The UK Payment Markets Report 2013 – by the Payments Council – predicts that cash payments will have been overtaken by debit card payments by 2022. The report shows the latest developments in payment behaviour and forecasts what life in the payments industry could look like in the next decade. Ellie Chambers takes a closer look.

Debit card payments will have overtaken cash payments within ten years, according the UK Payment Markets Report 2013, released in August by the Payments Council.

The report looks at the way payments have developed over the last 10 years and forecasts their development for the next decade. It explains how factors such as the economic downturn and new technology have impacted on the payments industry and how they may continue to do so in the future.

One of the developments in payment behaviour the report outlines is the increased use of debit cards in the last ten years. Last year, debit cards were used to make 7.7 billion payments, up from 3 billion in 2002. The values of these payments went from £107bn to £337bn.

Over 90% of the UK’s adult population now have a debit card and 60% use them at least once a week. The report predicts that the number of debit cards payments will rise by 75% to reach 13.8 billion payments in 2022, representing a value of £626bn.

Other striking figures in the report include the prediction that cash payments will be overtaken by non-cash payments for the first time in 2015. It forecasts that overall cash payments will fall from 20.8 to 13.7 billion over the ten year period.

The report explains that the relative decline in consumer use of cash has slowed in recent years due to the economic slowdown. Budget-conscious consumers have preferred to use cash as their household incomes are squeezed. However, as the economy improves, it is predicted that consumer use of cash payments will fall from 21 billion last year to 14 billion in 2022.

Another factor that has impacted on the use of cash is the development of mobile payments. Consumers can now use apps to pay for anything from music and clothes to bills. The report predicts that this trend will continue, particularly with the development of NFC, allowing consumers to make small purchases by waving their mobile over a POS terminal in the place of a card.

Tying in with this trend for mobile payments, remote banking was on the up, with 32.5 million people using remote banking and 10 million of them using mobile banking.

Despite the economic slowdown, the UK’s digital economy has continued to grow, rising by £9bn in 2012 to £85bn. The increase in online spending also partly accounts for the boost in the use of cards. Consumer spending by all methods increased, but spending by credit and debit cards remain the dominant online payment method.

In 2012 for the first time, estimated online card spending by debit card, at £35bn, was greater than that by credit, at £34bn. Total card spending online, at £68bn last year, was £5bn up on 2011.

According to the report, one payment method which may be on the way out is cheques, with overall cheque volumes forecast to fall by more than half over the next ten years from 848 million in 2012 to 341 million in 2022. Values will fall over the same period from £837bn to £517bn.

However, the report sounds a note of caution against declaring cheques obsolete. It is important to consider the impact an ageing UK population could have on the growth of electronic payment methods and phasing out of cheques. Many elderly consumers prefer to use more traditional payment methods. Even those who do use electronic payments now may find cheques and cash easier if their eyesight and cognitive functions decline with age.

Other payment methods reviewed in the report include Direct Debits, which now account for two thirds of all regular personal payments and are expected to exceed 4 billion in 2020. CHAPS payments are forecasted to grow to nearly 40 million by 2022, whereas Bacs fell to 2.2 million in 2012 and are expected to fall to 1.9 million in the next decade.

The Faster Payment Service was also covered and found to have processed 811 million payments in 2012, 54% higher than in 2011. The report put this large increase in part down to the migration of payments from the Bacs system. It also forecast that the volume of standing order payments processed by the Faster Payments Service will grow to around 340 million in 2022.