Table of Contents
Executive Summary
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- Impact of COVID-19 on payment options
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- Figure 1: Short, medium and long term impact of COVID-19 on payments, July 2021
- The market
- Cards gain share even as transactions decline
- The pandemic causes a sharp decline in the use of cash
- Faster Payments experiences steady growth
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- Figure 2: Payment volumes, 2015-20
- Online sales surge during lockdowns
- BNPL industry faces new regulation
- Companies and brands
- New entrants drive innovation among BNPL incumbents
- Crypto payments stymied by volatility
- PayPal enjoys a highly differentiated brand image
- The consumer
- Debit options preferred as big-ticket spending is restricted
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- Figure 3: Payment methods used most often in-store, 2021
- PayPal preferred to credit cards for online purchases
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- Figure 4: Payment methods used most often online, 2021
- Growing use of QR codes presents new payment opportunities
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- Figure 5: Use of QR code payments, by age, 2021
- Growth in ecommerce drives BNPL spending
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- Figure 6: BNPL options used in the last 3 months, 2021
- BNPL’s appeal lies in how easy it is to use
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- Figure 7: Reasons for using BNPL as a payment option, 2021
- Sharp drop in cash use during the pandemic
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- Figure 8: Impact of COVID-19 on use of cash, 2021
- Lack of acceptance a major factor in driving down cash use
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- Figure 9: Reasons for using cash less compared to before the COVID-19 outbreak, 2021
- A third plan to increase cash use after restrictions ease
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- Figure 10: Plans to increase use of cash after COVID-19 restrictions are lifted, by age, 2021
- Debit cards preferred for everyday spending
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- Figure 11: Preferred payment option, by purchase type, 2021
- Contactless payments take over
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- Figure 12: Payment behaviours experienced in the last 12 months, 2021
- Gen Z and Millennials view BNPL as a safer option
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- Figure 13: Attitudes towards payments, 2021
Issues and Insights
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- COVID-19 has busted habits and changed the future of payments
- BNPL providers forced to adapt as new players enter the market
- Giving consumers choice and control
The Market – Key Takeaways
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- Cards gain share even as transactions decline
- Faster Payments experience steady growth
- Online sales surge during lockdowns
- BNPL industry faces new regulation
- Government takes action to protect cash
The Payments Landscape
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- Cards gain share even as transactions decline
- Cash use declines sharply
- Faster payments continue to grow steadily
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- Figure 14: Payment volumes, 2015-20
- Contactless accounts for more than a quarter of all payments
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- Figure 15: Contactless payments, 2015-20
- Open Banking payments accelerate rapidly
- Consumers continue to repay credit cards
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- Figure 16: Monthly changes of total sterling net credit card lending to individuals (in sterling), Jan 2018- April 2021
Market Drivers
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- Social spending struggles to recover as lockdowns ease
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- Figure 17: Value of CHAPS payments received by large UK corporates from their credit and debit card processors, by category, 2020-21
- Online sales surge during lockdowns
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- Figure 18: Internet sales as a percentage of total retail sales, January 2017- May 2021
- Consumers are becoming comfortable with QR codes
- Cash machine numbers continue to decline
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- Figure 19: Number of cash machines, 2000-20
- Value of withdrawals starts to recover as lockdown eases
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- Figure 20: Value of ATM transactions, 2016-21
- ‘Paradox of banknotes’ is compounded by COVID
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- Figure 21: Value of total sterling notes and coins in circulation, 2011-21
Regulatory and Legislative Changes
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- Contactless limit extended to £100
- SCA deadline extended for the second time
- BNPL providers face new regulation
- Government takes action to protect access to cash
- Exploring the possibility of BritCoin
- ASA clarifies guidance for BNPL advertising
- UK Supreme Court upholds ruling against Mastercard and Visa
Companies and Brands – Key Takeaways
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- New entrants drive innovation among BNPL incumbents
- Crypto payments stymied by volatility
- PayPal enjoys a highly differentiated brand image
Competitive Strategies and Innovation
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- Industry leaders target the BNPL space
- ‘PayPal Pay in 3’ launches in the UK
- Barclays enters BNPL space
- HSBC invests in Divido
- Moving BNPL beyond partnerships
- Zilch launches ‘tap & pay-over-time’ option
- Klarna shopping app introduces pay-in-3 to all online retailers
- LayBuy brings BNPL to store
- Curve Credit plans to rival Klarna
- Big retailers seek to take control of credit options
- John Lewis launches short term interest-free credit for purchases up to £35k
- IKEA launches BNPL option for orders over £99
- Adding flexibility to the payment process
- Mastercard and VISA launch Request to Pay application
- GoCardless rolls out Instant Bank Pay
- Mode seeks to tempt people to Open Banking with cashback in Bitcoin
- Tomato Pay launches in the UK
- Click to pay rolls out in the UK
- Implementing Crypto payments
- Visa and Mastercard prepare for a crypto future
- PayPal enables cryptocurrency checkout
- Bottlepay enables Bitcoin payments via social media
- Opening up from the ‘walled garden’ approach to crypto
- Increased contactless limit offers opportunities for wearables
- Rings merge fashion and function
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- Figure 22: The K Ring
- Beyond wearables – using the human body to pay
- Payment implants take wearables a step further
- Amazon tests ‘pay-by-palm’ functionality
Brand Research
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- Brand map
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- Figure 23: Attitudes towards and usage of selected brands, 2021
- Key brand metrics
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- Figure 24: Key metrics for selected brands, 2021
- Brand attitudes: AMEX approach to loyalty helps define the brand
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- Figure 25: Attitudes, by brand, 2021
- Brand personality: Negative headlines lead Klarna to be viewed as less ethical
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- Figure 26: Brand personality – macro image, 2021
- Visa and Mastercard are reliable, reassuring and competent
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- Figure 27: Brand personality – micro image, 2021
- Brand analysis
- Visa holds a trusted and highly regarded position
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- Figure 28: User profile of Visa, 2021
- PayPal stands out from the crowd
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- Figure 29: User profile of PayPal, 2021
- Mastercard is highly recommended but less likely to deliver an excellent experience
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- Figure 30: User profile of Mastercard, 2021
- Apple Pay offers a progressive and exclusive brand image
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- Figure 31: User profile of Apple Pay, 2021
- Klarna – a progressive brand suffering from negative press
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- Figure 32: User profile of Klarna, 2021
- Google Pay – an accessible brand that lacks differentiation
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- Figure 33: User profile of Google Pay, 2021
- American Express - a prestigious brand that rewards loyalty
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- Figure 34: User profile of American Express, 2021
- Reading word clouds
The Consumer – Key Takeaways
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- The pandemic has transformed how we pay
- Debit options preferred as big-ticket spending is restricted
- Growing use of QR codes presents new payment opportunities
- BNPL reaches the mainstream
- Pandemic helps drive BNPL spending
- PayPal taps into existing user base to expand into BNPL
- Young people think BNPL offers a safer option compared to credit cards
- Cash won’t bounce back, but it continues to play an important role
- Sharp drop in cash use during the pandemic
- A third plan to increase cash use after restrictions ease
- A quarter of 18-24s prefer to use cash in bars/restaurants
Impact of COVID-19 on Consumer Behaviour
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- The pandemic has transformed how we pay
- Contactless payments are here to stay
- Drop in the use of cash will be permanent
- The pandemic offers opportunities for QR code payments
Payment Methods Used
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- Debit cards dominate in-store spending
- A fifth use cash as a backup
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- Figure 35: Payment methods used most often in-store, 2021
- PayPal preferred to credit cards for online purchases
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- Figure 36: Payment methods used most often online, 2021
- One in five has made a payment by QR code
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- Figure 37: Use of QR code payments, by age, 2021
Use of Buy Now, Pay Later
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- A quarter use BNPL
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- Figure 38: BNPL options used in the last 3 months, 2021
- BNPL offers an easier way to pay
- Young people are driven by recommendation
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- Figure 39: Reasons for using BNPL as a payment option, 2021
Impact of COVID-19 on Cash Usage
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- COVID drives a huge drop in cash usage
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- Figure 40: Impact of COVID-19 on use of cash, 2021
- Falling use of cash driven by businesses rather than consumer choice
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- Figure 41: Reasons for using cash less compared to before the COVID-19 outbreak, 2021
- A third plan to use cash more after restrictions are lifted
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- Figure 42: Plans to increase use of cash after COVID-19 restrictions are lifted, by age, 2021
Preferred Payment Options
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- Debit cards dominate day-to-day spend
- Credit cards preferred for big-ticket purchases
- Cash could make a comeback as bars and restaurants reopen
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- Figure 43: Preferred payment option, by purchase type, 2021
- It’s not just older people who prefer cash
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- Figure 44: Preferred payment option when buying food/drink in bars/restaurants, by age, 2021
- Young people are most interested in using credit options
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- Figure 45: Preferred payment option when buying technology products online, by age, 2021
Payment Behaviours
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- Contactless payments take over
- A balance of security and speed
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- Figure 46: Payment behaviours experienced in the last 12 months, 2021
- Accept digital wallets to reduce checkout abandonment
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- Figure 47: ‘Having a preferred payment option refused meant I have been unable to complete a purchase, by most used payment type for in-store purchases, 2021
Attitudes towards Payments
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- Consumer trust in contactless payments enables increase in limit
- Young people think crypto should be more widely accepted
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- Figure 48: Attitudes towards payments, 2021
- Gen Z and Millennials view BNPL as a safer option
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- Figure 49: ‘Buy now, pay later is less risky than using credit cards’, by generation, 2021
- Consumers remain committed to cash, just not as a payment option
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- Figure 50: ‘There will always be a need for cash’, by age, 2019/2021
Appendix – Data Sources, Abbreviations and Supporting Information
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- Abbreviations
- Consumer research methodology
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