• Ralf Ohlhausen, Business Development Director at PPRO Group


• 25.05.2017 01:15 pm
payments , e-wallets

Unexpected turns

From the time Jack traded a cow for a handful of magic beans, to tapping a rectangular piece of plastic against an NFC reader, how we have paid for goods has taken many unexpected turns over the years. We’ve swapped, signed, scanned and ‘chip and PIN-ned’.

The UK has a somewhat unique payment culture in relation to the rest of Europe. Here, cash is no longer king – indeed, numerous experts have predicted the use of cash may be phased out in as little as 20 years. While this is still open to conjecture, what is clear is that in the UK, payments generally orbit the plastic in our wallet.

Flexible friend

Paying with plastic was first popularised within UK culture by the famous ‘flexible friend’ TV adverts in the 1980s^[1]. This was a paradigm shift that has yet to occur in many European countries. From Aberdeen to Eastbourne, by far the most common payment method in the UK is with a credit or debit card. In comparison, the likes of e-wallets and prepaid cards have yet to take off in the UK.

Although overall bank account penetration is an almost completely saturated 99 per cent, certain groups – for instance, recent immigrants and very low earners – are still vulnerable to exclusion. It’s not just current accounts that are popular, due to perhaps overly lackadaisical entry requirements, credit card penetration (at 62 per cent) in the UK is exceptionally high as opposed to the continent.

A connected consumer

The mobile phone is increasingly at the centre of our world in the UK. At 74 per cent smartphone penetration, the UK is one of the most mobile-orientated online shopping markets in Europe^[2]. Coupled with this, nine in ten (91.6 per cent) of the population has Internet access at home. Combined, this has led to an online shopping culture with sales figures seeing a 10 per cent year-on-year growth^[3] and continues to rise. The UK is, by far, Western Europe’s largest e-commerce market, representing 30 per cent of all the region’s online sales. Now, up to 95 per cent of the UK population has shopped online at some point.

Once an American-only reserve, total spend online on Black Friday last year in the UK reached some £1.23bn, a 12.2 per cent increase on the 2015^[4]. In fact, for the entire week, an estimated £6.45bn was spent on UK online retail sites due to long campaign durations and daily discounting deals spreading the spend over a longer period than previous years. This has led some commentators to predict that some £7bn could be spent online the week of Black Friday this year.

Paper houses

Once a payments stalwart, the use of paper cheques in the UK has declined over the past decade or so. Most recent statistics^[5] from the Cheque and Credit Clearing Company show that £455 billion of cheque payments were cleared in Britain in 2015. The interesting thing is that with an average value per item of £1,125, it shows that cheques continue to play an important role in the high-transaction payments landscape, despite all the alternative payments now available.

With cheques in decline, the Royal Mint undertook its last flip of the coin and introduced an updated £1 coin into circulation at the end of March. The new £1 coin has the same shape as the old 12-sided three pence piece or ‘threepenny bit’. Its makers claim it will be the most secure coin in the world. The £1 coin it replaces has been in circulation for over thirty years and is deemed to be vulnerable to ever more sophisticated counterfeiters.

Looking to the future

Recent research^[6] shows that £288m was spent through mobile contactless payments in the UK in 2016, as 38 million transactions were carried out across the year. This was a 247 per cent increase on the year before, with the most notable lift being from payments made via Android Pay. ‘Meal deal’ hotspots for workers buying lunch – such as supermarkets and grocery stores – accounted for 54 per cent of all mobile contactless payments processed. Pubs, bars and restaurants made up a further 20 per cent.

The popularity of mobile and contactless payments has demonstrated, more than anything, the acceptance of change when it comes to payments in the UK. This has led to an increasing amount of alternative payment companies chancing their arm too.

Despite the high penetration of debit and credit cards here in the UK, prepaid cards and alternative payment methods (APMs) are beginning to gain the nation’s attention, such as Pay by Bank app^[7], a bank transfer payment method which is supported by most UK banks, have attracted unprecedented attention. Through Pay by Bank app, consumers can track spending in real-time via the mobile app and view spending by category, thus linking perfectly with the debit card credit account ideal. Pay by Bank app may be the first alternative payment to take off in the UK, but it will be far from the last. Indeed, as alternative payment options become cheaper and faster from a merchant standpoint, we predict that we’ll see a decrease traditional card payments over the coming years. For example, in mainland Europe, APMs are more popular than card payments and in some instances, such as iDEAL in the Netherlands, have the majority market share in the payment split. It is likely this trend will have a knock-on effect across the rest of the world, particularly here in the UK and can expect to see APMs dominate 55 per cent of worldwide online transactions.

Open Banking is a standard brought into the UK to encourage financial institutions to share data openly with third parties using Application Programme Interfaces (APIs) to improve the way consumers transact, save, borrow, lend and invest their hard-earnt money. Such insight can then be harnessed to build applications and resources for consumers to benefit from improved efficiency and innovation in the sector. Such readily available data will further encourage new players to develop at a faster pace within an already competitive market, pushing the UK ever closer towards becoming a cashless society.