For the first time the volume of retail purchases made by card now accounts for more than half of all customer transactions by volume, according to the BRC’s latest annual Payments Survey, which also reveals the cost to retailers of the new polymer notes, with this figure set to “rise sharply”. 

Cards have become the dominant payment method as retailers’ investment in payment technology has facilitated greater customer choice over how they pay for their goods both in store and online. The report, released today, states that this figure has partly been driven by UK customers increasingly using cards for lower value payments.

The 2016 BRC Survey examines the methods of payment UK shoppers are using when buying goods in store and online, how this differs from previous years and the average cost to the retailer for handling each method of payment.

Total UK retail sales rose by 3.5% in 2016 to £351 billion, with a total of 19 billion retail transactions overall in 2016, an increase from 18.2 billion the previous year.

Cards were used to pay for £261.6 billion worth of goods in 2016 – accounting for 75% of sales, compared with £254 billion in 2015, which also accounted for three quarters of sales. The value of goods paid for by cards has therefore remained stable overall in 2016 compared to the previous year, stalling the recent trend towards a year-on-year increase in the share of card payments in retail.

By volume terms, however, there were 10.3 billion retail transaction made on a debit, credit or charge card in 2016 – accounting for 54% of all retail payments. This 5% per cent increase in the share of cards means that cards now account for more than half of retail transactions for the first time. The ongoing and substantial decrease in the actual transaction value (ATV) of purchases made on a card – from £30.53 in 2013 to £25.40 in 2016 – reveals that cards are increasingly used for lower value transactions, partly driven by the wider acceptance and use of contactless payments.

The survey also revealed that new regulations, including the Interchange Fee Regulation (IFR), have helped deliver savings for retailers. Retailers have benefitted in recent years from a falling cost of collection, taken as an average across all payment types, with the average transaction costing a retailer 5.8 pence to process in 2016, or 0.31% measured as a percentage of turnover. Yet retailers still spent an estimated £1.1 billion with third parties in 2016 in order to accept payments from their customers and the BRC believes further regulation is required on card fees.

While cash remains the most cost effective payment acceptance channel for retailers, as the cost of handling is significantly lower than cards, the BRC reports that the introduction of the new polymer £5 notes is costing retailers millions.

In addition to cash handling charges, the retail industry spent around £30 million in 2016 on readiness for the introduction of the new £5 note. On top of staff education and awareness, significant investment has had to be made in order to ensure that tills and machines are able to accept and dispense the new notes.

The BRC said: “We can expect to see a sharp rise in these costs in 2017, which will see the retail industry making further preparations for the withdrawal of the paper £5 note, the introduction of the polymer £10 note, and – most significantly – the transition to a new £1 coin, which impacts a much broader range of equipment. The savings that retailers have seen on card handling charges following the introduction of the Interchange Fee Regulation has to some extent facilitated retailers’ ability to make these unbudgeted investments across their estates in 2016, however in 2017 the market remains extremely challenging for retailers having experienced a long period of increasing costs, price deflation and falling profitability.”

The survey also revealed that retail customers are less reliant on credit, with spending on credit cards falling and representing a diminished share of retail purchases by value. “This shows consumers borrowing less for day-to-day purchases, in contrast to wider growth in unsecured consumer lending in the UK,” said the report.

Commenting on the survey’s findings, BRC policy advisor- payments and consumer credit Andrew Cregan said: "A growing number of retailers have invested in payment technology to accept cards, contactless payments and new payment applications both online and in store. In part, this has been facilitated by the Interchange Fee Regulation (IFR), which was introduced across the European Union following a successful campaign by the BRC and has led to a significant fall in the cost of collection that benefits retailers and their customers. Looking ahead, the Government should act to retain the benefits of the IFR for retailers and their customers after the UK leaves the EU and introduce further regulatory action to address the alarming increase in other card fees and charges at a time when the retail industry is facing acute cost pressures elsewhere.”