Credit card spending halved during the first full month of the coronavirus lockdown as shoppers turned their backs on big-ticket purchases such as white goods and holidays.
In April, the number of credit card transactions by UK cardholders recorded a sharp 45.9% annual fall to 163 million, the lowest level in over nine years, as people transformed their shopping habits.
The total value of credit card transactions in April fell to £8.7 billion, a 50% fall compared with April 2019, the figures from trade association UK Finance show.
Outstanding balances on credit cards fell by nearly £4.7 billion in April 2020, the largest monthly fall in over a decade, as many people opted to make repayments rather than spend.
People often turn to their credit cards to make major purchases as they can spread the cost over several months and they also benefit from consumer protections under the Consumer Credit Act if anything goes wrong with the purchase, making it easier to get a refund.
UK cardholders made Â£8.7 billion worth of transactions on credit cards in April 2020, 50 per cent less than in April 2019, according to UK Finance's latest Card Spending Update, published today. See here for more:https://t.co/Xx95pzSbN4 pic.twitter.com/HgRHuwO95s— UK Finance (@UKFtweets) July 15, 2020
In contrast to credit card spending, debit card use remained robust, UK Finance said.
While the number of debit card transactions in April was 5.1% lower than the previous year, the total value of transactions increased by 0.9% to £51.8 billion.
With uncertainties over the economy and job security, some shoppers appear to be choosing to pay using money that is in their current account rather than building up debts by using their credit card.
Reduced opportunities to spend in physical shops in April due to the Covid-19 lockdown also led to a record proportion of card transactions being made online in April.
While total card spending fell, one third (34.3%) of the total value of debit and credit card transactions was made online, up from 29.6% the previous year.
Some 16% of the volume of card transactions was through online purchases, an increase from 13.3% in April 2019 and the highest monthly figure on record.
The Covid-19 crisis has significantly changed how, where and when people spend their money.Eric Leenders, UK Finance
Contactless card spending fell in April, with 404 million transactions in the UK, down from 725 million a year earlier and the lowest monthly figure since February 2017.
The total value of all contactless transactions was £4.1 billion, a 40% decrease from £6.8 billion 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, UK Finance said.
For the first time, the average value of a contactless payment surpassed £10 in April.
This may be due to fewer low-value transactions, such as on public transport where contactless cards are often used.
The payments industry raised the transaction limit on contactless cards to £45 from April 1, to support consumers who choose to pay using contactless.
Eric Leenders, managing director of personal finance, 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.”