UK enjoys Summer of Love for contactless cards


Solomon Teague
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For years, much of the hype in payments has been around mobile payments and blockchain technology. But the innovation that has done the most to change British shopping habits has been contactless cards, which launched in 2007 but have really come of age in recent years.

peace-160x186Total UK card spending reached £57.1 billion in June, up by 0.3% month-on-month and up 7% year-on-year, according to data published by UK Finance, an industry body.

There were just under 1.4 billion card payments in the UK in June, a monthly record. And with the number of card transactions up 12% in 12 months, UK cards have enjoyed their highest annual rate of growth since June 2008.

The rise was partly driven by a robust rise in online sales, with online card payments rising 20%, but the more significant factor was the increase in the use of contactless card payments, which soared by 143%.

debit cards aug17Contactless payments accounted for 34% of all card transactions, while online payments – which would include payments made through channels like PayPal if the account is linked to a card rather than being pre-funded – accounted for 13%.

UK-issued debit card use abroad was actually down 3.6% between May and June, says UK Finance. Instead, growth in both credit and debit cards has come from domestic spending, especially in the retail market.

Cards accounted for 77% of all retail sales in June, with over a billion debit card payments and over 300 million credit card payments. Retail sector spending rose by £19 million in June to reach £26.1 billion, with card spending on food and drink alone passing £10 billion in June. Service sector spending rose by £138 million to £31 billion.

Kevin Jenkins, managing director of Visa UK & Ireland, says: “We are approaching the 10 year anniversary of the introduction of contactless cards, but it’s fair to say that over the last couple of years we have really seen this method of payment reach maturity.”

payments chart aug17A particularly significant moment in the technology's rise to prominence was its introduction by London Underground in 2014, with the three years since seeing over a billion contactless journeys completed. For many it was an introduction to a new technology, and after a tentative start they have now fully embraced it.

Mark Barnett, president of Mastercard's UK & Ireland business, says: “We see that sometimes people take a while to use contactless for the first time, but when they do, for example on the Tube, they then use it again and again.” Since the technology’s introduction on the London Underground, more shops and bars have invested in contactless card readers and enthusiasm for the technology has spread beyond the capital.

While contactless technology appears to be driving a surge in card spending in the UK, it is also driving down the average size of card transactions, suggesting shoppers are making payments with their cards they might formerly have made with cash. The average transaction value on all card payments fell by £0.16 to £41.36 in June, the lowest level since June 2000. In the same month of 2016 the average transaction size was £43.53, while the figure peaked in July 2011 at £50.55.

Cash less

Shoppers have responded by carrying around less physical money. Consumer research carried out by Mastercard shows the average person in Britain now carries less than £5 in cash, while 43% of respondents said they carry less cash than they did two years ago. While contactless technology has made cards easier and therefore more appealing to use, the growth of online transactions has also driven this trend.

transaction valuesReplacing the cash in peoples' pockets is an increasing amount of plastic fitted with contactless technology. “Banks and card issuers now issue contactless as standard for debit and credit cards, so there are more contactless cards out there in people’s wallets,” notes Barnett. There are now at least 74.2 million contactless debit cards in circulation in the UK, representing three quarters of all debit cards – up from 63% a year ago, according to UK Finance.

June also saw a small increase in the total number of cards in issue, with the number of debit cards rising 0.3% to 98.4 million, though year on year the number was down by 3 million. The average number of purchases per card was also up, by 0.6% to 12.3.

Mastercard is convinced the British public's current love affair with cards – and other, new forms of payment – will continue. “People are using less cash and with new innovations in payments, we’ll continue to see people embrace new ways to pay that are easier and more secure than cash,” says Barnett.

Jenkins points out that cards enable, rather than compete with, other innovative forms of payment like mobile payments. Many retailers have invested in systems that allow them to accept cards through their smartphones. In early August, for example, Visa worked with Square to help introduce up to 100% card acceptance at Boardmasters surf and music festival in Cornwall, an event at which only 5% of transactions were made on card last year.

Barnett agrees innovations in payments technology will only encourage greater use of cards. “Rather than cards being under threat, people have new, convenient ways to pay that make their lives easier, many of which utilise existing card networks,” he says. “That said, we continue to invest in innovation, especially focusing on new ways to keep payments safe and secure.”

Mastercard is also working to ensure that while contactless grows, those who have traditionally made their money in cash do not lose out. “One example is charities – we are working with a number of organisations, alongside our partners to enable them to accept contactless donations,” says Barnett.