Cash no longer king as debit cards take over - Money - News |

News News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Cash no longer king as debit cards take over

Cash no longer king as debit cards take over

Category: Money

Updated: 03/12/2010
First Published: 03/12/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Once the unrivaled payment method of choice for Britons, cash was overtaken by debit cards this summer.

It is the first time ever that spending on debit cards has been of greater value than cash, and the breakthrough came over the August Bank Holiday when the running total of debit card spending (£276 billion) overtook cash (£269 billion).

The use of debit cards has rocketed in recent times, as the number of purchases rose by a tenth in the summer compared to last year, with an additional 1.6 million transactions on debit cards every day between July and September.

As a further indication of the move away from cash, withdrawals from cash machines fell 1.5% in the third quarter, compared with the same period in 2009, a decline in real terms of almost 5%.

"Cash is too cumbersome for many consumers these days - they prefer a card for anything more than the smallest transactions," Sandra Quinn, director of communications, Payments Council, explained.

"We now expect our debit cards to be accepted everywhere we go - in pubs and clubs, at the corner shop, online and on the high street. Having quickly supplanted cheques, then claimed the scalp of credit cards, they have now usurped cash's throne too."

Credit card spending has barely changed in cash terms in recent years - over the last year it is up by only 5% compared to 2005, a decline in real terms of a tenth.

Since 2005 the number of cards in issue has also fallen from 70.6 million to 60.7 million (-14%), and the number of cardholders has decreased from 31.7 million to 30 million.

Credit cards fall well behind their debit cards cousins – debit cards were used three times more frequently than credit cards in the third quarter of 2010.

"Once credit cards were the only convenient way to pay as alternatives to physical cash and cheques, but now people have far more options," Quinn added.

"Conscious of the need to repay credit borrowed, consumers are increasingly choosing their debit card over credit card. Contrary to expectation, the possibility of greater financial stress during the recession and beyond has not driven people to rely more heavily on their credit cards."

Cheques accelerated their flight into the payments wilderness, as 104 million fewer were written over the last twelve months compared to the previous year.

At this pace of decline, both the number of cheques written and the value of money they move will almost halve by 2015.

Faster Payments – transferring cash between accounts online – rose 53% in value terms and 42% in volume terms, as more banks joined the system and in September the maximum value threshold for internet and phone payments rose from £10,000 to £100,000.

"Consumers expect their banks to offer the service now - whereas a tenner borrowed from a friend was once repaid in cash, now it's quite common for a Faster Payment to do the job direct," said Quinn.

Find the best bank account for you - compare bank accounts

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.