The British Retail Consortium (BRC) has unveiled its BRC Payments Survey 2023, shedding light on the evolving dynamics of the UK retail sector.
Data for the survey was gathered in 2023 and covers the 2022 calendar year. Retailers participating in the payments survey accounted for 35% of all UK retail annual sales turnover.
Despite a 4.3% surge in retail sales to £439.5bn ($553.1bn) in 2022, driven by increased prices in the supply chain, the BRC stated a noteworthy shift was observed in consumer payment preferences.
Transaction volumes spiked from 17.2 billion in 2021 to 19.6 billion in 2022, reflecting an altered shopping behaviour.
According to the survey, the average transaction value dipped from £24.49 to £22.43, signalling a move towards more frequent, albeit smaller, purchases compared to the pandemic-era trend of infrequent, larger shopping trips.
In a surprising reversal of a decade-long trend, cash transactions saw a significant uptick, comprising 19% of all transactions, up from 15% in 2021. This shift is attributed to households adopting cash for meticulous budgeting amidst the cost-of-living crisis and a gradual return to cash post-Covid.
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Despite the surge in cash transactions, cards maintained dominance, representing 85% of total spending.
Debit cards, in particular, accounted for three-quarters of this spending, emphasising their popularity for smaller value transactions.
Cash, however, increased its share to 11% of consumer spending, up from 8% in 2021.
Impact on retailers
While the BRC said the increase in cash transactions is welcomed by its members, it highlighted that the dominance of card payments comes at a hefty cost for retailers.
Card processing fees rose to £1.26bn in 2022, witnessing a 27% increase in scheme fees and a 7% rise in interchange fees as a percentage of turnover.
Call to action
The BRC said it advocates for crucial reforms to alleviate the burden on retailers:
- Payment market reforms: The Payment Systems Regulator is urged to implement reforms fostering competition and reducing costs.
- Treasury review: A comprehensive review of interchange fees is proposed to ensure alignment with the UK market.
- Open banking growth: Encouraging the expansion of Open Banking without replicating the existing card system.
Hannah Regan, Payments policy advisor at the BRC, emphasised the need for action to prevent further fee escalation.
“We are now seeing a return to many of the pre-pandemic trends in payments, including smaller but more frequent purchases, and a slight return of cash payments. Unfortunately, what has not changed, is the ever-increasing scale of fees paid by retailers in order to accept card payments.
“Though alternative payment methods could provide much-needed competition to the market, the dominance of card payments means it is essential that action is taken to prevent fees rising further.”