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In a significant shift in consumer payment behaviour, one third of UK adults now use mobile contactless payments at least once a month, according to a new report by UK Finance in collaboration with Accenture.
The report, UK Payment Markets Summary, highlights key payment trends in the UK in 2023 and provides projections for the next decade.
It shows that there was a 5 percent increase in the total number of payments last year, from 45.7bn in 2022 to 48.1bn, in the UK.
“There is a huge amount of choice available to consumers in terms of how they make payments, but we can definitely see the continued popularity of debit cards and contactless,” said Adrian Buckle, head of research at UK Finance.
“This has been driven both by consumer demand as well as new technologies which help to increase acceptance levels, particularly among small and mobile businesses.”
Contactless surge
Contactless payments accounted for 38 percent of all payments in the UK in 2023, with 18.3bn contactless transactions recorded, and one third of the country’s adults reported using mobile contactless payments monthly, up from 30 percent in 2022.
In addition, 42 percent of UK adults registered for mobile contactless payments last year, up from 30 percent in 2022.
“The best payments system is the one that feels invisible to the consumer, something that's secure, intuitive and doesn't require any extra consideration,” said Sulabh Agarwal, global payments lead at Accenture.
Agarwal continued that just as credit and debit cards once offered consumers a more seamless option than cash or cheques, so contactless and mobile payment methods such as digital wallets are proving more convenient and are therefore quickly gaining market share.
“To preserve and grow their traditional payments revenue streams, UK banks must learn from the successful customer offerings and business models in Latin America and South East Asia, where these methods are more widely used.”
The report also shows that Faster Payments last year overtook Direct Debit as the third most used payment method.
It suggests that Faster Payments and other remote banking services are set to grow significantly over the next decade, predicting that 7.1bn payments will be processed via the Faster Payments Service or in-house by 2033.
According to the report, this growth could be driven by the development of open banking products and services, which could enable account-to-account (A2A) payments for online and in-store shopping. Such payments could replace card or PayPal payments.
However, widespread consumer adoption remains uncertain as these services have not yet been widely marketed, and the benefits to consumers are not immediately clear.
Consequently, the forecasts for the migration of shopping payments to Faster Payments are cautious.
BNPL
The report also indicates a trend towards more frequent, lower-value transactions, likely influenced by an increase in shopping trips, more widespread hybrid working arrangements and the growing use of buy now, pay later (BNPL) services.
It shows that around one in seven people in the UK, or 14 percent of adults, used BNPL services to purchase something during 2023, compared with 12 percent the previous year.
Around 16 percent of female adults and 13 percent of male adults used at least one BNPL service, according to the report.
Young consumers tend to use BNPL services more than older cohorts and the age group with the most BNPL users in 2023 was 25 to 34 year‑olds.
Meanwhile, almost one in four adults in this age group (24 percent) used BNPL services during last year, compared with just 6 percent of people aged 65 or over.
Overall, however, despite these changing trends, habits are hard to crack and debit cards remain the most popular payment method, accounting for 51 percent of all payments. Their popularity is driven by consumer retail spending and by the fact that small businesses accept card payments.
The report also reveals that remote banking remains popular, with 87 percent of adults using online, mobile or telephone banking.
Use of mobile banking usage increased to 60 percent, with online banking via computers seeing a slight decline.
Cash payments
The number of cash payments dropped to 6bn in 2023, representing just 12 percent of all transactions, according to the report. Despite this, the payment method is the second most used.
This news comes just as the Financial Conduct Authority (FCA) has finalised its new access to cash rules.
Starting from September 18, 2024, banks and building societies will be required to:
- Evaluate local cash access needs and determine if additional services are necessary when making changes.
- Address requests from local residents, community organisations and representative groups to assess gaps in cash access.
- Provide reasonable additional cash services if significant gaps are identified.
- Maintain existing facilities, such as bank branches and ATMs, until the additional cash services are implemented.
In the report, cash payments are forecast to decline further, reaching around 3.4bn, or 6 percent of all payments, by 2033.
However, UK Finance’s Buckle was clear that the trade association is not encouraging a pivot away from cash-based payment methods.
“This doesn’t mean we are on our way to becoming a cashless society. Cash is still the second most frequently used method of payment in the UK, although on the whole we are using it less and more people are leading largely cashless lives,” he acknowledged.
Open banking
The report from UK Finance has been released at the same time as new statistics from Open Banking Limited (OBL), which show that 10m consumers and small businesses in the UK are using open banking.
According to OBL, this is a “significant achievement” and highlights the growing adoption, including for payment tools.
“I’m delighted that we’ve reached 10 million users. Consumer empowerment is core to open banking and it’s fantastic to see more and more people and small businesses take advantage of the financial opportunities open banking provides,” said Marion King, OBL chair.
King continued that open banking is delivering “the means for millions of people to improve their financial wellbeing, delivering a true public good”.
