confident than they did a year ago, and reflects the wider consumer outlook of cautious growth. Cash use down in the last five years is a milestone in the development of our digital economy. It shows that customers are embracing digital shopping, whether online or on the high street, and retailers are adapting and evolving to meet the demand with excellent services. However, it is important to note that cash still remains dominant in the overall number of transactions.”

On those troublesome bank charges, she said: “It is really disappointing that the average cost of accepting both credit and debit cards have increased over five years, while cash costs have gone down. Interchange fees cost the retail industry and its customers almost £1 billion in 2013. The much-welcomed European proposals to cap how much banks can charge retailers to process card payments are close to final approval, but in the meantime, we continue to work with the UK government and Payment System regulator to implement caps on UK fees without further delay, as has happened in other European countries.”

CMI is running a workshop on Harnessing Customer Loyalty on 23 June. FIND OUT MORE HERE