A report issued today by the finance industry has highlighted the further move away from traditional cheques, with credit cards and debit cards set to fight it out for the UK’s most popular form of non cash payment.  The recent decision by ASDA not to accept cheques as payment, for what they describe as “increased processing times” is perhaps another nail in the coffin of the traditional cheque payment system - a system often criticised for being too expensive and taking too long to complete.

The report showed that debit card spending was the most popular form of payment last year, showing an increase of some 14% to £195 billion.  Cheque payments were still in second place, but showed a 12% drop to £164 billion, as credit card payments stayed fairly constant at £126 billion.  Debit cards have enjoyed a real boost in popularity over the last couple of years, perhaps replacing the traditional cheque and reflecting the increase in “safe financial planning” by many looking to stay within their limits.

Even credit card debt has been falling, having hit a peak of some £58 billion in January 2006, before settling at £54 billion in May 2007.  Its seems that a growing number of consumers may well be forecasting payment difficulties if interest rates continue to rise, hence the substantial reduction in outstanding credit card debt.  The problem now is that those who cannot afford to pay off their balances in full will see substantial increases in their interest charges over the coming months.  The withdrawal of a number of credit card cut rate interest offers often indicates more interest rate rises to follow.

While it is encouraging to see debit cards increasing in popularity, thereby ensuring that consumers only spend funds which they have in the bank,  credit card debt is still at a very uncomfortable level.  When the crunch comes (as it surely will with interest rates set to rise higher) it is those with high rate outstanding debt who have the most to lose.