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Retail Payment Options - UK - 2021

OVERVIEW
Key issues covered in this Report
COVID-19: Market context
Economic and other assumptions
Products covered in this Report
EXECUTIVE SUMMARY
Impact of COVID-19 on payment options
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
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
Figure 3: Payment methods used most often in-store, 2021
PayPal preferred to credit cards for online purchases
Figure 4: Payment methods used most often online, 2021
Growing use of QR codes presents new payment opportunities
Figure 5: Use of QR code payments, by age, 2021
Growth in ecommerce drives BNPL spending
Figure 6: BNPL options used in the last 3 months, 2021
BNPL’s appeal lies in how easy it is to use
Figure 7: Reasons for using BNPL as a payment option, 2021
Sharp drop in cash use during the pandemic
Figure 8: Impact of COVID-19 on use of cash, 2021
Lack of acceptance a major factor in driving down cash use
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
Figure 10: Plans to increase use of cash after COVID-19 restrictions are lifted, by age, 2021
Debit cards preferred for everyday spending
Figure 11: Preferred payment option, by purchase type, 2021
Contactless payments take over
Figure 12: Payment behaviours experienced in the last 12 months, 2021
Gen Z and Millennials view BNPL as a safer option
Figure 13: Attitudes towards payments, 2021
ISSUES AND INSIGHTS
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
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
Cards gain share even as transactions decline
Cash use declines sharply
Faster payments continue to grow steadily
Figure 14: Payment volumes, 2015-20
Contactless accounts for more than a quarter of all payments
Figure 15: Contactless payments, 2015-20
Open Banking payments accelerate rapidly
Consumers continue to repay credit cards
Figure 16: Monthly changes of total sterling net credit card lending to individuals (in sterling), Jan 2018- April 2021
MARKET DRIVERS
Social spending struggles to recover as lockdowns ease
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
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
Figure 19: Number of cash machines, 2000-20
Value of withdrawals starts to recover as lockdown eases
Figure 20: Value of ATM transactions, 2016-21
‘Paradox of banknotes’ is compounded by COVID
Figure 21: Value of total sterling notes and coins in circulation, 2011-21
REGULATORY AND LEGISLATIVE CHANGES
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
New entrants drive innovation among BNPL incumbents
Crypto payments stymied by volatility
PayPal enjoys a highly differentiated brand image
COMPETITIVE STRATEGIES AND INNOVATION
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
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
Brand map
Figure 23: Attitudes towards and usage of selected brands, 2021
Key brand metrics
Figure 24: Key metrics for selected brands, 2021
Brand attitudes: AMEX approach to loyalty helps define the brand
Figure 25: Attitudes, by brand, 2021
Brand personality: Negative headlines lead Klarna to be viewed as less ethical
Figure 26: Brand personality – macro image, 2021
Visa and Mastercard are reliable, reassuring and competent
Figure 27: Brand personality – micro image, 2021
Brand analysis
Visa holds a trusted and highly regarded position
Figure 28: User profile of Visa, 2021
PayPal stands out from the crowd
Figure 29: User profile of PayPal, 2021
Mastercard is highly recommended but less likely to deliver an excellent experience
Figure 30: User profile of Mastercard, 2021
Apple Pay offers a progressive and exclusive brand image
Figure 31: User profile of Apple Pay, 2021
Klarna – a progressive brand suffering from negative press
Figure 32: User profile of Klarna, 2021
Google Pay – an accessible brand that lacks differentiation
Figure 33: User profile of Google Pay, 2021
American Express - a prestigious brand that rewards loyalty
Figure 34: User profile of American Express, 2021
Reading word clouds
THE CONSUMER – KEY TAKEAWAYS
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
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
Debit cards dominate in-store spending
A fifth use cash as a backup
Figure 35: Payment methods used most often in-store, 2021
PayPal preferred to credit cards for online purchases
Figure 36: Payment methods used most often online, 2021
One in five has made a payment by QR code
Figure 37: Use of QR code payments, by age, 2021
USE OF BUY NOW, PAY LATER
A quarter use BNPL 
Figure 38: BNPL options used in the last 3 months, 2021
BNPL offers an easier way to pay
Young people are driven by recommendation
Figure 39: Reasons for using BNPL as a payment option, 2021
IMPACT OF COVID-19 ON CASH USAGE
COVID drives a huge drop in cash usage
Figure 40: Impact of COVID-19 on use of cash, 2021
Falling use of cash driven by businesses rather than consumer choice
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
Figure 42: Plans to increase use of cash after COVID-19 restrictions are lifted, by age, 2021
PREFERRED PAYMENT OPTIONS
Debit cards dominate day-to-day spend
Credit cards preferred for big-ticket purchases
Cash could make a comeback as bars and restaurants reopen
Figure 43: Preferred payment option, by purchase type, 2021
It’s not just older people who prefer cash
Figure 44: Preferred payment option when buying food/drink in bars/restaurants, by age, 2021
Young people are most interested in using credit options
Figure 45: Preferred payment option when buying technology products online, by age, 2021
PAYMENT BEHAVIOURS
Contactless payments take over
A balance of security and speed
Figure 46: Payment behaviours experienced in the last 12 months, 2021
Accept digital wallets to reduce checkout abandonment 
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
Consumer trust in contactless payments enables increase in limit 
Young people think crypto should be more widely accepted
Figure 48: Attitudes towards payments, 2021
Gen Z and Millennials view BNPL as a safer option
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
Figure 50: ‘There will always be a need for cash’, by age, 2019/2021
APPENDIX – DATA SOURCES, ABBREVIATIONS AND SUPPORTING INFORMATION
Abbreviations
Consumer research methodology

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