Shoppers turn to alternative payment methods including 'buy now, pay later,' study shows

According to the British Retail Consortium (BRC), the payment accounted for 4.1 per cent of transactions in 2024, up from 3.8 per cent on the previous year.

Its annual payments report suggested that interest rates charged on credit cards could be pushing consumers towards other payment methods "as retailers offer more payment choices and short-term interest-free credit options at point of sale."

As a percentage of total turnover or sales, alternative payments grew to 5 per cent in 2024, up from 3.2 per cent in 2023.

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The average transaction value for alternative payments also increased significantly, including cheques, store cards, gift vouchers and PayPal, rising from £19.57 in 2023 to £37.55 in 2024.

A report from banking and finance body UK Finance recently found that BNPL services saw notable growth last year, with one in four UK adults using them, up from 14 per cent the year before.

BNPL can be a convenient way for some shoppers to split payments without paying interest, but concerns have been raised about some BNPL borrowers potentially overstretching themselves financially and incurring charges for loans they cannot afford to pay back on time.

The BRC report also said that purchases made with credit cards accounted for 18.1 per cent of turnover/sales, down from 19 per cent in 2023.

The report added: "Credit cards accounted for 12.6 per cent of all transactions in 2024, a significant drop from 14.2 per cent in 2023.

Debit cards also remained the "primary choice for most consumers in 2024, accounting for 64.1 per cent of all card transactions and 66.1 per cent of turnover by sales, down slightly from 66.7% in 2023."

The average transaction value of purchases made using debit cards was £23.26, which was unchanged compared with 2023 but down from £27.12 in 2020.

The report said: "This suggests consumers continue to use debit cards for smaller purchases for budgeting purposes and continue to shift from more expensive brands as they seek to maximise spending power.'

The BRC said in 2022, cash accounted for 18.8 per cent of transactions and in 2023 it made up 19.9 per cent but by 2024, cash as a percentage of all transactions dropped slightly, accounting for 19.2 per cent.

The BRC also highlighted the cost of processing card payments, saying that, at £1.48 billion, the fees paid by retailers have more than doubled since 2019.

Retailers taking part accounted for around a third (34 per cent) of all UK retail annual sales turnover, the body said.

Chris Owen, payments policy adviser at the British Retail Consortium, said: "As interest rates peaked in 2024, the use of credit cards fell as customers switched to lower interest forms of payment.

"However, with cards still accounting for the vast majority of transactions and card fees now more than double the level they were six years ago, only a long-term cap on card fees would bring much-needed relief to retailers."

Sam Richardson, deputy editor of Which? Money, added: "With lots of households continuing to feel the pinch, it’s unsurprising that a growing number of consumers are looking to spread payments for purchases."

"Long-awaited regulation of the buy now pay later market is set to come into force in July next year. With more people turning to this payment method, this can’t come soon enough."

Here are the percentage shares of transactions using different payment methods in 2024, according to the BRC:

Cash, 19.2%

Debit cards, 64.1%

Credit cards, 12.6%

Alternative payments, 4.1%