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The future of payments – where we are and where we’re going

15 July 2021 Data Insights
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Throughout the past year the pandemic has changed the world we live in and how we behave in it. 

The consumer space was just one area that our habits shifted rapidly and significantly. While contactless card payments were increasing steadily across the UK and globally, already, COVID-19 accelerated our contactless usage tenfold, moving a lot of us closer to a completely cash-free lifestyle. 

 

Convenient, quick and most importantly, physically touch free, contactless payment methods provided a perfect solution for minimising touch-points and transmitting germs during the height of the virus. It made sense then that business owners adopted and encouraged contactless during this time. 

Some businesses, in fact, will have gone from not accepting card payments at all, to now taking them as their main payment method. 

So as we shift ever closer to a digitalised world, we want to understand how the future of payments looks now, and how it may look within the next few years. From biometrics to cryptocurrencies, how will we pay in the future and what does that mean for small businesses? 

To find out more about what’s on the horizon, we crunched some numbers from Statistic, Google Trends, and Blockchain, as well as our own Paymentsense data to forecast what’s in store for the next decade and more. 

 

A cashless future: The big shift from cash to card

For thousands of years coins and notes have been exchangeable but now, with the growth of technology, cards have become increasingly popular over recent years. 

From the first card payment in 1963 by American Express, banks have been evolving their card payments. Barclays Bank made the UK credit card debut in 1966, and then two decades later in 1987 the UK’s first debit card was released also by Barclays, called Visa Delta. 

It wasn’t until 2004 chip and PIN cards were introduced in the UK, and then made mandatory on all British payment cards from February 2006. Barclaycard paved the way again in 2007 as they were the first to adopt near-field communications (NFC), known to me and you as contactless, in their credit cards. 

By December 2014, there were an estimated 58 million contactless cards in UK circulation, and 147,000 NFC card machines in use. In December 2020, during another announced lockdown for the UK over the festive season, there were 939 million contactless transactions made in stores across the UK. That’s a 26% increase from 2018 where there were 691 million contactless transactions. 

Due to consumer demand and Visa and Mastercard requirements, all new card machines have contactless functionality.

 

How we pay today: 84% of all our transactions are now contactless

From analysing our own customer transaction data we were able to identify how consumers across the UK are using contactless and card payments today. The data revealed that in 2021 84% of all payment transactions across all UK industries are now made by using contactless, compared to 75% in 2019. 

From a large number of industries using contactless payments since the pandemic began, we can see that over the past two years the percentage of contactless transactions has grown by 14% across all industries. 

 

The UK clothing industry is turning to contactless payments more

In the UK, clothing and apparel stores have seen their contactless transactions increase by over half post lockdown – hitting 59%. 

The rise of contactless payments is likely due to germ-free advantage they hold against cash payments. And with the decision to increase the contactless card limit threshold from £30 to £45, this would have benefitted the clothing industry. 

On the other hand,  the automotive industry has one of the lowest percentages of contactless transactions due to the higher value of services they offer – typically an average payment is £170. This is well above the £45 contactless limit meaning it wouldn’t be the go-to payment method in this sector. If the increase from £45 to £100 is rolled out this year, this will no doubt positively impact MOT garages and other automotive services whose customers can pay even more efficiently with cards, without entering their PIN. 

Despite having the lowest percentage of contactless rates, the automotive sector has seen the highest growth of contactless card payments during the past two years. In 2019 only 23% of all transactions were made with a tap, now in 2021 there are 41%.  

 

Post lockdown: Industries that have the highest card acceptance rate in 2021

During 2021, the personal services sector, which includes barbers, beauty salons, and laundrettes, has the lowest card acceptance rate, compared to other industries. 

But this isn’t to say they’re not growing. In fact, this was the industry that grew it’s card acceptance the most during the coronavirus pandemic, with an increase of 24% post-lockdown. 

However, despite the sector having the lowest card acceptance rate, they have seen the highest growth in acceptance since the coronavirus pandemic. 

Despite this increase, only 17% of laundrettes and 40% of hairdressers and barber shops respectively are accepting cards in 2021. One reason for this low number could be the split between the business revenue, and those barbers and hairdressers that are self-employed but rent a chair at a salon.

Card acceptance rate per industry

We asked Susanne Stent, owner of Silver Oak Coffee her take on contactless payments:

“People used to be embarrassed to use contactless for small amounts. But COVID has changed that, particularly amongst the older generation. It’s fantastic for us. It means less security risk and less time spent counting money and going to the bank.”

 

The industries that are new to card – pre vs post COVID-19

Both the personal services and automotive sectors have adopted card payments a lot later than industries like entertainment, food and beverage services. During the first lockdown there was an immediate demand for the ability to facilitate card payments by essential retailers such as butchers and other food and beverage outlets. In fact butchers saw four times the usual demand for card payments between April – June 2020. Takeaways saw twice the demand and grocery stores saw a huge 44% increase in card payments. 

This trend continued as the UK government eased restrictions after the first lockdown in July 2020. Data shows there was a heightened demand for card payments from businesses that were able to then open their doors once more. There was a particular increase in pubs, with a massive 65% increase in card payments, and amusement & recreation with a 51% uplift. 

There has also been a second spike in demand for card payments from industries such as, amusement & recreation, pubs, and cafes & restaurants.  Amusement, recreation and pubs utilised card payments the most, reaching 88% and 67% usage versus their pre-COVID-19 levels. Albeit, some businesses who were slower to adopt last year have now decided they need to take card payments. 

A minority of industries do appear slower in their uptake of card payments, most surprisingly the health & beauty sector.

 

Halifax are leading the way with contactless transactions post-COVID in the UK

Over the past two years the residents of Scotland have steadily increased their contactless spend the most overall when compared to England and Wales, with over half of all sales being made by contactless payments. 

And when it comes to the biggest increase in contactless adoption over the pandemic, Northern cities take the win, highlighting the South’s earlier adoption of contactless payments, before COVID-19 hit. The North’s accelerated adoption across 2020-21 has helped bridge the cash-card gap across the two regions of the UK.  

At city-level Halifax had the highest percentage of contactless transactions after May 2021 when restrictions had been eased once more. Halifax saw 90.6% of payments use contactless transactions. Hull and Ilford followed suit with 90% and 89.6% of transactions being contactless ‘post’ COVID respectively.

 

The regional uptake of contactless payments

 

Breakdown of city-level uptake of contactless payments 

Rank Town/City Percentage of contactless transactions before COVID-19 Percentage of contactless transactions after COVID-19 (April/May 2021) Percentage change
1 Halifax 78.0% 90.6% 16%
2 Hull 77.5% 90.0% 16%
3 Ilford 76.4% 89.6% 17%
4 Wakefield 75.1% 89.6% 19%
5 Romford 80.4% 89.5% 11%
6 York 74.2% 89.4% 21%
7 Southall 82.7% 89.4% 8%
8 St. Albans 81.0% 89.4% 10%
9 Twickenham 81.3% 89.1% 10%
10 Enfield 80.4% 89.1% 11%
11 Croydon 80.6% 89.1% 11%
12 Watford 81.9% 89.1% 9%
13 Sutton 77.4% 89.0% 15%
14 Dartford 77.5% 89.0% 15%
15 Cardiff 80.9% 88.9% 10%
16 Northampton 78.7% 88.9% 13%
17 Sunderland 75.8% 88.8% 17%
18 Bristol 81.4% 88.7% 9%
19 Harrow 81.0% 88.7% 9%
20 Brighton 77.9% 88.7% 14%

 

We asked owner of The Village Salon, Jacqui Doherty on her thoughts on card payments:

“We only started using cards when we opened in July after the first lockdown. It was a Government recommendation to use cards rather than cash. I like it. It saves having too much cash hanging around in the salon and walking around with cash in your bag.”

 

How Brits feel about card payments 

After collating all of our internal data, we wanted to know how the British public felt about card payments. We surveyed 500 business owners across the UK in May 2021 and found that 77% of business owners across the hospitality industry, retail and personal service sector said they’ve seen card payments become more popular at the expense of cash. A further 77% of respondents from these businesses also agreed that the shift from cash to card payments had a positive impact on their business. 

 

Smart Contactless: Apple & Google Pay

We wanted to understand not just contactless card payments, but contactless payments made with digital wallets. To find this out, we analysed transaction data for contactless payments over £45. 

We found that two years ago fewer than 1 in 100 transactions above £45 were contactless. In 2021 this figure has drastically changed. Now, 1 in 10 of these transactions are now contactless using Apple, Google, or Samsung digital wallets. That equates to 11% of transactions above £45 a huge 450% increase from just 2% in 2019.  

 

The industries adopting Apple & Google Pay

The industry adopting Apple and Google Pay the most is food and beverage. This sector has seen a massive growth in Apple and Google Pay transactions above £45, increasing from under 2% in 2019 to a huge 14% post lockdown 2021. 

This  increase could be attributed to the shift from one-off orders, to larger table orders or tabs in pubs and bars, equating to a higher transaction value, which ends up being above the £45 limit. 

Another reason for an uplift in Apple or Google payments could be that the pubs reopened on April 12th 2021, so it’s likely that thirsty punters were making up for lost time and ordering higher value rounds, or more drinks per round. 

 

Online payments through websites

The use of card payments has also shaped how we behave online with many businesses now setting up a website by default when starting out. From big e-commerce businesses to small high street stores, tech-savvy business owners had to get creative during lockdown to be able to continue selling to their customer base.

We asked the owner of zero waste shop Zero Penarth, Debra Thorne, her thoughts on online payments:

“We don’t have an online presence. We’re looking to develop our own website. That’s something we are going to move towards because we need to see what the demand is for online if people don’t have time to come in or don’t want the hassle or they are worried about COVID.”

 

The rise of cryptocurrency

Cryptocurrency is a digitalised asset that can be exchanged for some goods and services. It’s not a physical form of money and it’s therefore decentralised. Cryptocurrencies were first made popular in 2009 by Bitcoin. Since it’s relative success, we’ve seen various other cryptocurrencies being formed globally. Some of the most popular cryptocurrencies are Ethereum, Stellar and Litecoin.

Over the past few years, cryptocurrency has seen a vast increase in popularity and activity. From May 2020 – May 2021 Google search volumes revealed that searches for ‘buy cryptocurrency’ increased by a huge 508%. 

 

How much has the demand for cryptocurrency grown?

Cryptocurrency % change Apr 2019 – Apr 2021 % change Apr 2019 – Apr 2020 % change Apr 2020 – Apr 2021
Bitcoin (BTC) -9.43% -6.56% -3.07%
Ethereum (ETH) 90.81% 27.08% 50.14%
Chainlink (LINK) 4415.79% 2005.26% 114.50%
Stellar (XLM) 1071.05% 423.71% 123.61%
Litecoin (LTC) 359.40% 41.71% 224.18%
Dogecoin 92.13% 2.14% 88.10%
DASH 63.11% 225.21% -49.84%
Bitcoin Cash (BCH) 698.18% 38.15% 477.77%
Monero (XMR) 99.31% 8.24% 84.13%
Ethereum Classic (ETC) -11.82% 1.92% -13.48%
Ripple (XRP) 172.53% 113.95% 27.38%

 

The most popular reasons for using cryptocurrency

 

As the rise of virtual monopolies has grown over the past years, the demand for cryptocurrency ATMs also grew. While traditional cash ATMs on our highstreets have declined Bitcoin ATMs have started to appear more frequently. Bitcoin and other crypto ATMs work differently to a normal ATM. They allow people to buy the digital currency with their credit or debit card. 

With the growth of virtual money, there are now 164 listed companies currently accepting cryptocurrency as a payment. These include travel company Expedia, who accept Bitcoin online and beauty retailer Lush that accept cryptocurrencies through their ecommerce platform. The number of Bitcoin ATMs worldwide has grown to 14,000 since 2015

 

There seems to be a higher concentration of Bitcoin ATMs that you can buy and sell from, in the central retail hubs of large cities, such as, Oxford Street in London. In the UK, London has the largest number of Bitcoin ATMs, sitting at 114, followed by Birmingham with 25, and Manchster at 14. 

 

The number of Bitcoin ATMs worldwide from 2015-present

Year Number of Bitcoin ATMs worldwide
2015 455
2016 903
2017 1,932
2018 4,009
2019 5,795
2020 12,641
Present 14,915

 

The future of payments

Thanks to technological advances, the structure of payments has gone through a significant transformation. To understand how this market is adapting, we looked at the core forecasting trends transforming the global payment system’s future.

Forecast of which payment methods are likely to be the most popular in the next 3 years

As we step closer into the future it seems cash is turning into a thing of the past with cashless retail stores sprouting across the US and the UK. In West London, Amazon Fresh opened their first digital cashless retail store. Customers can simply scan a QR code when entering the store and then leave, their accounts will then automatically be billed as they leave. 

As Bitcoin has gained increasing popularity over the years, it has now been weaved into more mainstream shopping and we are now able to buy everyday items. The table below indicates the forecast rise of Crypto in business, illustrating how blockchain will increase by up to $22.46 in 2026.  

Forecast for rise in cryptocurrency worth over the next five years

Year Blockchain use in banking (Billion US Dollars)
2018 $0.28
2019 $0.48
2020* $0.84
2021* $1.46
2022* $2.53
2023* $4.39
2024* $7.64
2025* $13.27
2026* $22.46

 

Forecasting the payment methods that are likely to see the biggest increase in demand in the next three years

Are biometric payments the face of the future?

Using voice, skin, and iris scans for payments has already grown into fruition with Siri helping peer-to-peer transfers with Venmo, Alex, and Google Assistant. As biometric payments offer more security, they have increased in popularity across the globe; there are approximately 3.25 billion voice assistants that are in use today. 

Microchips 

Microchip payments have grown in popularity over the last few years, as they pride themselves on the quality of being impossible to hack. They are the ultimate contactless payment, as you will now no longer need a secondary item like a card or phone to make a purchase. 

As a fifth of Swedes now no longer use automated teller machines, this new contactless method has gained mass popularity. Over 4,000 swedes are now being implanted with microchips in their hands, allowing them to pay at restaurants, buses, and parking lots. 

Eco-Friendly Cards

With over six billion payment cards being produced every year worldwide, the push to be more sustainable conscious has become even more paramount. The cards produced are usually replaced every three to four years, contributing to 5.7 million tons of plastic landfill

In 2020 Mastercard Sustainable Materials looked to assist issuers in providing consumers with more eco-friendly cards. And with more and more people opting for a digital version of their card on their smartphones and wearable devices, this will no doubt reduce the amount of plastic waste.

AI Assisted

AI has been constantly evolving since the late 1920s when the first Japanese robot was created, now it is being applied to a wide range of businesses. However, the financial sector has been developing the adoption of AI and applying the technologies in multiple ways, from fraud detection to conducting surveillance. 

As chatbots are now commonly used for customer service queries, there is a huge potential for AI to be adopted in more than just supporting your shopping and financial questions. Your own Alexa can now order shopping to your door, with the use of any Echo device. By using Alexa’s voice-ordering support Prime subscribers who live near a Prime Now, Whole Foods, or AmazonFresh location are able to order food, groceries, and other items. 

Edging closer to a digital future 

Coronavirus has changed our lifestyles and habits considerably. While there are some things we can’t wait to resume again – like hugging loved ones and travelling abroad, some changes will be here to stay. 

The convenience of digital payments has shown that cash, and even physical cards are fast becoming outdated for a society that prioritises convenience and ease for consumers and business owners alike. So long as the most vulnerable in our communities are able to access digital payments, they’re success is likely to soar.

Automated processes that can free up time give businesses the opportunity to invest their resources in other areas, like future growth or sustainability.  So as we move forward into 2022, we’re looking at a cashless future. Is your business ready? There’s no better time to start accepting contactless card payments today with Paymentsense card machines. 

Methodology

We analysed data from the average daily transactions for 2020 and then used these figures to forecast the likely increase in use of blockchain for the next five years.  For example, in 2022 blockchain use is expected to rise by 201% since 2020, therefore, the usage of each coin was increased by 201%.

Search volumes were then collated using several phrases for each payment type and the total 12 month search volume was calculated to show the popularity of each, by using keyword.io. 

Google trends data was then added to see the five year change. The name of each payment type was put into Google trends and the % change between the start and end of the five year time period was calculated.

 

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