E-payments Gather Pace as Cheque Usage Plummets, Finds Payments Council

The total value of payments in the UK economy fell 0.6% in the second quarter of 2010, according to the latest data from the Payments Council. Cheque usage dropped by £21.5bn, down 10% compared to the same period in 2009 as businesses and consumers switched to faster and more convenient electronic payments and cards. Every day of the quarter, on average 290,000 fewer cheques were written than the year before – over three fewer per second.

The use of debit cards (paying for goods and services) and Faster Payments (for transferring money between accounts) took up all the slack left by cheques. Debit card usage rose £7.9bn year over year, up 12.4%, while Faster Payments increased £16.9bn, a dramatic 67% rise as more banks made the service available to their customers, and consumers, and increasingly businesses, took advantage of being able to make instant transfers of their money.

Debit card usage also ate into cash payments. The amount of cash withdrawn from cash machines (a proxy for the amount of cash used for transactions) was £1.6bn lower than in the second quarter of 2009, a decline of 3.2%.

Credit card spending was also weak, rising just 3.9%, barely ahead of inflation. This reflects credit constraints and a continued migration to debit cards. Over the period, the amount spent on credit cards was matched by the amount paid off as consumers shied away from loading up on additional borrowing. Credit card repayments rose by over 7% when compared to 2Q09, averaging over 99% in terms of the amount of debt repaid.

The number of CHAPS payments, which are commonly used for large banking and commercial transactions including house purchases, is slowly increasing. The fall in values, now at an annual rate of 12%, is due to a partial return to normality for the financial markets after the banking crises of 2007-8, which caused a surge in value. A £70bn increase in Bacs, plus the growth in Faster Payments, can be seen to reflect a recovering economy.

Sandra Quinn, director of communications, Payments Council, said: “The payments revolution continues apace in the UK. Cheque usage is shrinking dramatically, while credit cards hold less appeal for consumers and businesses. We use cash less where there is an easy alternative, but we’re years away from cash falling out of fashion. Debit cards are taking over our daily purchases, while Faster Payments are fast becoming how we transfer our money electronically.”

In other news, the Faster Payments Direct Corporate Access (DCA) transaction value limit increased from £10,000 to £100,000 per transaction as of 6 September.

The limit increase could have significant benefits for corporates that are looking to improve their payments efficiency, according to Norman Taylor, product manager at Experian Payments.

“For instance, businesses providing loan facilities will now be able to use DCA for Faster Payments for funding borrowers’ accounts with amounts of up to £100,000. In addition, Faster Payments is particularly attractive for corporates from a customer service point-of-view as it enables an almost real-time transfer of money into a customer’s or supplier’s account and can also be accompanied by an automated message, via SMS or email, for example, advising the beneficiary that the payment has been made,” he said.

“However, simply increasing the value limit is unlikely to persuade corporates to flock to the channel,” he added. “While there is still work to be done to educate businesses and banks around the benefits of using Faster Payments, businesses also still need more clarity before they make a payment on whether it is handled as a Faster Payment and when it will arrive in order to effectively manage their finances.”


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