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Payments Revolution To Continue Over Next Decade: Payments Council

A new payments revolution that began in the noughties is expected to continue over the next decade, as there is a rise in internet banking and shopping, and cards replacing cheques and cash, according to a new report 'The Way We Pay 2010' published by the Payments Council.

According to the report, the number of workers who took wages home in notes and coins has decreased from one in eight to one in 20 over the last decade.

The report estimates that by 2018, it will be only one in 50. Interestingly in the mid 2000s, the shift away from cash halted temporarily, before falling again in 2008. A much bigger switch from cash has taken place in state benefit payments: ten years ago, 87% of benefits and pensions were paid in cash; today, 79% are paid directly into bank accounts.

The report said that the demise of cash wages has been driven by the ongoing expansion in the number of automated payments and cash machines.

Mike Bowman, head of policy and markets at the Payments Council, said: “More and more people have opened bank accounts in the last ten years, and fewer and fewer have jobs in manufacturing where a weekly wage packet is more common. As a result far fewer of us get wages cash-in-hand.

“The million-strong migration of Eastern Europeans to the UK in the mid 2000s may well have slowed the decline. Many of these newcomers may have initially earned cash, often sending it back to their families but as they either returned home or settled permanently, and opened bank accounts, cash has fallen back again.”

Six in 10 transactions still involve cash, but almost 80% of these are less than GBP10. In just five years time, cash transactions are expected to represent less than half the total for the very first time.

Mr Bowman said: “Although cash won’t disappear in our lifetime, the continuing payments revolution will make it an ever smaller part of our spending. Even the traditional sight of people waving tenners at the bar is fast vanishing. They’re more likely to brandish their debit cards now as they compete to get served. ”

Even cheque usage has been falling since 1990. Just 0.8% of retail transactions are now made by cheques. By value, 60% of what consumers pay by cheque is now for financial transactions (savings, investments, paying credit card bills).

Mr Bowman said: “As far back as fifteen years ago, although we predicted a big fall, we still thought a billion cheques would be written by consumers in 2009. It turned out to be half that number. By 2018, even if nothing was done to actively manage the cheque’s decline, its falling use is likely to match what we’ve seen over the past decade.”

Credit cards usage has also fallen in real terms since 2005. However, debit cards have taken over both higher value credit card payments, and lower value cash payments. By 2018, one in four of all transactions will be on a debit card, up from just one in 20 a decade ago.

Mr Bowman said: “The noughties have been the decade of the debit card. Especially since chip and PIN, which has speeded up transactions, it’s become socially acceptable to buy small items by card now too, for example in a sandwich shop or a pub. Now there are no fiddly bits of paper and time-consuming signatures there’s no tutting from the queue behind.

“Contactless payment for small purchases has the potential to drive debit card usage even higher. With 18 billion cash transactions less than GBP15, there’s a huge opportunity for us to replace billions of these with a quick swipe past a card reader.”

The latest act in the payments revolution is the arrival of Faster Payments. At launch, it was calculated that about 8% of Bacs phone and online banking payments and standing orders payments were eligible to become Faster Payments, but in fact, many more payments have materialised suggesting that customers have decided to replace a cheque or cash payment in favour of something faster. Half of regular standing orders have now migrated to Faster Payments, while individuals are making around ten million more one-off internet and phone payments per month than before the new system was launched.

Mr Bowman added: “Despite its gradual rollout the speed and convenience of Faster Payments has generated more internet and telephone banking transactions than were previously processed by Bacs, much in the same way as a new motorway promising rapid transport always generates more traffic than it was intended to alleviate.”