UK payments outlook 2024

UK payments outlook 2024
Our friends at PaymentsUK have released their latest forecasts, the ever excellent UK Payments Market 2015. Whilst we don’t have a copy of the full report (hint, hint…), the press release does give us some interesting insights. For example, payments will hit 44 billion transactions a year by 2024. This is a net growth of 3.4 billion, which hides significant and continued declines in both cash and cheque usage (53% to 33%, and 1.1% to 0.4% respectively). The table provided (and replicated below – the link above has a better quality version) shows that, for consumers at least, cards continue to drive the growth. There are obvious reasons for this: consumers switching from Oyster-like cards to contactless, and indeed, contactless generally, is just one good example.   Number of annual consumer payments made per adult uk pay 3 One thing that really stood out for me is the final line before the total – the “other” category. Celent’s forecasts typically count prepaid and store cards into our debit forecasts. But what is notable is that PayPal is explicitly mentioned… and mobile payments aren’t. At all. We’ve not seen the full report, so it may be explained there, but given what we read in the press, this is hugely surprising. Recent examples include: Actually, it’s not surprising. Firstly, what is a mobile payment? That in itself will cause heated debates! Secondly, for the latter to be true, I ought to know at least someone who is making those mobile payments – or rather, every other person I know! I’m being slightly tongue in cheek – read Zil’s post from a few weeks back about him at least trying. However, I’d still argue that even this wasn’t a true mobile payment – the mobile device is just holding the card credentials. I refer you to my first point! So what are the takeaways? Firstly, the growth may continue – but in reality is perhaps less strong than you may initially think. A 3.4 billion growth in 10 years is actually only a CAGR of c 0.5% a year. Compared to some developed countries (France for example) that’s good, but compared to some developing countries that’s low. Secondly, there may be 101 new ways to pay, but they’re unlikely to make significant inroads, instantly. Current methods are deeply embedded in our every day life. Indeed, many of the “new” methods run on top of the existing rails, and the volume often gets counted as the old method. This doesn’t mean that there are no improvements to be made but that they are just that – tweaks to the existing. Finally, perhaps the phrase of there are lies, damn lies and statistics, ought to be caveated that many of the issues seem to be with PR people and journalists. Many inadvertently misread the numbers, but some of the latest releases underline that we all ought to find the original source rather than necessarily solely relying on what’s being reported.

Cashless Britain – not coming to a town near you soon

Cashless Britain – not coming to a town near you soon
There have been a number of reports in the UK since the beginning of the year heralding a cashless Britain, suggesting that cash “dies” this week. Of course, I’m being somewhat tongue in cheek, but it was suggested that February 2015 would be the last month that cash was king. That’s true in many ways – the share of cash on a total transactions basis will drop below 50% for the first time in the UK this year. But that doesn’t really tell the whole story. Firstly, “not cash” isn’t a single payments type of course. There are debit and credit cards, ACH payments,  still (shudder) some cheques. Fact 1 – by volume of transactions, cash is by far the most dominant, as at 50% share, it’s obviously the same size as all the other payment types …combined. So cash isn’t dead, and not even mildly under the weather! Secondly, the decline isn’t quite as dramatic as it may first seem. There are lots of new payment occasions being created (iTunes, mobile phone subscriptions, cable TV etc) that are electronic only. And conversion from cheque to direct debit generally sees an increase in payment volumes (ie quarterly cheques becoming monthly direct debit). Fact 2 The net result is significant growth in the overall size of the pie, biased to electronic payments – yet the share of cash has only decline by a few percentage points rather than the significant drop implied. This is particularly important to remember in the coming months. Early indications suggest a significant increase in contactless is coming. Fact 3 It’s a migration from Oyster that will drive massive contactless growth this year, rather take-up of contactless. This is important as Oyster had already forced a conversion from cash, with individual cash transaction (ie for each journey) into a single top-up transaction. The switch to contactless is unbundling this back into individual transactions, albeit applying a daily cap. We’re not saying that contactless isn’t going to grow impressively, just we mustn’t simply look at the headline numbers and draw conclusions. It’s not all negative. That Oyster habit converted to cards will help create a contactless habit which will spread. Coupled with the raising of the limit of £30, and with many cash payments being below that value, there is the possibility to see some levels of cash replacement that could move the needle. Cash is far from dead but we are certainly moving into a LessCash rather cashless world.  

Reporting from the field

Reporting from the field
Last week I attended “The Future of Cards and Payments” conference in London. Over two days, various speakers shared their perspectives on how they see the cards and payments market developing, particularly in the UK. Here is a selection of facts, which I picked up during the presentations and found especially interesting:
  • The crisis hasn’t changed the UK consumers’ behaviour that much. According to a study by Visa Europe, 56% of respondents in 2010 agreed with the statement “I save money so I have some protection in the future”, compared to 57% in 2008 and 24% are “open to borrowing to buy what I want today” (vs 23% in 2008). Having said that, more people are aware of their finances with 63% vs 45% two years ago “watching every penny they spend to avoid getting into debt”.
  • Cash is not going away. In the same Visa survey, 35% of people surveyed in 2010 stated that they “prefer to pay in cash for everything I buy”, which is down from 54% in 2002, but up from 18% in 2008.
  • Only ~50% of business accounts in the UK have a card
  • Identity fraud is up by 32% in 2009
  • Cheques are due to be phased out in the UK by 2018. However, it will only be done if by 2016 there are real alternatives in place, they are available to the users, well known and are being used. Heavy cheque users include charities (get 70% of their income via cheques) and elderly (may need another paper-based alternative, e.g. giro credit) among others.
  • UK market has ~4m prepaid cards.
  • Also, UK is on track to have 12m contactless cards in use by December 2011. Focus needs to shift now to acceptance.
  • Adoption of SEPA Direct Debit is partly an issue of interchange. 70% of euro-based DD transactions in the EU don’t have interchange, but the others do. The European Commission is firmly against having interchange for DD, but accept that a transition period may be required and there might be a case for it when dealing with rejected transactions.
  • To limit fraud, some online merchants and their PSPs are beginning to tailor availability of payment methods based on the consumer’s postcode, e.g. credit cards would be OK if you live in a premium address in Chelsea or Kensington, but only a prepaid electronic voucher (e.g. ukash) would be offered if you happen to shop from a council estate in Peckham.
  • And if you live with 20 other strangers in a room with no doors or windows in Asia or Africa and have no bank account, storing money is as important to you as being able to make payments.
I will be on vacation for my next blog post. See you in August!