RFi Group Insight - UK: How will Consumers pay this Christmas?

As the end of another year fast approaches, one thing will be front and centre in the minds of many consumers - Christmas shopping. As consumers rush to buy gifts for their loved ones and stock their pantries full of Christmas treats, they will face the choice of how to pay for their Christmas cheer. This year they will have more options than ever before, with numerous mobile wallets launching over the course of the year. With this in mind, RFi Group has taken a look at the latest UK Payments and Innovation Council survey to see how consumers will be paying this festive season.

As was the case last year, when doing their Christmas shopping, consumers prefer to turn to their debit cards. For example, when shopping for a gift in a department store, 39% of consumers will reach for their debit card, making this the most popular form of payment in a department store, consistent with Christmas 2016. Of course, consumers won’t do all of their shopping in-store, with many instead turning to online options including eBay, Amazon, and online department and clothing stores. Although, when shopping online, consumers are still most likely to turn to their debit cards, with 34% and 38% preferring this option, respectively. This is a different story however for eBay consumers, with PayPal the payment method of choice for the largest proportion of consumers, 48%.

"As was the case last year, when doing their Christmas shopping, consumers prefer to turn to their debit cards...however for eBay, PayPal is the method of choice for largest proportion."

Debit cards are again the preferred options for paying for that Christmas turkey, with 41% selecting a debit card as their most preferred option when making purchases at a supermarket. Although debit cards remain the most preferred payment option, there has been some movement in preference towards credit cards. Credit cards are now the most popular payment option in a department store for 34% of consumers, up from 30% in late 2016. At the same time, preference for debit cards online has also declined since the same time last year, with credit cards again picking up the difference. Overall, although debit cards remain the payment method of choice for Christmas spending, there are signs that this is shifting, with consumers increasingly putting those Christmas goodies on credit.

Although the most preferred payment option hasn’t changed since last Christmas, what has changed is the use of contactless. At the end of 2016, 53% of UK consumers had made a payment using a contactless card. Since that time, the proportion has shot up to 68%. And with 71% of those who have made a contactless payment having done so on a debit card, contactless debit card shopping is likely to be in vogue this Christmas. Increased contactless acceptance, or at least increased awareness of contactless acceptance, is a key factor driving the uptick, with 72% agreeing that contactless is accepted by many merchants in 2017, significantly higher than the 67% seen in 2016.

"Increased contactless acceptance, or at least increased awareness of contactless acceptance, is a key factor driving the uptick, with 72% agreeing that contactless is accepted by many merchants in 2017, significantly higher than the 67% seen in 2016."

Last, but certainly not least, is the role of mobile wallets this Christmas. With a number of new mobile wallet services launching during the year, including major players such as Samsung Pay, and the updated Tesco Pay+, it should be of no surprise that mobile wallet usage rose substantially in 2017. Leading into Christmas 2017, 23% of UK consumers have made a payment using a mobile wallet, up from 13% last year. However, mobile wallets are unlikely to play a huge roll in Christmas spending this year as they have struggled to encourage repeat use, with 21% of those who have made a mobile wallet payment saying they are unlikely to use the tool again (0-6 on a scale of 0-10, where 10 is extremely likely). The main barriers to repeat use are a lack of perceived benefits (20%) and satisfaction with contactless cards (23%). A lack of perceived benefits is also a barrier to mobile wallet adoption, with 28% of those who haven’t made a mobile wallet payment citing this as a factor, with security concerns (27%), and confusion about how mobile wallets work (23%), also barriers.

One area where these barriers might be overcome is in Tesco stores, with Tesco Pay+ successfully driving strong satisfaction and re-use on the back of its introductory rewards offer. Rewards have helped Tesco Pay+ overcome the lack of benefit barrier, and for this reasons Tesco Pay+ could prove popular for families looking to spend on groceries over Christmas, while other mobile wallets may struggle to hold consumer interest. Despite this, mobile wallets are well placed to play a much bigger role in future Christmas’s, with 28% of UK consumers saying they can envision a cashless future, and over half of those believing mobile wallets will be the tool to replace cash.

"Although the most preferred payment option hasn’t changed since last Christmas, what has changed is the use of contactless... mobile wallets are unlikely to play a huge roll in Christmas spending this year as they have struggled to encourage repeat use."

As can be seen, debit cards look set to maintain their spot as the preferred payment method this Christmas, despite credit cards seeing an increase in popularity across the board and a range of new payment options emerging. Contactless payments, on the other hand, will play a bigger role than they have in previous years, as awareness continues to grow. Mobile wallets, on the other hand, look like they will have to wait until next year to be the star of Christmas payments, as consumers struggle to see the benefit they offer over existing payment methods.

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