Contactless now accounts for more than a quarter of all payments

Latest analysis of payment transactions by UK Finance  has found that contactless now accounts for more than a quarter of all payments.

The 2021 Payment Markets Report, an analysis of all forms of payments over 2020 showing the impact the Covid-19 pandemic and resultant lockdowns had on the nation’s payments behaviour which indicated that for the first time in six years, the total number of payments in the UK declined, falling by 11 per cent to 35.6 billion.

While consumers continued to make the vast majority of all payments (86 per cent) the report demonstrates the reduced opportunities for people to spend money during the pandemic, with the number of consumer payments falling by 13 per cent to 30.7 billion. Meanwhile, the number of payments made by commercial organisations, government and not-for-profit organisations increased slightly to 4.8 billion, representing 14 per cent of payment volumes but 80 per cent of the total value of payments.

The report details some notable changes in the type of payments people made use of, with significant growth in contactless payments, mobile payments and internet banking, alongside a continued reduction in cash usage.

During 2020 the number of contactless payments made in the UK increased by 12 per cent to 9.6 billion payments. Overall, contactless payments accounted for more than a quarter (27 per cent) of all UK payments. In the last four years contactless payments have jumped from being just seven per cent of all payments to 27 per cent.

83 per cent of people in the UK now use contactless, with no age group or region falling below 75 per cent usage. Supermarkets were the most popular place to use contactless payments in 2020, accounting for 41 per cent of contactless payments. This reflects the fact that supermarkets remained open during the lockdown periods in 2020, while many other types of retail and hospitality needed to close. The increase was also caused by consumers being encouraged to reduce contact by using cards, and contactless payments in particular, during lockdown.

The upper limit on the value of an individual contactless payment was also increased from £30 to £45 in April 2020, enabling consumers to make a greater proportion of card payments this way. This measure was implemented ahead of schedule by the industry in order to help consumers and businesses during lockdown.

There are now 135 million contactless cards in circulation, covering 88 per cent of debit cards and 81 per cent of credit cards.

The report highlights strong growth in the use of mobile phones and smart watches to make payments. Nearly a third (32 per cent, 17.3 million people) of the adult population were registered to use mobile payments by the end of 2020, an increase of 7.4 million people compared to 2019.

Whereas contactless payments are widely used across different age groups, there is a notable difference in the current take-up of mobile payments. In 2020 just over 50 per cent of 16 to 34 year olds were registered for mobile payments compared to 11 per cent of over 65s.

With more people working from home there was a notable increase in remote banking, as well over two-thirds of UK adults (72 per cent) used online banking and over half (54 per cent) used mobile banking, with these services providing a convenient way for people to continue to manage their finances during periods of lockdown.

There was also a notable increase in business use and in 2020 54 per cent of all business-to-business payments were made via Faster Payments or other remote banking.

2020 saw the number of cash payments made in the UK fall by 35 per cent, meaning that cash was used for 17 per cent all payments in the UK. Cash remains the second most frequently used payment method behind debit cards.

During 2020 there were 13.7 million consumers who used cash only once a month or not at all, a significant increase from 7.4 million consumers the previous year. Whilst some of this can be attributed to changing payment preferences, it also reflects the fact that during lockdown, people had fewer opportunities to go shopping and were being encouraged by many shops to pay by card or contactless instead of cash. Despite this, there remained 1.2 million consumers who mainly used cash for their day-to-day spending during 2020, highlighting the importance of the recently announced commitments made by UK Finance and the banking industry in relation to supporting access to cash.

David Postings, Chief Executive of UK Finance, said “The pandemic resulted in some marked changes in payments behaviour and while it’s too early to say whether they are permanent changes, we did see an acceleration in some existing trends such as the reduction in cash usage and the growth in contactless and mobile payments.”

“The increase in the contactless limit to £45 coupled with retailers encouraging its use meant that more than a quarter of all payments in 2020 were made via contactless. The use of cash fell, reflecting the fact that large parts of the economy were closed during the year, although it still remained the second most popular payment method behind debit cards. There remains real diversity in the way in which people choose to conduct their day-to-day spending and the banking and finance industry is committed to helping customers make payments in a variety of different ways.”

Commenting on the finding Gareth Shaw, Head of Which? Money, said “While the past year has accelerated the shift to digital payments, those who still depend on cash to pay for everyday essentials must not be forgotten. Cash also remains an important fallback option for when digital payments fail, while some consumers may simply not be ready or able to take advantage of these payment methods.”

“UK Finance’s Access to Cash Action Group that was formed last month needs to quickly set out what it intends to do to back up its commitment to safeguarding cash, while the government must make progress on its long-promised legislation to protect cash and ensure it remains a viable payment option for as long as it is needed.”

Commenting on the figures Simon Wood, Commercial Director of Loomis UK, said “As the year progresses and we slowly emerge from the pandemic, consumer behaviour and spending patterns continue to change. As such, Loomis welcomes the findings from UK Finance and the importance of keeping cash alive since, according to its Payment Markets Report, over 1 million consumers still depend on it for their daily spending.”

“Demonstrating the continued preference for notes and coins among some consumers, this week our data has shown that cash use is now back to 73% of pre-lockdown levels and as a business, we have had the highest cash collection volumes since the first lockdown. With this in mind, we will continue working to ensure that those consumers who still prefer to use cash can still have this choice as our economy continues to open.”