Cards reach record levels in the UK

Debit cards continued to be utilised more than credit cards as spending on payment cards reached £49.6bn ($76.1bn) in February 2015.

This is a record high. Has the decline of cards been exaggerated or are they holding on for dear life? Patrick Brusnahan reports

Payment cards spending increased by 0.8% to hit £49.6bn ($75.7bn) in February, £0.4bn above the level recorded in January. The UK Cards Association (UKCA) believed that this growth was mainly driven by the improving economy and higher wage growth, increasing disposable income.

Purchase numbers also rose, by 4.4 million, to reach a record monthly total of over 1.05 billion. The current migration of low value purchases to cards, rather than cash, due to contactless and online spending, is stated to be the main reason for this growth.
Contactless transactions accounted for 4.6% of total purchases, up from 4% in the previous month. The corresponding proportion for online was 11.3%, down from 12.3% in the previous month.

Richard Koch, head of policy at the UKCA, said: “Consumers are using their cards more than ever before, with over 435 transactions taking place every second, meaning a great number of smaller transactions. At the same time, as inflation remains at a record low, it means we’re seeing the growth in the amount people spend on cards slowing.”

Growth rates
While growth in payment card spending stalled, debit card spending still grew by 7.7% and credit card spending increased by 5.6%. The slowdown in growth was driven by falling general price inflation.

UKCA figures showed annual consumer price inflation at a record low of 0% for the second month in a row, down from 0.3% in January and 1.7% in February of 2014, attributed in the main to reduced food prices.

The strong annual growth rate of the number of purchases in the last three years has continued, exceeding that of values, which shows an emerging preference for using card cards for lower value payments. In February, the annual purchases number grew by 9.8%.

Annual growth in the service sector outstripped that of retail sales. The service industry increased by 10.2%, more than double the growth of retail spending, which was 4%. Growth within retail was especially strong in entertainment and travel.

The average transaction value (ATV) on all payment cards remained £46.92. The ATV for retail sales declined by 24p to £32.64 and the ATV for services rose by 31p to £77.54.

Over the last three years, the trend of higher growth rates in volumes relative to values, has been boosted by the contactless card usage on the Transport for London network.

In the digital space, the ATVs tend to be higher than in the face-to-face environment. However, the downward trend is also present here. The ATV on all payment cards via online channels amounted to £103.62 in February 2015, more than double the ATV via all channels.

Sector spending
The amount of transactions within the retail sector rose by 1.5 million to reach 716 million. The corresponding expenditure rose by £34m to hit £23.4bn. Most of this increase was attributed to the food and drink and household sub-sectors, reaching £9bn and £3.7bn respectively.

On the other hand, spending in the automotive fuels sub-sector fell for the sixth month in a row with a decline of £34m to £2.6bn.
In terms of the number of transactions, the services sector grew by 2.9 million to 336 million with a £352m rise in spending to reach £26.2bn overall. A huge contributor to this rise was the other services sub-sector, which reported an increase of £215m to £8bn.

Entertainment also had a strong month after increasing by £23m to £4.1bn, mainly driven by an increase in spending at restaurants.

Recreational spending
The largest spike in spending was apparent in merchants offering more recreational services such as aquariums (which recorded a rise of over 60% in total card spending), amusement parks and tourist attractions. There was also a notable increase in spending at florists, most likely linked to Valentine’s Day. Spending on educational establishments and government services recorded the largest decreases in spending.

An increasing number of consumers are turning to online channels for shopping and entertainment. This is due to these being faster, more convenient and often cheaper. In addition, shopping on the move with mobile devices is becoming increasingly common. The number of card purchases made online amounts to 11.3% of total card purchases in February, with corresponding online spending representing 24.4% of total card expenditure.

In the services sector, 20% of purchases and 7% of retail sales were made online. The most prominent sub-sector for online shopping was entertainment, accounting for 29% of the total of online purchases, an increase from the 27% recorded in the previous month. The higher proportion of online spending was registered in other services, hitting 31%.

Financial services were also a popular choice consisting of 7% of online volumes and 26% of values. Within the sub-sectors, government service, airlines and tax payments totalled 34% of all online spending.

The report concludes: “The trends reflect the increasing use of cards over cash within the retail space, driven by new technology and the continuous change in consumer habits alongside the underlying improvement in the economy.”