Debit cards on top with continued spending surge

Use of cash in the UK is falling as consumers switch to plastic and tighten their belts, according to the latest figures from the Payments Council.

Cash lost the top spot as the consumer's payment method of choice in 2010 for the first time. By the end of the year, £26bn more was spent on debit cards than in notes and coins, equivalent to approximately £1000 for every household in the country.

The latest figures for the first quarter show the gap continuing to widen as we choose to use our debit cards. We spent £39bn on the high street with our debit cards in the first three months of the year - more than twice the amount spent on credit cards (£17bn). By the end of 2011, total debit card spending for the year could reach £320bn.

In the first quarter of this year, cash machine withdrawals, which account for a significant part of the cash we spend, plateaued at £44bn - down 0.3% from the same period last year.

Spending on credit cards in January to March 2011 was just 1.5% higher than in the same period last year, a decline in real terms. By contrast, debit card spending was up 10.1%. Credit card spending has been broadly flat in recent years, while spending on debit cards has continued on a seemingly unstoppable ascendancy.

Meanwhile cheque usage fell dramatically as consumers and business sought quicker, more convenient ways to pay. In the last three years, cheque usage has fallen just over 30%. There is no let up in this trend, partly contributed by retailers declining to accept them and partly due to alternatives, such as electronic payments, eating into the cheque's share in areas like person-to-person and person-to-business payments. Faster Payments grew 47% in the first quarter year-on-year. A total of £48bn of cleared funds was moved instantly by UK account holders, meaning their payees had immediate access to that money, rather than having to wait for a cheque to clear.

Sandra Quinn, director of communications for the Payments Council said: "Overall card spending in the first quarter started relatively strongly, thanks to catch up from the snowbound end of 2010, but slightly weakened as the quarter progressed. The strongest retail category was petrol, due to dramatic fuel price hikes. Motorists spent almost £900m more on fuel in the first three months of 2011 than they did from January to March 2010 - an increase of 18%."

In the first quarter of this year, card spending rose 7.3%, just under 2% in real terms, with overall spending growth lower than this due to the decline in cheques and cash. Apart from the fuel sector, card spending rose more slowly than inflation in food, clothing and department stores, but was stronger in the household sector, which was boosted in particular by DIY stores, but also by appliances and garden centres. Among other spending, entertainment was the strongest category, rising 11.3% year-on-year, while travel was up by 3.2%. The rise in entertainment spending can be partly explained by an increase in the number of foreign visitors to the UK.

Sandra Quinn commented: "The card spending figures show consumers are feeling the pinch in some areas, but they are still spending. The first quarter was slightly stronger than the end of 2010, but, in line with falling GDP forecasts for 2011, is weaker than many hoped. While the switch in spending to debit cards continues, overall growth looks

likely to be subdued, but it's clear from the figures that some sectors of the economy have been less affected by the slowdown in consumer demand. It seems that the long dry spell in early spring enticed a lot of us to buy a new barbecue - let's hope we get the weather to use them!"