Linda Weston, Head of Core Product at Barclaycard Payments, outlined for Payment Expert how merchants handle this exponential increase in contactless payments and how spending habits have evolved, as well as analysing trends in the space. 

Payment Expert: How significant has the increase in contactless payment allowance been to the increased spending?

Linda Weston: The pandemic has accelerated the shift to contactless payments, which are a safe and convenient way to pay and save time at the check-out for merchants too. 

Data from Barclaycard Payments, which processes £1 in every £3 spent on credit and debit cards in the UK, reveals that 91.1 per cent of all eligible card transactions in 2021 were made contactless, with the total value of contactless payments made increasing by 40.2 per cent, year-on-year. 

The data also shows that shoppers increasingly opted for ‘touch and go’ at the check-out following the limit increase from £45 to £100 in October 2021, which resulted in the average number of transactions made contactless in the UK each day growing by 27.5 per cent.

PE: Which sectors benefited the most from the contactless limit increase?

LW: All sectors benefited from the contactless limit increase in 2021, with the payment method saving an average of seven seconds per transaction compared to Chip & PIN, and 15 seconds compared to cash. 

Analysis across sectors shows that the value of contactless transactions made in the entertainment sector, which includes cinemas, theatres, bowling alleys, arcades, grew by 105.8 per cent in 2021, while bars, pubs and clubs drove an 83.4 per cent increase year-on-year. Other significant increases in the value of payments made include at sports and outdoor retailers (up 64.7 per cent), clothing stores (up 64.6 per cent) and takeaway and fast-food outlets (up 39.2 per cent).

PE: Could you tell us more about the way in which the UK’s online payments landscape has evolved and what are the implications for both customers and businesses?

LW: The past two years have represented a seismic shift in the patterns of both our working and personal lives. The pandemic has impacted many aspects of our lives and accelerated pre-existing trends in how people work, consume and live. We are witnessing the movement towards a more diverse payments landscape, where in-person sales continue to play a vital role alongside new technologies and emerging payment trends. 

For the market at large, ecommerce has grown significantly between 2019 and 2021, with online sales growing from 25% to 38%, indicating a considerable shift in attitudes among both businesses and customers. However, following the lifting of pandemic restrictions, face-to-face sales have experienced a bounce back. In 2021, 52% of payments were made face-to-face compared to 38% through eCommerce.  

Rather than a perceived homogenisation, what we are seeing is increased diversity in the ways people choose both to pay and take payment, with the pandemic triggering the beginning of an enhanced willingness to adapt to new technologies. 

For instance, 2021 saw the continued trend toward contactless forms of payments, with digital wallets accounting for 30 per cent of sales and contactless cards for 24 per cent, while conventional cards and cash trailed at 21 per cent and 17 per cent, respectively. Remarkably, the acceptance of digital wallet payment has almost reached the same level as cash, underlining the magnitude of the changing attitudes we have seen in recent years.

It is not only about digital wallets, however. There are other significant market trends that look set to drive eCommerce growth dynamics. One of these has already ‘arrived’ and has proved popular in sectors such as retail fashion with a young customer demographic – Buy Now Pay Later. 

While BNPL constituted just a small proportion of sales in 2021, businesses are expecting a surge in popularity as consumers opt for more flexible ways to pay, with over 80 per cent expecting demand to increase within the next 12 months.

This year we also witnessed the biggest change to payments in 16 years: Mandatory Strong Customer Authentication (SCA). This new regulation, which came into effect on March 14, adds a new step in the checkout process – two factor authentication.  To help businesses reduce the risk of abandoned baskets and help them become compliant with SCA without adding additional layers of friction, Barclaycard Payments launched Barclaycard Transact, a sophisticated payments technology designed to improve payment acceptance rates by streamlining the checkout process. This is important as our research shows 30% of basket abandonment occurs due to friction caused by the two-factor authentication process.

A new fintech innovation, Open Banking technology, is also set to dramatically change the financial services sector by making more data available to the banking industry, supporting product innovation and improvement. For example, Barclays Bank Pay utilises Open Banking to provide customers with the option to pay directly from their bank account when making an online purchase. There is no card involved, just a next generation digital payment experience. The customer doesn’t need to remember their card details or password, instead they simply log in securely to their online/mobile app banking service in the usual way. For businesses, this type of smooth customer experience could lead to more sales and fewer uncompleted transactions, creating a win-win situation.

PE: Has the digitalisation of payments impacted the way consumers engage with transactions in the UK and could it breathe life into the retail sector?

LW: Digital is here to stay, and businesses have adapted their omnichannel commerce strategy accordingly, allowing them to reach customers anywhere. Merchants must offer their customers multiple channels through which to do business with them, along with ways to pay that are easy to use, reliable and secure, to create a compelling customer experience.

With restrictions hopefully a thing of the past, consumers are now faced with a steep rise in the cost of living. It’s crucial for merchants to recognise the customer’s intrinsic need for a smooth and painless payment experience. They also need to stay ahead of consumer trends such as digital wallets, app-based payments, Open Banking services and new retail finance solutions like BNPL. 

Creating smart, cost-effective payments solutions that keep the customer experience high while safeguarding security and trust will certainly help merchants survive and thrive.