Cash and card (debit and credit) have been a constant staple of the payments market. However, the emergence of technology has seen other payment forms enter the limelight. Mobile banking, buy now pay later (BNPL) and mobile wallets are just some examples highlighted by UK Finance, the banking and financial industry voice, in its latest ‘Payment Markets Report’ as it looks to 2032.
The report breaks down how impactful business and consumer payments were respectively in the growth of the total number of payments made in 2022. Increasing from 40.4 billion in 2021 to 45.7 billion, UK Finance identifies businesses only accounted for 13 per cent of total UK payments while consumers made 87 per cent.
However, the nature of business payments means larger sums were usually transacted. As a result, businesses accounted for 82 per cent of the total value of payments made. Meanwhile consumers, despite making more payments, only accounted for 18 per cent of the total value. Over the past year, UK Finance has identified that more lower-valued payments are being made than the year before. Nonetheless, the overall amount spent does not differ very much as the higher volume of transactions makes up for the low value.
There are a few reasons for this. According to UK Finance, the growth of remote working has seen people put their prepaid travel cards away. Therefore, when they travel they are making smaller individual payments. Additionally, the report identifies smaller shop visits being made by consumers in light of the cost of living crisis.
Adrian Buckle, head of research at UK Finance, said: “During 2022 we saw increased use of contactless, online banking and mobile payments, although cost-of-living challenges meant that some people preferred to use cash to help with their budgeting.
“Changes to shopping and travel habits, particularly related to the rise of hybrid working, led to a big jump in the volume of transactions made. Debit cards remain the most popular way of paying, with them now accounting for half of all payments made in the UK.
Payment methods in 2022
Cash
Growing fears about inflation and the rising cost of living have meant some people made greater use of cash as a way of managing budgets.
In fact, there were 21.6 million people who used cash only once a month or not at all in 2022, down from 23.1 million the year before.
There were 0.9 million consumers who mainly used cash in 2022, down from 1.1 million in 2021 and 2.2 million five years previously in 2017. These consumers used cash when doing their day-to-day shopping, although the majority still use other payment methods to pay their regular bills.
Cash payments actually increased between 2021 and 2022 to 6.4 billion from six billion. However, relative to other payment methods, the propotion of the total payments made in cash dipped from 15 per cent to 14 per cent.
Credit and debit cards
Debit cards remain the most popular payment method and volumes increased by 18 per cent during the year. They totaled just over 23 billion payments (2021: 19.5 billion). As a result, for the first time, half of all payments in the UK were made using debit cards.
Payments made using credit cards increased by 19 per cent from 3.4 billion in 2021 to 4.1 billion in 2022.
UK Finance also revealed the extent contactless payment were impacting debit and credit cards. Contactless payments were used extensively throughout the UK in 2022, with 87 per cent of people making contactless payments at least once a month or more frequently. Across both debit and credit cards, there were 17 billion contactless payments.
This was a 30 per cent increase from 2021: 13.1 billion.
Additionally, the average value of contactless payments continued to grow in 2022 at £15.10, up from £12.66 in 2021.
Remote banking
Remote banking (online, mobile, or telephone) remained popular in 2022 with 86 per cent of adults using at least one form last year.
The majority of people across all age groups used remote banking in 2022, ranging from 80 per cent of those aged 65 and over to 95 per cent of people aged 25 to 34.
The number of remote banking payments processed via the Faster Payments Service continued to grow strongly, increasing 17 per cent to 4.3 billion payments. Use of remote banking by businesses contributed to this strong growth.
Mobile Wallets
As well as using contactless cards, other devices such as mobile phones are increasingly being used to make contactless payments.
Thirty per cent of the adult population reported being registered for at least one mobile payment service in 2022, with younger people more likely to be making use of mobile wallets.
Overall, use of these services is still lower than use of contactless cards, but they appear to be growing in popularity and it is likely that mobile payment methods will see strong growth in the future.
Buy Now Pay Later (BNPL)
Around one in eight people in the UK (12 per cent) reported using BNPL services to purchase something during 2022, the same proportion as in 2021.
Those aged 25 to 34 reported using BNPL most, with almost one in five adults in this age group (18 per cent) using it in 2022.
Eight per cent of people aged 65 and over reported using BNPL, which was up from four per cent in 2021.
Looking to the future
UK Finance forecasts debit card payment volumes will increase to over 27 billion. This will likely be driven through contactless payments, online shopping, and the ever-increasing levels of card acceptance among businesses of all sizes.
Meanwhile, it expects the number of cash payments to continue to fall in the long run as the cost of living crisis eases, consumer confidence returns and consumers continue to turn to alternative payment methods. The rate of decline is expected to slow as use is concentrated among those who strongly prefer to use cash. UK Finance expects there to be around 3.3 billion cash payments in the UK in 2032, accounting for around eight per cent of all payments.
Buckle added: “There is a wide variety of payment methods available in the UK and each provides specific benefits to the people using them. Over the next decade we are forecasting further growth in the use of card and mobile payments and market developments such as open banking may bring further changes to the payments landscape.”
People aren’t ready to make the switch
Commenting on UK Finance’s findings, Sam Richardson, deputy editor of Which? Money, said: “It is right that millions of consumers across the country find paying digitally easy and convenient, yet as UK Finance’s report shows, there remains a significant minority of people who are not yet ready or able to make that switch, evidenced by an increase in cash payments over the last year.
“Whether it’s to pay for everyday essentials or to keep track of finances amid the worst cost of living crisis in decades, those who still want to use cash should be able to do so – without having to pay just to access their own money.
“Hard-pressed families are also having to turn to other, unregulated methods of payments. With millions using buy now, pay later providers to pay for items, including essentials, the lack of regulation leaves consumers with significantly weaker protections should something go wrong with their purchase. It is vital that the government stops hesitating over plans to regulate BNPL and does so as soon as possible.”
