UK spending on plastic hits record

Despite a testing 12 months, a new report from independent market analysts Datamonitor, a premium business information company, reveals the UK card market has once again set a new record for the level of spend on plastic. The combined value of transactions made on charge, credit, debit and private label (store) cards was £511 billion (about R7150 billion) in 2006, up 8.7% on 2005 levels. In 2006, the value of transactions made on the high street with credit and debit cards was equal to 63% of the value of total retail sales, up from 47% in 2001 and just 38% in 1998. “The fact that growth in card use has outpaced that of total spending clearly demonstrates that UK consumers are and continue to grow more comfortable with the use of plastic cards, replacing both cash and cheques in the process,” says Andrew Fabricius. Datamonitor forecasts that the value of payment card spending will reach £652 billion (about R9130 billion at the current exchange rates) by 2011.

Plastic cards growing in importance as a payment tool

Plastic cards have steadily grown in importance as both payment and borrowing tools. This has been a hugely important driver of growth in the card market. In Datamonitor's view, growth in card use on the high street relative to total retail sales growth demonstrates the ongoing trend towards greater card use among consumers.

Consumers have become more comfortable using plastic cards and have benefited from the growth in the number of shops that accept them. The number of point of sale terminals (terminals which are used in shops to accept payment cards) in the UK has grown from 700,000 in the year 2000 to just over one million at the end of 2006. Furthermore, the growth of the internet as a sales channel has seen online retail item sales grow from £3.8 billion (about R54 billion) in 2002 to £10.9 billion (about R155 billion) in 2006.

With the introduction of contactless payments in London, allowing cardholders to simply wave their card in front of a reader and make a low-value transaction, the number of POS terminals is set to grow further.

Table 1: Value of UK issued plastic card transactions by product line, 2002-2006

Source: Datamonitor, APACS UK Payment Statistics 2007, Finance and Leasing Association

Debit cards driving growth

Increased debit card use is the main driver behind the rapid growth in the value spent on plastic cards. Datamonitor believes that consumers are increasingly choosing to use debit cards in place of traditional payment methods, as they are more convenient than carrying cash and quicker than writing a cheque. “More than 76% of the number of all plastic card transactions in the UK were made by debit card in 2006”, says Fabricius. “In the UK, the average debit card was used 99 times in 2006, compared to just 27 times for credit cards. This points to the growing trend of consumers using debit cards for smaller, more frequent transactions typically replacing cash transactions.”

Plastic cards are also growing in importance as a borrowing tool

Datamonitor's report shows that credit cards and, to a far lesser extent, private label (store) cards have grown in popularity as a borrowing tool. Both are accepted as a means of payment and also offer access to a line of pre-approved credit. As such, the strength of this proposition has seen plastic cards become an increasingly important source of credit for a growing share of consumers.