Card Payments Account for 90% of UK Retail Transactions

Card payments now account for nearly 90% of all retail transactions in the U.K.

The findings from the British Retail Consortium’s (BRC) 2022 Payments Survey reveal that debit cards have continued to gain ground as the preferred payment method in the U.K., accounting for 67.28% of all retail transactions in 2021. This represented a total value of 282 billion pounds ($345.7 billion) , an 18% increase from 2020 figures.

Credit card usage also continued to grow their share of the U.K.’s payments market, from 13.54% in 2020 to 14.91% in 2021.

As a result of the large share of payments made with debit cards, retailers spent 762 million pounds ($934.3 million) processing debit card transactions last year, accounting for 59% of total payment-related costs they incurred.

And while debit card costs remain lower than credit card fees, the BRC cautioned that debit card fees have been on an upward trend in recent years. In fact, the average transaction cost for accepting debit cards rose from 0.265% to 0.273% between 2020 and 2021, while acquirer charges surged by 12%.

This increase comes amid ongoing probes by the U.K.’s Payment System Regulator (PSR) into fees charged by major card networks.

In a separate review carried out last year, the PSR found that the U.K.s card-acquiring market also suffers from a lack of price transparency that is especially detrimental to small- to medium-sized businesses (SMBs).

It further found that previously enforced caps on the fees that card networks can charge have failed to translate into cheaper overall transaction costs as many acquirers didn’t pass savings on to their clients.

As part of a package of reforms introduced last month and expected to come into force early next year, the PSR will make it mandatory for acquirers to be more transparent with their pricing and make it easier for merchants to compare prices between acquirers.

Open Banking Alternative to Card Payments

To cut down the growing cost of card payments, the report points to open banking as a potential cheaper alternative for merchants.

In a statement emailed to PYMNTS, Todd Clyde, CEO of Token, said that the firm estimates that its open banking platform has helped save merchants over 90 million pounds ($110.3 million) to date, and that account-to-account (A2A) payments can be 2x to 20x cheaper for businesses compared to cards.

But while open banking holds promise, it represents just a tiny fraction of the U.K.’s payments market where cards still reign supreme.

There are also several barriers to widespread open banking adoption.

Firstly, as noted in the BRC report, debit cards are deeply entrenched in the U.K.’s payments ecosystem and continue to grow as a share of retail transactions.

Secondly, because card fees generate significant revenue for banks, there is little incentive for them to promote alternative payment methods.

But while A2A payments still have a long way to go before they can rival cards, they have nonetheless gained traction since the U.K. first embarked on its open banking journey in 2018.

Data from the Open Banking Implementation Entity (OBIE) showed that in October, there were over 7 million successful payment initiations made by third-party providers, over ten times more than in the same month last year.

Related: UK Open Banking Users Top 6 Million

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