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Can Cards Retain Dominance in the UK Payment Landscape?

Earlier this week, PYMNTS ran the headline that card is king in the landscape of U.K. payments, using data from a recent report by trade group UK Finance.

Read on: Card Is King in UK Payments Landscape, but Digital Wallet Usage Soars

The report showed that debit and credit card transactions made up 57% of all transactions in the country last year, making cards the U.K.’s most popular method of payment. But do the headline numbers tell the whole story?

For example, although UK Finance points to rising mobile wallet usage, the group’s annual payment report doesn’t list mobile as a separate category in its breakdown of overall payment methods. Instead, one assumes that near-field communication (NFC) payments made using the likes of Apple Pay and Google Wallet are included within the card category.

After all, although no physical card is needed to initiate a contactless payment via NFC, the mobile device acts as a kind of virtual card and the payment is still processed by the card network.

But when it comes to online or QR-based payments, things are slightly different. In these types of payment, no card is necessary and eWallets like PayPal can initiate a transfer directly from the user’s bank account.

As the UK Finance report points out, although they represent a significantly smaller share of U.K. payments than card-based transactions, bank transfers are still an important payment method in the country. The category listed as “Faster Payments and other remote banking” is especially noteworthy and the paper forecasts it to rise in prominence over the coming years.

In fact, last year was the first year since the Faster Payments Service (FPS), a U.K. banking initiative to drive real-time payments between different banks’ customer accounts, was introduced that the payment method overtook traditional BACS — a regulated payment system used by local businesses to move money between domestic banks — as the most popular type of bank transfer.

The rising popularity of FPS has led some analysts to argue that UK Finance’s projections for the growth of the payment method are too conservative. What’s more, the relationship between FPS and digital wallets highlights a challenge with the way payments are categorized by UK Finance and others.

The issue raised is that digital wallets straddle the existing categories of bank transfers and card payments. When using an eWallet like PayPal, users have the option to fund the transaction via a card or a non-card push payment straight from their bank account using rails like FPS.

See also: UK Consumers Trust PayPal More Than Banks to Provide Super App, Study Finds

As a result of the categorization problem, what UK Finance calls “card payments” could mean NFC payments made using a mobile wallet at the point of sale or online payments made using an eWallet connected to a credit or debit card. Yet neither of these payment methods require a physical card.

Likewise, digital wallet payments could also include the various types of bank transfers that the report lists. Wallets like PayPal and Alipay can bypass card networks entirely for eCommerce transactions and at the point of sale when initiated through payment links, including QR-based ones.

Faster Payments and eCommerce

FPS is likely to become more important thanks to the rise of push payments, which play an important role in the U.K.’s eCommerce ecosystem thanks to their utility in digital wallet funding and buy buttons.

And with open banking legislation, authorized providers can trigger instant push payments from a customer to a merchant. These payments are immediate and typically carry much lower fees than credit and debit cards.

Related: Visa and Mastercard Blame Fraud for Increased Cross-Border Fees

At the point of sale (POS), however, the U.K. differs from countries that favor QR-based mobile payment.

But in eCommerce, the cheaper transaction fees of bank-to-bank transfers mean that e-wallets and payment processors have an incentive to encourage push payments over card-based funding. And thanks to initiatives like FPS, push payments increasingly allow merchants to be paid quickly too.

As WorldPay has noted in its assessment of the U.K. payment market, “credit and debit cards are expected to lose e-com share in the U.K. through 2025, while bank transfers, digital wallets and BNPL all project growth.”

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About: The findings in PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy,” a collaboration with PayPal, analyzed the responses from 9,904 consumers in Australia, Germany, the U.K. and the U.S. and showed strong demand for a single multifunctional super apps rather than using dozens of individuals ones.


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