UK: 2024 Analysis of Payments and eCommerce Trends

The UK payments landscape has changed dramatically over the last decade and has provided consumers with more choices and flexibility than ever. People can now select the payment method that suits them best, and the systems behind these payments deliver real value to both consumers and businesses.

Last year, a record number of 48 billion payments (in total) were made in the UK, partially due to the growing use of contactless solutions. This change is driven by consumer demand and new technologies. As for which ones, let’s delve into the drivers of the UK payments scene here.

UK Payments Landscape Overview

The UK’s payment system is considered one of the best in the world, as it offers a smooth and reliable digital experience. According to UK Finance Limited, about 95% of adults have a debit card, which is much higher than the global average of 51%, and the UK has become the top market for Apple Pay. It’s clear that digital payments are an everyday norm here.

In 2023, around 85% of payments made by consumers were for spontaneous purchases, with the remaining 15% going towards regular bills. On the business side, including government and non-profits, about 7.1 billion payments were made, with nearly half of those going to individuals.

eCommerce is also booming, with over 65 million people shopping online. On average, each shopper spends about £4,679 a year, which shows the UK’s love for online shopping. Smartphone shopping is on the rise, too, with 69% of consumers making purchases on their devices. Younger shoppers, especially Gen Z, are making a big impact — 55% of them are now part of the online shopping trend, which further solidifies the UK as a leader in digital payments.

Key Trends Shaping Payments in the UK

People often settle into familiar habits that simplify their financial lives, but sometimes, external events prompt a rethink of how payments are made. In 2024, there are several key trends shaping the payments landscape:

The Shift to Contactless and Digital Payments

The remnants of the pandemic are still present in how payments are made today. Cash usage dropped significantly during lockdowns while contactless payments, online banking, and mobile wallets surged. Even after restrictions eased, these changes have remained. Remote work has also altered shopping and travel habits and pushed consumers to adopt more digital payment methods.

The Impact of the Cost-of-Living Crisis

As the cost-of-living crisis took hold, consumers began to change their spending habits. High inflation rates led some to prioritise paying off credit card debt, and others turned to cash to manage tighter budgets.

Interestingly, UK Finance Limited also noted that data from 2023 shows an increase in cash transactions compared to 2022. This mirrors past trends where economic uncertainty prompted a brief return to cash. However, as confidence builds, people revert to card payments and other digital methods.

Granularity in Transactions

A trend has emerged towards more frequent, smaller transactions instead of fewer large ones, and it seems that these factors are driving the shift:

• Shoppers are opting for multiple smaller supermarket trips rather than a single big shop, which leads to more transactions for the same number of grocery items.
• Remote work has reduced the need for season tickets or travel cards, with people now paying for individual journeys. This increases the number of payments even as the trips themselves decline.
• More consumers are opening additional accounts with challenger banks, using different ones for various purposes, which results in more overall transactions.

UK eCommerce Trends

With convenience becoming a priority, the UK online shopping scene is evolving. Let’s dive into some of the key trends shaping how we shop:

Omnichannel Shopping

Shopping is no longer just online or in-store — it’s a mix of both. Over 42% of shoppers in the UK start their journey with a quick search online, looking for ideas and product details before heading to the store.

When they do go to shops, they want to touch and try items. Many even take pictures or note product codes to research later. This shift has led to new options like:

• Buy Online, Pickup In-Store (BOPIS) — About 45% of shoppers enjoy picking up online orders at local stores, a trend that gained popularity during the pandemic and is here to stay.
• Buy In-Store, Ship to Home — 39% prefer to buy items in-store and have them delivered to their homes.
• Buy Online, Return In-Store — 41% like returning online purchases at physical stores for a more personal touch.

Social Commerce

Social media is becoming a powerful shopping tool. A recent study found that 32% of UK consumers bought something after seeing it on platforms like Instagram and TikTok. For younger shoppers, these platforms are the go-to places for finding and purchasing products.

Subscription Services

Subscription services are booming in the UK. This model lets people receive products regularly — such as groceries or household items. With food being the most popular category, families spend an average of £2,555 annually on meal kit subscriptions for three meals a week, which breaks down to about £639 per person each year.

Hot Categories for Online Shopping

Here’s the breakdown of the top categories for online purchases:

• Fashion: clothing (57%), shoes (37%), bags & accessories (27%)
• Cosmetics & body care: 29%
• Consumer electronics: 24%
• Pharmaceuticals: 23%

Claire Porter from Anchanto UK noted that fashion is a big player in online retail, thanks to the ease of finding the right size and affordable shipping. The appeal of fast fashion keeps this segment strong. As for cosmetics and electronics, they also attract online shoppers for their variety.

Cross-Border eCommerce and Payments

Since the UK left the EU’s internal market and customs union in 2021, online retailers shipping to the UK have been facing new challenges. The transition has brought about increased bureaucracy, added regulations, and additional costs. As a result, many European retailers reevaluated their presence in the UK market. However, the UK remains a significant export destination, and British consumers are still actively engaging in cross-border shopping.

Interestingly, the shift after Brexit has led many British shoppers to explore international options, driven largely by better prices abroad. A survey indicates that about 48% of Brits are now shopping outside the UK for cheaper deals. So, while Brexit has created hurdles, British consumers still have considerable buying power. With over 80% of adults shopping online and 74% regularly purchasing clothing and accessories (according to Global-e), there’s a ripe opportunity for international retailers, especially in the fashion sector.

As we look ahead, several important areas are becoming increasingly relevant for cross-border eCommerce in the UK.

Trade Agreements

The Trade and Cooperation Agreement, established on December 24, 2020, continues to shape trade relations between the UK and the EU. This agreement enables duty-free trade, but it’s essential to stay updated on any changes, as some provisions are being adjusted and deadlines extended into late 2024. For example, new safety and security declaration requirements will come into effect and impact how retailers manage imports.

Customs and Shipping

Navigating customs has become more complex. Since January 1, 2021, retailers must adhere to specific customs steps, including obtaining an EORI number and submitting detailed customs declarations. Understanding these requirements is vital for smooth operations, especially since the TCA allows duty-free imports from the EU.

Value Added Tax

The rules around VAT are evolving. Depending on your sales channel, the implications can differ significantly. For instance, goods valued at up to £135 won’t incur import VAT but will require registration for tax in the UK. In contrast, items over £135 face VAT at both the point of sale and upon importation. Being aware of these changes is crucial for businesses planning their sales strategies.

Delivery and Customer Experience

Delivery times are another critical area. Studies show that a significant number of British consumers are likely to return to retailers if their delivery expectations are met. With typical delivery times ranging from seven to ten working days for cross-border shipments, transparency around costs and delivery timelines is essential.

Long wait times or high shipping fees can lead to cart abandonment, so focusing on efficient logistics is increasingly important.

Clear Communication and Returns

In 2024, clear communication is key to maintaining customer trust. Providing upfront information about delivery times and costs can prevent negative surprises at checkout, which can deter nearly half of potential buyers.

UK Paytech Ecosystem and Infrastructure

Legacy systems act as a barrier to adopting new demands, whether it’s launching products quickly or migrating payment functions to the cloud. This outdated tech affects various payment flows, from wire transfers to electronic transactions, and ultimately makes it difficult to embrace new technologies.

In this landscape, players are exploring various avenues to address the hurdles of legacy infrastructure:

Partnerships

Many organisations are forging partnerships with third-party providers to navigate their tech limitations. Collaborations focused on digital wallets and connected commerce offer new capabilities, though they come with risks related to revenue models and data privacy. A “best of breed” approach is increasingly common as firms seek flexibility within this complex ecosystem.

Modern Orchestration

Instead of completely replacing their existing systems, companies are opting to build modern orchestration engines. These engines facilitate flexible payment processing and enhance control over customer experiences. At the same time, they allow routine tasks, like settlement, to be handled by specialised partners.

Comprehensive Capabilities

Many players recognise the need for a holistic approach when investing in new services. Instead of implementing small-scale solutions, like real-time fraud monitoring for specific payment types, they are looking to integrate new capabilities across the enterprise. This way, innovations like fraud management and AML tools support a unified service model for greater agility and responsiveness.

Payment Players and Emerging Technologies

Here’s a look at the key trends shaping the future of payments:

Embedded Finance

Embedded finance integrates financial services directly into the consumer experience and allows payments to occur seamlessly without the need for manual transactions. This is seen in services like Uber, where payments happen automatically.

As AI and IoT technologies advance, this trend is expected to expand into B2B2C and B2B2B models, with payments becoming “invisible” to consumers. Embedded lending is also growing, with businesses offering financing options at the point of sale, such as travel agents providing loan options for package holidays.

Biometric Authentication

With digital fraud costing the UK £460 million in 2023, biometric authentication is becoming central. Using fingerprints or facial recognition, consumers can quickly and securely verify their identities. For instance, retinal scans at payment terminals could eliminate the need for PINs and streamline transactions.

Programmable Money

Programmable money makes it possible for funds to be allocated for specific purposes. Thus, it creates rules for how and when money can be used. This could prevent misuse of funds, as seen with government loans, and provide a new layer of control over financial transactions.

Payment Orchestration

Payment orchestration serves as a mediator between merchants and payment service providers. It optimises transaction routing and authorises cross-border payments quickly. This technology improves the experience for both merchants and consumers by simplifying the payment process and reducing costs.

Anti-Fraud AI

AI is playing a vital role in combating fraud. By analysing transaction data, AI can identify unusual patterns and predict potential disputes, with major players being Sift and Feedzai. Tony Craddock of The Payments Association notes that AI will create better data sharing to block the payment before it happens.

Tokenisation

Tokenisation is transforming value exchange by extending beyond traditional currencies to encompass loyalty points, digital goods, and real estate. This method makes for secure transactions while preserving trust. All transactions can be tracked through time in a distributed network, which paves the way for programmable money and innovative financial products by CardinalCommerce, Thales, and others.

Consumer Behaviour and Payment Preferences

Consumers are always on the lookout for payment methods that are flexible, easy to use, and fit well into their busy lives. As lifestyles change, so do payment preferences, with convenience and control taking centre stage. Many are now seeking better control over their payment options and smoother experiences, which leads to increased use of cards, contactless payments, and online banking.

Small businesses have also played a big role in this shift by accepting cards more widely. It ultimately made it easier for consumers to make small purchases regularly instead of just the occasional larger payment. With the rise of online banking and contactless options, people are feeling more comfortable with frequent, low-value transactions, as already discussed briefly.

At the same time, innovative payment methods like digital wallets, account-to-account payments, and Buy Now Pay Later are becoming popular, which moves consumers away from traditional payment methods. Digital wallets, in particular, are gaining traction due to their convenience and security.

People are also looking for extra features to help them manage their finances better — like loyalty rewards, digital cards, and the ability to exchange currencies easily. This has led to a growing interest in super-apps like Monzo or Starling Bank that combine various financial and lifestyle services into one user-friendly platform. Younger users are in charge of adopting these services, but older generations are expected to catch up soon.

Final Thoughts

Looking ahead, when shopping online, supermarkets like Tesco and Sainsbury’s will connect directly with your bank, eliminating the need for card payments and reducing processing fees. The future clearly lies in instant payments and interoperability. This means that it’s the technology innovators, not the banks, that will shape the future of payment systems.

Technology acts as a facilitator for consumers, and IT leaders have the insight needed to harness payment technology for developing innovative products and services that are currently unimaginable.