The economic slowdown has prompted hard-up Brits to shy away from plastic in favour of notes and coins to pay for purchases on the high street, according to new trading figures released by the British Retail Consortium (BRC).
The industry group says hard cash has increased its dominance over the last twelve months, with physical currency exchanges now accounting for 60% of all transactions, up from 54% last year.
Measured by value, cash is now used for 34% of retail spending compared with 32% a year ago, according to the annual survey of 17,000 retailers.
Commenting on the findingsm, BRC director general, Stephen Robertson, says reports of the death of cash are premature and cash is not only alive, it's thriving.
"Hard up customers are increasingly reluctant to spend money they haven't actually got in their hands. While total retail spending continues to grow, there is a widening gap between the amount spent in cash and the amount spent using cards, suggesting customers want to keep tight control of their finances," says Robertson.
The BRC used its research findings to hit out at the interchange fees charged on card payments and again accused card companies of pushing cashless payment methods as a way of boosting their own revenue.
On average a retailer is charged two pence for processing a cash transaction while the charge for a credit card is 34 pence and for a debit card, eight pence, says the BRC. Retailers responding to the survey were charged £516 million in 2007, of which 82% - £424 million - related to card payments.
"The BRC has consistently said these unjustifiable charges cost customers because they are so high retailers are forced to pass them on," says Robertson. "Banks should not be exploiting new payment systems as a way of taking extra money from shoppers. There should be a lower fixed fee per transaction which actually reflects the cost of processing, so new technology brings balanced benefits to retailers, consumers and banks."
The UK's Office of Fair Trading (OFT) has been investigating interchange fees imposed by MasterCard and Visa since 2000 and is expected to rule shortly.
At the same time the European Commission is examining cross-border interchange fees imposed by Visa Europe. The EC has already ruled that the multilateral interchange fees (MIF) charged for cross-border transactions made with MasterCard and Maestro debit and credit cards violated Treaty regulations.
MasterCard was given six months to comply with an order to withdraw the fees or incur daily penalty payments of 3.5% of its daily global turnover in the preceding business year. The US card firm lodged an appeal against the ruling last month.