Cash no longer king

General-purpose*** payment cards have been the fastest growing payment tool in Europe. Over the 2002-06 period, the value of general-purpose card consumer expenditure grew at a compound annual growth rate (CAGR) of 13.8% to reach Euro981bn, accounting for 18.6% of total expenditure. The functionality offered by payment card products has meant that much of the growth in card activity has come at the expense of cash and cheques. Even in countries where cheque payments accounted for a significant proportion of consumer spending in the past, all have been observed to have gradually moved away from paper-based methods of payment.

“The importance of cash and cheque payments is decreasing due to consumer preferences moving towards electronic payment tools. This is because they are seen as convenient and cost-effective alternatives,” says Datamonitor analyst and author of the report Ouliana Vlasova.

Cash is losing its status as the dominant method of payment in Europe

The value of cash payments in Europe was Euro1,787bn in 2006, accounting for 33.9% of total household expenditure, down from 37.6% in 2002. Although cash payments account for the vast majority of consumer spending in Central and Eastern European (CEE) markets, the share of cash payments in this region has fallen. Looking at Western Europe, Spain and Italy remain the biggest users of cash but have seen a decline in the share of cash payments as a proportion of total spending. By contrast, consumers in the UK are the lowest users of cash, which accounts for 18.4% of total household expenditure.

“Due to the development of electronic payments and in particular payment cards, the growth in such payments is expected to continue. However, this by no means signals the death of cash as a payment tool,” comments Vlasova.

Payment cards are the fastest growing payment tool in Europe

General-purpose payment cards have been the fastest growing area of consumer payments. Over the 2002-06 period, the value of general-purpose card consumer expenditure grew at a CAGR of 13.8% to reach Euro981bn, significantly ahead of growth in total consumer spending, which exhibited a CAGR of 4.2%. The share of the payments accounted for by general-purpose payment cards accounts for a combined 18.6% of expenditure in 2006, up from 13.1% in 2002.

In the UK debit cards account for almost a quarter of total spending, while cards have significant POS**** use in Estonia

Payments made by debit cards account for a relatively small but growing proportion of the value of total consumer spending in Europe. In the UK debit cards account for almost a quarter of total spending. The use of debit cards at the point-of-sale (POS) is proving popular in Estonia and accounts for 18.8% of the total value of spending by individuals. Although card use is still quite low in other CEE markets, many card players in the region are taking steps to encourage card usage at the POS by offering a cashback facility when debit cards are used to pay for goods and services. As a result, transactions at the POS are expected to increase in the near future.

Pay later***** card use is strongest in France and the UK

French consumers make the greatest use of pay later general-purpose cards with 21.6% of the value of consumer spending being made on deferred debit, charge and revolving credit cards in 2006. Pay later cards also account for a significant proportion of household spending in the UK, as in 2006 consumers made 14.0% of their total expenditure via pay later cards. Comparatively, consumers in Italy and Germany make light use of pay later cards, as in 2006 4.1% of consumer spending was made using pay later cards in Italy and just 2.2% in Germany.

Despite accounting for almost a quarter of consumer spending in France and Italy, cheques are losing their status

In markets such as France and Italy and to lesser extent the UK, where cheque payments accounted for a significant proportion of consumer spending in the past, all have been observed to have gradually moved away from paper-based methods of payment. Out of the three markets, France has experienced the biggest decline from 32.3% in 2002 to 22.7% in 2006. Similar to Germany, cheque payments have never been popular in CEE countries. In fact, in Hungary, banks have already stopped issuing chequebooks and it is anticipated that due to low volumes the settlement of this payment tool will disappear in the near future.

Notes:

*Consumer Payments in Europe
** The report covers 11 European markets including France, Germany, Italy, Spain, the UK, the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland.
*** Refers to bank issued payment cards as opposed to private label cards. They are referred to as general purpose as they can be used in any outlet that accepts cards affiliated to international and local schemes, while private label cards are typically restricted for use in retailers affiliated to that label.
**** POS – a point-of-sale electronic terminal that allows merchants to accept card payments
***** The pay later card category includes all cards where payment for a transaction made on the card is made later than that on which the transaction was made. Examples include credit cards, charge cards and deferred debit cards.