Payments Council Report Reveals Changes in Payment Behaviour

A new report called ‘The Way We Pay 2010′, published by the Payments Council, shows a payments revolution occurred in the UK in the past decade, and this looks set to continue. The last decade not only saw the rise of internet banking and shopping but it was also the decade where cards took control of consumers’ wallets as cheques and cash were increasingly replaced by a card – particularly the debit card.

Rapid decline of cash wages

A decade ago, one in eight workers still got paid cash-in-hand. By 2009 just one in 20 took wages home in notes and coins. By 2018, it will be only one in 50. Interestingly in the mid-2000s, the shift away from cash halted temporarily, before falling again in 2008. A much bigger switch from cash has taken place in state benefit payments: 10 years ago, 87% of benefits and pensions were paid in cash; today, 79% are paid directly into bank accounts. The demise of cash wages has been driven by the ongoing expansion in the number of automated payments and cash machines. There are 63,000 holes in the wall in the UK today, two-and-a-half times more than 10 years ago.

Use of cash predicted to fall below half of all transactions for first time

On the face of it, cash still looks popular. Six in 10 transactions still involve cash, but almost 80% of these are less than £10. In just five years time, cash transactions are expected to represent less than half the total for the very first time. The value of cash consumers use is dwindling even faster compared to their wealth and spending, rising only 7% in the last 10 years, while overall consumer spending has doubled. If consumers had not made the move to other payments such as cards, then they would need £102bn more in their wallets each year to meet their spending needs today, compared to 10 years ago. This equates to £2,050 more for each adult per year, or £40 per week each.

Cheques check out

Cheque usage has been falling since 1990. Just 0.8% of retail transactions are now made by cheques. By value, 60% of what consumers pay by cheque is now for financial transactions (savings, investments, paying credit card bills).

Credit cards reach maturity as debit cards rise to dominate the payments revolution
Card usage has flourished as traditional payment means have withered. But credit card usage has actually fallen in real terms since 2005. Debit cards have become the payments workhorses. There has been an increase in how much consumers spend on cards four-fold in 10 years, and are expected to use them six billion times this year. Increasingly debit cards have taken over both higher value credit card payments, and lower value cash payments. By 2018, one in four of all transactions will be on a debit card, up from just 5% 10 years ago. This could prove a conservative forecast as the contactless revolution gathers pace – with more cards carrying contactless technology being issued and more retailers rolling out the new technology.

Faster Payments catch on quickly

The latest act in the payments revolution is the arrival of Faster Payments. At launch, it was calculated that about 8% of Bacs phone and online banking payments and standing orders payments were eligible to become Faster Payments, but in fact, many more payments have materialised suggesting that customers have decided to replace a cheque or cash payment in favour of something faster. Half of regular standing orders have now migrated to Faster Payments, while individuals are making around 10 million more one-off internet and phone payments per month than before the new system was launched.

Business Reaction to the Report

Jim Woodworth, head of business services at ACI Worldwide

“Today’s report from the Payments Council supports the widely accepted view that consumers are increasingly abandoning paper forms of payment such as cash in favour of more convenient electronic options including debit card transactions. In order to support this so-called ‘payments revolution’, financial institutions need to make sure their systems are developing at the same pace. As the volume of electronic payments increases year-on-year, banks need to be able to cope with both the growth in the number of payments and the increasing potential for fraud, as well as the emergence of new ways to pay, such as contactless cards and Faster Payments.

“Looking ahead, our perceptions of cards and what they can do will become much broader. In the future, more banks are likely to move towards the development of multi-application cards, which will be able to include authentication, transit, access to money and identification services. The UK is likely to be at the forefront of this revolution, as UK consumers are generally more experienced using cards than our neighbours in Europe.”

Nick Ogden, chief executive officer (CEO) and founder of Voice Commerce Group

“It comes as no surprise that the Payments Council has again articulated the demise of cash in their latest report with usage rising just 7% over 10 years, while total spending has doubled. The switch away from cash has been long coming with the latest statistics demonstrating that the payments market is changing as consumers look for more secure and convenient ways to pay. While change is exactly what is needed and technology innovations driving the uptake of mobile and online, the threat of fraud and identity theft becomes more prevalent as hackers get better at cracking these new payment technologies. With this in mind there is now a need for a truly secure method for customers and businesses to authorise and verify transactions in the most convenient way possible. In the coming decade those who can align convenience with security really do stand to revolutionise the way we pay.”

Ian Kerr, chief executive officer (CEO) of Level Four

“The UK Payment Council report highlights both the increased use of the ATM as well as the need for banks to roll out new services at this channel. It is clear that ATMs dominate the way in which consumers access their cash as the report states that cash machine withdrawals have almost doubled in the past decade. Much of the increase in ATM traffic is due to consumers using the terminal in place of the branch so the roll out of new functionality to enable this trend to continue will be key. However, cash use in general was found to be declining, consequently banks must continue to innovate at the ATM in order to ensure that it remains an essential point of interaction with the bank.

“To continue to generate cost savings and ROI [return on investment] at this terminal, banks should provide value added functionality and, critically, reliability. While enabling new functionality such as mobile top up and contactless is important, banks must not forget the basics. Keeping ATM networks constantly up and running as the number of services and complexity of the channel increases, will be a critical challenge for banks. ATM downtime can damage brand reputation among a consumer demographic who clearly value and expect a quick and convenient service from their bank. Consequently, traditional manual testing of ATMs is no longer enough and automated testing will be one of the key tools for banks looking to maximise ROI and customer service at this channel.”

Steve Brunswick, strategy manager at Thales Information Systems Security

“Today’s launch of the UK Payment Council’s report on payment trends further cements the online channel’s place on the leader board when it comes to the future of payment transactions. The report states that two-thirds of UK consumers now shop online, while traditional forms of payment such as cheque and cash are declining, albeit at different speeds. The prominence of online is clear, however less so are the actions being taken by banks to secure this channel.

“As friends increasingly use online banking as opposed to cash to make payments between themselves and with 22 million adults now banking online, no financial institution can afford to be complacent. The figures speak for themselves; clearly there is no better time to ensure online security is top of the agenda.”


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