PayPal's findings are based on a commissioned survey conducted by Forrester Consulting consisting of interviews with 10 senior executives from major UK retailers and other businesses, representing a combined 2010 turnover of £85 billion.

Nine out of ten believed digital wallet-based payments will be accepted within four years, while half of those interviewed believed the development could happen in three years.

Carl Scheible, managing director of PayPal UK says: "2016 will mark the real start of money's digital switchover in the UK. We're not saying cash will disappear entirely, but we'll increasingly use our phones and other devices rather than our wallets to pay in-store as well as online. The lines between the online world and high street will soon disappear altogether. Children born today will become the UK's first 'cashless generation'."

Mobile phone payments made their first serious debut on the British high street in May, courtesy of Barclaycard and Orange who launched the Quick Tap mobile service in more than 50,000 shops for purchases of £15 or less.

Tom Gregory, head of mobile payments at Barclaycard, believes Paypal and Forrester may be underestimating the timescales for when the form factor becomes entrenched.

"Mobile payments are becoming a reality now - we launched the UK's first contactless phone earlier this year - and there is already a huge network of shops in which you can pay using the technology," he says. "What's more, with so many large retailers trialling the technology and transport companies looking to use it to speed up busy links, we're confident that 2012 is going to be the year mobile payments hit the mainstream. For example, we fully expect that contactless will be included as a standard feature of many of the mobile phones being launched over the next twelve months."