Credit card transactions halve in first month of lockdown

Credit card transactions plummeted in the first full month of lockdown.

In April, the number of credit card transactions by UK cardholders also witnessed a sharp fall of 45.9 per cent to 163 million, the lowest level in over nine years, as borrowers cut down on credit card spending in the face of the coronavirus pandemic, the data from UK Finance found.

In comparison, expenditure on debit cards remained robust. Whilst the number of debit card transactions in April 2020 was 5.1 per cent lower than the previous year, the total value of these transactions rose by 0.9 per cent to £51.8 billion.

Experts said this suggests some consumers may be acting more cautiously amid the current economic uncertainty and choosing to spend on their debit rather than credit cards.

Outstanding balances on credit cards fell by almost £4.7bn in April, the largest monthly fall in over a decade, as many people opted to make repayments rather than spend on their credit cards. This follows a £3.1bn fall in outstanding balances on credit cards in March.

Eric Leenders, managing director of Personal Finance at UK Finance, said: “The Covid-19 crisis has significantly changed how, where and when people spend their money.

“The banking and finance industry has put in place a number of measures to help customers adapt to this new economic environment and pay in a way that suits them. This includes increasing the contactless limit to £45 and offering deferrals on credit card repayments. As the economy begins to open up, the sector will continue to support customers to help them through this difficult time.”

Reduced opportunities to spend in shops due to the Covid-19 lockdown also led to a record proportion of card transactions being made online in April. Whilst total card spending fell, one third of the total value of debit and credit card transactions was made online, up from 29.6 per cent the previous year.

Similarly, 16 per cent of the volume of card transactions was through online purchases, an increase from 13.3 per cent in April 2019 and the highest monthly figure on record. Many people turned to online shopping during lockdown, when government advice was to avoid unnecessary trips to shops. Lockdown was brought in on 23 March, when most retail outlets – with the exception of essential retailers such as supermarkets and pharmacies – were closed.

Laura Suter, personal finance analyst at investment platform AJ Bell, said: “As a nation we cut our credit card spending in half in April, during the first full month of lockdown, as our ability to go out and spend in bars, restaurants, attractions and on the high-street was halted. The figures from UK Finance show that we put just £8.7bn on plastic in April, half that of the same month last year.

“The amount we all spent on debit cards remained about the same, showing that lots of people were spending within their means and not having to reach for the credit card as the end of the month appeared and their bank accounts looked bare. This is understandable as lots of people will have seen their monthly costs dramatically fall while their income has remained unchanged.

She added: “However, the figures only tell half the story; while lots of people reduced credit card spending and even paid off some of their balances, lots of others will have ramped up their spending on plastic and their debt levels. Those people who lost their job or saw a cut to income and had no financial safety net to fall back on will have seen their debt soar during the current crisis.

“While banks are offering payment holidays and waiving some fees, these are only temporary sticking plasters and as this tide of help is wound back we’ll see lots of people financially exposed and struggling to meet the cost of their debt.”

Contactless card spending saw a notable drop in April with 404 million transactions in the UK, a 44.3 per cent reduction from 725m the previous year and the lowest monthly figure since February 2017.

The total value of all contactless transactions was £4.1bn, a 40 per cent decrease from £6.8bn in the same month in 2019. This fall is likely to have been impacted by reduced opportunities to spend in the retail, transport and hospitality sectors. April was also the first month when the average value of a contactless payment surpassed £10. This may be a result of fewer low-value transactions, such as on public transport where contactless cards are often used for payment.

The industry raised the payment limit on contactless cards to £45 from 1 April, in a bid to support consumers who are paying using contactless at this time.

A separate study released today by voucher code website www.MoneySavingHeroes.co.uk found that 43 per cent of people would welcome a cashless society.

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