Plastic to replace cheque soon; APAC report |
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Thu, 08 Sep 2005 16:05
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LONDON: Traditional payment methods are on the way out and credit card spending is likely to plateau by next yearend, as suggested by a report by the Association for Payment Clearing Systems yesterday. Last year, credit card usage grew by 6.9 percent to £106bn, its slowest growth rate in over 10 years.
Credit card users were concerned by talks about the UK’s mounting level of personal debt, which persuaded them to minimise card use and reduce their debt. Apacs said the concern about growing personal debt was totally baseless. According to their figures, 93 percent of credit card debt was repaid in a year and 73 percent in a month.
There was no doubt, a very small percentage of profligate and irresponsible spenders, Apacs said. Of all borrowings on credit cards, last year, 17 percent was due to balance transfers, with many banks offering 0 percent transfer rate attracting ‘rate tarts’ who borrowed a total of £21 billion.
Contrasting with the slowdown on credit card spending, debit card usage has grown at the rate of nearly 20 percent annually, Apacs said. Debit cards appear to be the more popular way of paying these days. In less than a decade the number of customers with a debit card has grown to 40 million. (There are only 30 million people with credit cards.) In the last year alone, two-thirds of all plastic card spending – a total of £150billion was accounted for by debit cards.
Introduced in the UK in 1988, debit cards are increasingly popular and fast replacing the traditional method of paying by cheque. Debit cards are commonly used to pay a grocer, doctor or buying flight tickets. These days, it is not uncommon to see people putting down a deposit on a car, using their debit card.
A few days back, Shell banned payment by cheque at all its 900 petrol stations, signalling the exit of this time-consuming method. Managers at the retailer’s petrol stations had complained about having to take the cheques to the bank and waiting for the funds to be cleared which involved time and effort. Then there was also the issue of charges for processing each cheque.
Shell’s decision to ban cheques is likely to encourage other retailers into a similar move. Their popularity is only expected to increase as they have proved to be the easier and cheaper form (for both the card user and the retailer) of making payments.
These are clear signs that the cheque is about to become an outdated method of making a payment. Cheque usage had peaked in the UK in 1990 at around 4 billion. The number was down last year to 2.1 billion and expected to drop further in the coming years, indicating its imminent demise. The only area where cheques usage will continue unaffected for some time is in making repayments on credit cards every month.
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