News and resources on payments systems, innovations and initiatives worldwide.
Faster Payments volumes increase by 23%– UK Finance

Faster Payments volumes increase by 23%– UK Finance

A new UK Finance Payment Markets report finds Faster Payments volumes increased by 23% to 3.6 billion from 2020 to 2021. The report looks at the latest payment trends from 2021 and forecasts up to 2031.

Contactless payments appear to be a particular area of growth with almost one third of all payments in the UK made via contactless methods in 2021, up 36% from 2020. 58% of customer card payments were made by contactless. This is attributed to both the pandemic and the increase in contactless limit to £100.

While remaining the second most popular payment method accounting for 15% of UK payments in the last year, cash payments are down by 1.7%. During 2021 23.1 million consumers used cash only once a month or not at all, which is a significant increase from 13.7 million consumers during 2020. However, 1.1 million consumers still primarily use cash in their day-to-day shopping.

UK Finance projects that by 2031, cash usage will only account for 6% of all payments made in the UK. They do not anticipate a cash-free society, but rather one where cash is less important.

The number of debit card and credit card payments, which declined in 2020, rose again in 2021 (to 22.9 billion payments), such that 57%of all payments in the UK were made using cards. Debit card payments remain the most common, growing by over 23% to 19.5 billion payments.

The report also includes data on buy-now-pay later (BNPL) for the first time, finding that 12% of people had used BNPL in 2021 with broadly equal numbers of male and female consumers. Younger consumers were more likely to use BNPL than older consumers, although the age group that used it the most was 35 – 44-year-olds.

Just over 5.5 billion payments were made by businesses in 2021, a 14% increase from 2020. Additionally, UK finance reports that in recent years businesses have increasingly used Faster Payments, and this method overtook Bacs Direct Credit as the most frequently used method by businesses in 2021.

On the research, Adrian Buckle, head of research at UK Finance, said: “Payment trends generally tend to change slowly, as we all form habits about the way we pay for things and these don’t change easily. However, the pandemic accelerated the pace of change in 2020, in particular the reduction in the number of cash payments.

“In 2021 we saw the total number of payments return to pre-pandemic levels and a return towards the long-run trends in payment method usage. Contactless continued to be popular, accounting for almost a third of all payments. Cash usage fell slightly, although remained the second most commonly used payment method. These are trends we expect to continue over the next decade, alongside a continued decline in cheque use, and an increase in the number of people using remote banking.”

However, in response to the report, Siamac Rezaiezadeh, director of product marketing at GoCardless, commented: “We think the Report is too conservative in its growth estimates for Faster Payments. There are a number of important considerations that haven’t been taken into account.

“First, there is a strong preference for bank payments in this country, with Direct Debit a long-standing and popular way to pay. Gen Z is also shifting away from credit card usage as new payment methods come on the scene, such as Buy Now Pay Later (BNPL). And this is even before considering the impact of Strong Customer Authentication (SCA), which has created disjointed checkout flows that are likely to put even more payers off cards. Second, open banking will definitely be a driver. Momentum is building, with open banking payments currently growing at around 10% month-on-month according to the OBIE. As Variable Recurring Payments (VRPs) come online, we expect the Faster Payments adoption curve to become even steeper as a result of net new payments and payers moving from Direct Debit to VRPs for recurring payments.

“And finally, promoting innovative payment methods which offer an alternative to incumbent forms, such as cards, is a clear part of the PSR's strategy to create a competitive market. When regulators make something a priority, it carries weight.”

Comments: (3)

Jeremy Light
Jeremy Light - Fourdotzero - London 21 August, 2022, 11:191 like 1 like

I love this annual report from UK Finance summarising the UK payments market - full of useful and interesting facts and figures.

However, UK Finance should be bolder and more insightful with their forecasts. I agree with the comment that the forecast for FPS is too conservative. FPS volumes have been growing by around 20% or more for years and there are plenty of reasons to believe this will continue. Applying this growth to the 3.6bn FPS payments in 2021 gives 22bn payments in 2031 compared to the forecast 6bn payments in the report.

This matters because it is indicative of how the banks and payment providers represented by UK Finance are consistently 'behind the curve' when it comes to planning, positioning and innovating leading to debacles such as the NPA and APP where the industry is all at sea. It has been clear for years that real-time payments are at the heart of the UK payments industry and the basis of innovation and this is where significant investment should have been made. Instead, the industry has made little progress with FPS much the same now as it was 10 years ago in terms of capability,squandering years of time scratching its head on how to deliver the NPA and what to do about APP fraud.

Prior reports such as that for 2016 (https://www.ukfinance.org.uk/system/files/UK-Payment-Markets-Summary-2016.pdf) illustrate the scale of unanticipated change in the industry. In 2016 it forecast just 2.2bn FPS payments in 2025, a figure achieved already in 2020 and likely to be double that this year. It also forecast a decline in cash payments to 11bn in 2025, whereas they were already almost half that at 6bn last year.

For what it is worth, my own forecast is that (non-card) digital wallet push payments will be the big story over the next 10 years. It will be interesting to see when they appear as a category on this report, my guess is 2026.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 22 August, 2022, 09:38Be the first to give this comment the thumbs up 0 likes

Maybe UK Finance doesn't want egg on its face with over-optimistic projections? 

Just one bank sized its FPS infra in 2007-8 for a projected Year 3 load of 2400TPS ~ 76B transactions per year.

Against that, the entire industry has hit 3.6B TPY in Year 14, which is less than 5% of that single bank's projection for Year 3. 

Can't  blame UK Finance for not being more aggressive in its projections of FPS volumes.

Chris Davis
Chris Davis - Kyndryl - London 22 August, 2022, 10:581 like 1 like

Agree super report full of fascinating data.   Cash is going to be a bid challenge though as we will need to change our approach to the infrastructure as volumes drop in order to preserve peoples access...   FP volumes look impressive but I agree they are undercalled and that will challenge the infrastructure going forrward...