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How are you paying for that?

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Two thirds of UK adults – 32 million people – now shop online, according to new research from the Payments Council.

The Way We Pay 2010 report, published today, offers retailers some useful insights into who shops online – and how they pay. Among them is the suggestions that a fifth of all internet shoppers are heavy consumers, responsible for three fifths of all online purchases, and who are likely to be younger and wealthier people.

Of all online shoppers, 80% now use a card. But for the first time in 2009 more people used debit cards than credit cards. That reflects a real terms fall in credit card spending in the last five years.

For while credit card spending rose 74% to £132bn between 2000 and 2009, outstanding balances in January 2010 were £61.5bn compared with £64.8bn at the end of 2004. Meanwhile spending on debit cards rose from £64.7bn in 1999 to £264bn in 2009.

That’s expected to rise to £477bn by 2018 – accounting for one in four of all transactions. Debit cards, however, are more likely to be used for small transactions – the average spend is £45, just double the level of 10 years ago. The pace of change could be faster still as contactless payment takes hold.

Mike Bowman, head of policy and markets at the Payments Council, said: “Contactless payment for small purchases has the potential to drive debit card usage even higher. With 18 billion cash transactions less than £15, there’s a huge opportunity for us to replace billions of these with a quick swipe past a card reader.”

Online, alternative methods of payment are also growing – the report found PayPal’s niche market includes half of 25-34-year-old shoppers.

Our view: This research gives a useful insight into the payment habits of the UK’s online shoppers. It’s interesting to note the prevalence of PayPal in the 25-34-year-old age group and also to see just how much spending is done online by a relatively small group of people. The use of debit cards also suggest we’re much more relaxed these days about paying online. All of this gives e-tailers and multichannel traders a real strategic insight into how their internet customers want to pay – and that’s got to be worth knowing.

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