Card Payments Now More Popular Than Cash Among British Consumers

The payment landscape in the U.K. has shifted towards debit and credit cards. We go over what the data shows, and how that compares to trends in the United States.

The British Retail Consortium’s (BRC) latest Payments Report shows that cards accounted for over 50% of all retail transactions by volume. This marks the first time in British history where card payments became more popular than cash. Debit cards are by far the most popular way to pay, accounting for 42.58% of all retail sales, as of 2016.

According to the report, cash was used to pay for £81.5 billion worth of goods in 2016. That marked a 3% decline over the prior year. The total share of cash payments saw an even more drastic drop, falling 12% year over year. By contrast, much more British citizens have turned to debit and credit than in the past. Debit cards were used in roughly 42.58% of all transactions, and credit and charge cards were used in 11.44%. The BRC’s data also suggests that card payments are being used in smaller and smaller transactions, a similar trend seen in the United States. The average transaction value on card payments fell from £28.35 to £25.40 -- the biggest drop in four years.

While the number of card transactions has gone up, the cost of collecting those payments has fallen. In November 2015, the European Parliament enacted interchange fee regulation. This capped the fees banks could collect from merchants in the European Union (EU) for accepting credit and debit cards. The BRC estimates this move saved around £500M for both retailers and consumers. Before the regulations took place, the average cost per transaction was £0.41 per transaction, and fell by 60% to £0.16 in 2016. It remains to be seen whether the interchange fees will remain capped once Britain leaves the European Union.

Though the BRC estimates British consumers saved due to the interchange regulation, 2016 saw a decrease in their credit card reward programs. Banks and card issuers finance cash back programs using interchange fees. Once the EU regulation kicked in, many banks pulled back their consumer incentives, slashing cash back rates. Towards the end of 2015, Capital One Bank responded by cutting rewards by as much as 75% for some cardholders. The cash back reduction could be one reason why credit and charge cards haven’t grown as much as debit card payments. The BRC report showed just a 3% growth in this department, in contrast to the Tk% growth among debit cards.

In the United States, cash still remains the dominant payment type by volume. According to Tremont Capital Group Inc., in 2016 cash made up 45% of consumer payments, with debit in a distant second place at 27%. Despite that, attitudes are shifting. Cash payments are declining, while noncash payments are gaining market share. Going back to 2012, cash held on to a 50% share of the total transaction volume, and slipped by 10% over just four years. A 2016 TSYS study showed that, among consumers who have both a debit and a credit card, credit has become the preferred method of payment as of 2015. Among cardholders, cash was the preferred payment method for just 11% of respondents. The May 2016 edition of the Harvard Business Review attributes the popularity of cash in the United States to how widely accepted it is. While the number of cash-only businesses is declining, many merchants continue to have minimum amounts set for accepting cards.

A line graph showing the market share of card and cash payments in the U.S. and the U.K. from 2012 to 2016.

Visa, the world’s largest card network, is actively trying to change that and make card payments a more popular option among both U.S. consumers and small businesses. The company recently launched a new initiative in which it’s planning to give away $10,000 to up to 50 restaurants and food vendors who are willing to upgrade their payment technology. The only caveat for business owners who sign-up: they cannot accept cash payments. The companies that sign up and win Visa’s reward will only be able to accept debit, credit and mobile wallet payments.

Joe Resendiz

Joe Resendiz is a former investment banking analyst for Goldman Sachs, where he covered public sector and infrastructure financing. During his time on Wall Street, Joe worked closely with the debt capital markets team, which allowed him to gain unique insights into the credit market. Joe is currently a research analyst who covers credit cards and the payments industry. He earned a bachelor’s degree from the University of Texas at Austin, where he majored in finance.

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