Credit cards no longer just for big-ticket items

By Benjamin Salisbury

Once upon a time, the general advice about credit cards was that they were only for emergencies or big-ticket purchases, not small purchases. How times have changed.

The old rule of thumb was probably largely because only purchases of more than £100 are protected by Section 75 of the Consumer Credit Act 1974. Additionally, in the past, fewer cardholders paid off their total balances each month, and paying for small items would mean paying interest on everyday purchases. So, for small, common purchases, cash was king.

But a December 2015 study from The UK Cards Association revealed that consumers increasingly use cards for small payments that used to be the domain of cash, helping push card spending up from £270 billion in 2005 to £566 billion in 2014.not-just-big-ticket

"While debit cards accounted for a growing proportion of these transactions ... the number of credit card transactions has also been increasing," Giles Mason, senior press officer for The UK Cards Association, said in an emailed response to questions. "The average credit card purchase was
£57 in 2014, down from £65 in 2008, reflecting the changing way people
use their cards.

Speed, convenience, security drive credit card popularity
The rise of contactless cards and online retail is driving the change in how we use credit and debit cards.

According to Mason, the number of card purchases made online increased by 230% between 2005 and 2014. Whereas before we may have bought CDs from a high street store, consumers increasingly stream their music
or buy online, paying by card or mobile wallet. The financial downturn that began in 2008 led to a change in consumer behaviour, as customers looked for the best deal online and shopped more often whilst not spending as much per transaction.

"This revolution was facilitated by the growing ownership of home computers, smartphones and tablets, which has been matched by innovations by merchants, card issuers and third party payment service providers, offering enhanced security, convenience and consumer protection," Mason said.

Additionally, the Cards Association report shows that more businesses than ever are accepting card payments. Card terminals are widely available in retail outlets that sell low value items, such as newsagents, supermarkets and cafes. This availability, combined with the rise of contactless payments and the increased limit for tap-and-go purchases, means it is about as quick to pay for small items by card as by cash -- sometimes quicker.

On top of speed and convenience, credit is secure. If you lose your credit card, you call and cancel the card, get a new one, and no harm done. If it's stolen, you cancel the card and you're not on the hook for fraudulent charges. With cash, if it's gone, it's gone.

Finally, worries of paying interest on everyday purchases are fading. "More than 80% of credit card spending is paid off in full without incurring interest each month," Mason said.

So if you're still wary of whipping out your card (or tapping your wallet, or even your phone) for your daily coffee or newspaper, don't be. There's nothing wrong with putting a small purchase on credit, especially if it earns you cashback or other rewards, as long as you're paying your balance in full before the due date.

See related: Could mobile payments replace your plastic?, Biometrics aim to make payments more secure, PayPal vs. credit cards: Which is the way to pay?

Published: 8 January 2016