Notch one up for the War on Cash

Signs that consumers may finally be embracing new payment methods come in the latest survey of UK payments by the British Retail Consortium, which showed a 10% drop in the value of cash payments during 2012. Debit cards and new mechanisms like PayPal are the winners.

Paying with cash is still the most popular choice for customers in the UK but the pace of change in the ways people are choosing to buy is accelerating, says the BRC.

Among retailers, the cost of processing credit cards remains the biggest complaint.

The BRC’s Cost of Payment Collection Survey shows that, while over half of transactions (54.4%) are paid in cash, use has declined as a percentage both of number of transactions (down 6.7%) and money spent (down 9.7%). This is the first time in the survey’s 13 year history that both measures have seen a decline, says the BRC.

The survey, which covers nearly 10 billion retail payments in 2012, reveals credit and charge card use was down by 3.4% as a percentage of transactions.  In contrast, transactions made on debit cards were up by 3.2%.

Use of alternative payment methods more than doubled on the previous year, driven by manufacturers’ money-off coupons and the rapid growth of comparatively new ways to pay such as PayPal and online payments. They now account for 5% of all transactions.

The survey also shows banks continue to levy unjustifiably high charges on retailers for handling card payments. The average cost to a retailer of having a credit or charge card payment processed was 25 times higher than for cash (38p versus 1.5p). Credit and charge cards account for only 10.6% of transactions but over half (50.1%) of costs, and total costs associated with those cards were up by 7%, even though use is down on the previous year.

“New ways to pay and new ways to shop are shaping the retail landscape like never before. Changing customer preferences are driving the increase in debit card use – they’re helping people to manage their money better and are a natural fit for online shopping and self-service checkouts,” said Helen Dickinson, director general of the British Retail Consortium (right). “Cash is still the most popular way to pay, but our survey shows how rapidly alternative and emerging methods are gaining ground, with growth more than doubling on the previous year, albeit from a low base. These methods will be the ones to watch in the future, and retailers are investing heavily to make sure their customers have choice and convenience in ways to pay, whether in-store, at home or on the move.

Dickinson said that credit card costs remain an issue for merchants: “Against a backdrop of greater retail efficiency and innovation, the one jarring note is that charges remain disproportionately high. They continue to rise even though credit card use has fallen. It beggars belief that retailers incur average charges of 38p per credit and charge card transaction, 25 times more than for cash,” she said.

“Retailers have been arguing this in court for more than a decade now, and a resolution to the case is long overdue. The right conclusion would reduce these excessive costs for retailers and support their ability to invest and innovate.”