The number of people who rarely use cash fell last year as cost-of-living concerns grew, while the number of payments being made using physical coins and banknotes rose for the first time in a decade.
UK Finance said that 21.6 million people across the UK used cash only once a month or not at all in 2022 – falling back from 23.1 million the year before.
Growing fears about inflation and the rising cost of living have meant some people are making greater use of cash as a way of managing budgets, UK Finance said.
With the rise in technology and a growing choice of ways to pay, the number of people who mainly rely on cash also fell back.
There were 0.9 million consumers who mainly used cash in 2022, down from 1.1 million in 2021 and 2.2 million five years previously in 2017. These people use cash when doing their day-to-day shopping, although the majority still use other payment methods to pay their regular bills.
UK Finance’s report said “cash payments increased for the first time in a decade”, adding that the number of payments made using physical cash increased by 7% last year, compared with 2021, to 6.4 billion payments.
But, due to the higher total volume of payments made last year, the share of payments made using cash still fell slightly, from 15% to 14%.
Cash remains the second most frequently-used payment method, although a decade ago, more than half (54%) of all payments were made with cash.
By 2032, UK Finance expects cash use to halve, resulting in less than 7% of payments being made using cash.
Adrian Buckle, head of research at UK Finance, said the trends appear to be following “the kind of pattern that we saw after the financial crisis of 2008/2009 when there was a bit of an increase in cash use but then that tended to drop away again over time.
“And certainly, looking at the cash withdrawal values for this year and comparing them to 2022, so far that information… suggests very much a stagnation and so it does look like we’re following the kind of profile of cash use that we normally expect in these kind of situations.”
He added that “it does really depend on what happens to the economy, what happens to incomes as compared to the cost of living” and the extent to which consumers feel confident about being able to keep their financial commitments.
Meanwhile, half (50%) of payments made in the UK last year were by debit card, marking the first time this has happened.
Just over 23 billion debit card payments were recorded, which was an 18% increase compared with 2021.
The report said: “The overwhelming majority of the population (over 95%) now hold a debit card and most people use them to make payments.”
Overall, the total number of all payments by consumers and businesses increased to 45.7 billion, up from 40.4 billion in 2021.
Businesses accounted for 13% of payments by volume, with consumers making up the remaining 87%.
UK Finance said its data also suggests that there has been a shift towards an increasing number of transactions that are each worth a lower amount, without necessarily increasing the overall amount spent.
Anecdotal evidence suggests that people are, for example, making more, smaller visits to supermarkets rather than doing one large shop.
With the rise of remote working, people have been paying for individual journeys rather than travel cards, increasing the number of travel payments, UK Finance said.
Payments made using credit cards increased by 19%, to 4.1 billion in 2022.
Across both debit and credit cards, there were 17 billion contactless payments, a 30% increase compared with 2021.
Contactless payments were used extensively throughout the UK in 2022, with 87% of people making contactless payments at least once a month or more frequently.
The average value of contactless payments continued to grow in 2022 at £15.10, up from £12.66 in 2021.
Some 86% of adults also used a form of remote banking last year, the report said.
The majority of people across all age groups used remote banking in 2022, ranging from 80% of those aged 65 and over to 95% of people aged 25 to 34.
As well as using contactless cards, other devices such as mobile phones are increasingly being used to make contactless payments.
Thirty per cent of the adult population were registered for at least one mobile payment service in 2022.
One in eight (12%) people used buy now, pay later (BNPL) services to purchase something during 2022, the same proportion as in 2021, UK Finance said.
Those aged 25 to 34 tended to be using BNPL most, with 18% using it in 2022.
But the proportion of older people using BNPL is on the rise, with 8% of over-65s using it, compared with 4% in 2021.
Mr Buckle added: “Debit cards remain the most popular way of paying, with them now accounting for half of all payments made in the UK.
“There is a wide variety of payment methods available in the UK and each provides specific benefits to the people using them. Over the next decade we are forecasting further growth in the use of card and mobile payments and market developments such as ‘open banking’ may bring further changes to the payments landscape.”
Graham Mott, director of strategy at cash access and ATM network Link, said: “Over the past 10 years we’ve seen a significant shift from people moving away from cash to card and digital payments.
“Recently, as people manage higher inflation and bills, there has been evidence some people may be using cash to help them budget. While the report shows cash in long term decline it also shows that people have chosen to use it more overall in the current tough economic climate.”
Sam Richardson, deputy editor of Which? Money, said: “It is right that millions of consumers across the country find paying digitally easy and convenient, yet as UK Finance’s report shows, there remains a significant minority of people who are not yet ready or able to make that switch, evidenced by an increase in cash payments over the last year.
“Whether it’s to pay for everyday essentials or to keep track of finances amid the worst cost-of-living crisis in decades, those who still want to use cash should be able to do so – without having to pay just to access their own money.”