Faster payments usage has rocketed, says the Payments Council, but cheques have plummeted in popularity by ten per cent in 2010 compared to the same period in 2009.

While the total value of payments in the UK economy fell by 0.6 per cent in the second quarter of 2010 (Q2 2010) according to Payments Council data, cheque usage dropped by £21.5bn over the year.

However, businesses and consumers have switched to faster and more convenient electronic payments and cards to take up the slack left by cheques, with debit card usage rising £7.9bn year over year, a 12.4 per cent increase, and faster payments up £16.9bn, a rise of 67 per cent. This huge increase is a result of more banks making the service available to customers and consumers.

Cash payments also suffered thanks to debit card usage, with the amount of cash withdrawn from cash machines £1.6bn lower than in Q2 2009, a drop of 3.2 per cent.
Credit card spending, meanwhile, barely rose above inflation, increasing by just 3.9 per cent. This, the Payments Council said, reflects credit constraints and a continued migration to debit cards. The amount spent on credit cards was matched by the amount paid off over the period.

CHAPS payments, used for large banking and commercial transactions such as house purchases, is also increasing, with the fall in values now at an annual rate of 12 per cent. This is due to a partial return to normality in the financial markets, which caused a surge in value, according to the Payments Council. Bacs was also successful, with a £70bn increase recorded.

“The payments revolution continues apace in the UK,” said Sandra Quinn, director of communications. “Cheque usage is shrinking dramatically, while credit cards hold less appeal for consumers and businesses. We use cash less where there is an easy alternative, but we’re years away from cash falling out of fashion. Debit cards are taking over our daily purchases, while Faster Payments are fast becoming how we transfer our money electronically.”

However, Quinn said the overall results show a “distinct lack of energy in the UK economy. The recovery may be underway, but total payment values are not suggesting a dramatic return to strong growth.”

The ash cloud and BA strikes had an effect on card spending on airline tickets, with a drop in of seven per cent in the first half of 2010, compared with the same period in 2009 – while the skies were a no-go zone in April and June thanks to the Icelandic volcano, card spending on airline tickets fell by 13 per cent.

Meanwhile, a survey by Experian reiterates the effects of the decision to close central cheque clearing.

“Large UK corporates are already beginning to plan for the closing of cheque clearing in 2018, which presents a clear opportunity for banks to take advantage by providing alternative solutions,” said Norman Taylor, product manager at Experian Payments. “In fact, our research revealed a strong correlation between high cheque usage and an interest in Faster Payments Service (FPS). According to our survey, 50 per cent of utility companies and 40 per cent of insurers still use cheques to make around half of their payments, and it is precisely these industries that have already begun to formulate cheque migration plans with 83 per cent of utilities and 50 per cent of insurers planning to make use of FPS.”

Interestingly, 80 per cent of organisations surveyed by Experian believe the removal of cheques will benefit their business, as it provides an opportunity to create greater efficiencies in payments.

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