Cash has finally succumbed to the rise of the debit card over this past summer. Debit cards passed the historic milestone over the UK’s August Bank Holiday, when the running total of debit card spending (£272 billion) finally overtook the cumulative amount of cash spent (£269 billion) in the economy for the first time ever.
Debit cards are growing at break-neck speed. The number of purchases rose 10% this summer compared to last, an additional 1.6 million transactions on debit cards every day between July and September. The amount spent rose almost 11%. Debit cards were used three times more frequently than credit cards in 2010 Q3.
As a further indication of the move away from cash, withdrawals from cash machines fell 1.5% in the third quarter, compared with the same period in 2009, a decline in real terms of almost 5%.
Sandra Quinn, Director of Communications, Payments Council explained: “Cash is too cumbersome for many consumers these days – they prefer a card for anything more than the smallest transactions. We now expect our debit cards to be accepted everywhere we go – in pubs and clubs, at the corner shop, online and on the high street. Having quickly supplanted cheques, then claimed the scalp of credit cards, they have now usurped cash’s throne too.”
Credit card spending remained fairly flat in the third quarter of 2010, when compared with the same period in 2009. Summer credit card spending was up just 2.2%, well below CPI while the total balance outstanding on our credit cards fell to its lowest level since 2003 – showing that customers are taking repayments seriously.
Credit card spending has barely changed in cash terms in recent years – over the last year it is up only 5% compared to 2005, a decline in real terms of a tenth. Since 2005 the number of cards in issue has also fallen from 70.6 million to 60.7 million (-14%), and the number of cardholders has decreased from 31.7 million to 30 million.
Quinn said: “Once credit cards were the only convenient way to pay as alternatives to physical cash and cheques, but now people have far more options. Conscious of the need to repay credit borrowed, consumers are increasingly choosing their debit card over credit card. Contrary to expectation, the possibility of greater financial stress during the recession and beyond has not driven people to rely more heavily on their credit cards.”
Cheques accelerated their flight into the payments wilderness. 104 million fewer cheques were written over the last twelve months compared to the previous year. At this pace of decline, both the number of cheques written and the value of money they move will almost halve by 2015.
Quinn added: “Cheques are very rarely used by consumers to pay for things – they are now mainly reserved for larger transactions, especially moving savings and investments around, although they are still popular for giving gifts.”
Among electronic transfers, Bacs were flat in real terms in the third quarter (up 3.4% by value compared to the third quarter of 2009 with Direct Debit volumes growing by 2%), and CHAPS fell slightly in real terms (up 0.4% by value). Faster Payments, however, rose 53% in value terms and 42% in volume terms, as more banks joined the system and in September the maximum value threshold for internet and phone payments rose from £10,000 to £100,000.
Quinn concluded: “Faster Payments have met a huge demand for people to move their money instantly, and have generated more transactions too. Consumers expect their banks to offer the service now – whereas a tenner borrowed from a friend was once repaid in cash, now it’s quite common for a Faster Payment to do the job direct. The volumes continue to soar – the growth rate is likely to slow, but we expect Faster Payments to take an ever bigger share of UK payments.”
The Payments Council is the organisation that sets strategy for UK payments. It has been established to ensure that UK payment systems and services meet the need of users, payment service providers and the wider economy.
The Payments Council has three core objectives: to have a strategic vision for payments and lead the future development of co-operative payment services in the UK; to ensure payment systems are open, accountable and transparent; and to ensure the operational efficiency, effectiveness and integrity of payment services in the UK.
