Consumers are shunning credit cards in favour of debit cards, digital payment and payday loans, according to a new report from PricewaterhouseCoopers (PwC).

Although UK households paid off some unsecured debts in 2011, the average debt was around £7,900 at the end of the year.

The Ernst & Young Item Club has also reported a trend for consumers to shun banks and seek credit from alternative sources.

It claims that bank and building society lending to individuals has decreased by 23% since 2007 while lending by alternative lenders, including payday loan companies, has increased by 42% over the same period.

Speaking to the BBC, Neil Blake, senior economic adviser at the Item Club, said: “The contraction in consumer credit is driven by lack of demand to an extent, but we just need to look at the phenomenal rise in payday loans to see that the focus on decreasing demand masks a shift towards alternative providers.”

According to the PwC report, total outstanding credit card debt fell by 5% in 2011, with an average card balance of £1,000 at the end of the year.

In contrast, debit card usage continued its upward trend and increased 10% last year, making it the most used payment method over cash.

Simon Westcott, director of PwC, highlighted the use of digital payment methods, especially among younger people and suggested that credit card usage could continue to decline.

Mr Westcott commented: “This generation seems unlikely to switch to increased credit card usage in later life, as perhaps they would have done in the past, suggesting that debit cards, mobile payments and other innovations will force the credit card into an ever decreasing market.”

The use of payday loans, which offer a much easier application process than other forms of credit, is increasing at a ‘phenomenal’ rate according to the Item Club’s Mr Blake.

However, although payday loans can be affordable if they are paid off at the end of the term – usually around a month – rolling them over can lead to a spiral of debt because of their extremely high interest rates.

Consumer rights campaigners recently warned that new regulations designed to improve lending practices by payday loan companies may fail to protect customers in the near future,

The Finance and Leasing Association (FLA) has issued new guidelines limiting the number of times a payday loan can be rolled over to a maximum of three,

However, payday loan company Wonga is the FLA’s only member, prompting consumer grounds to demand further action.

Lloyds Banking Group has decided to withdraw Halifax and Bank of Scotland charity credit cards at the end of February because it doesn’t consider them a cost-effective way of donating to charity.

The bank has been issuing charity credit cards for over 23 years and they have raised millions of pounds for charities such as Cancer Research UK, the NSPCC and the Scottish SPCA.

In 2009 the Cancer Research UK credit card won Best Charity Card Programme at the Card Awards, an achieved that Lloyds’ was proud to mention in its corporate responsibility report.

Although the charities have expressed disappointment at Lloyds’ decision they say that they hope to explore other opportunities with the bank.

Speaking to Radio 4′s Money Box programme, Baroness Finlay, vice chair of the all-party parliamentary group on cancer, said: “The timing of it doesn’t seem very sensitive given there’s all the furore around bonuses.”

Earlier this month Lloyds Banking Group’s chief executive, António Horta-Osório, announced his decision to forgo his bonus, which could have been worth £2.4m.

Stephen Hester, the chief executive of RBS, was awarded a bonus of nearly £1m earlier this week, but after days of pressure from the public and MPs, he decided last night to hand it back.

Cashflows, which provides business to business financial services, has moved quickly to help fill the gap left by Lloyds’ decision to abandon charity credit cards.

The company, which is part of the Voice Commerce Group, has announced the launch of a charity credit card scheme which will run alongside its existing small business payment support activities in the UK.

Cashflows’ CEO and founder, Nick Ogden, said: “Cashflows is at the forefront of innovation in the financial services industry and we are already supporting many UK SMEs.

“Our card issuing services are able to provide support for charities and in the current economic situation it is vital that we try and support them, whilst they face inevitable cuts in donations across the board.”

With household incomes under increasing pressure from inflation and unemployment more consumers are turning to price comparison services to help them reduce their outgoings and the New Year has seen the launch of several new sites.

Insurance specialist comparethemarket.com has launched a new service which allows consumers to find which credit cards and loans will best meet their needs.

After putting in details such as the APR of their current card and any balance transfer fee, the user can see how much they would save on interest payments by switching to a different card.

Similarly, comparethemarket.com’s new loans comparison service allows users to view the repayment figure based on their individual requirements.

MoneySupermarket has also launched a new comparison site which it says is the first travel insurance comparison site in the UK which takes pre existing medical conditions into account.

Nine insurers are currently signed up to the service but this number is being extended over the coming months.

The company warns that failing to disclose a medical condition can invalidate a policy, even conditions which a customer may consider ‘minor’ such as mild asthma and high blood pressure.

A new price-comparison site targeted at drivers has been launched by Looking4Parking.com.

The company’s new mobile website allows drivers in the UK and Ireland to quickly search, compare and book air and seaport parking while on the move and also provides directions to car parks.

Meanwhile retailer Argos’s insurance and credit card price comparison website has been taken offline, just four months after being re-launched.

The site is being reviewed because it breached new guidelines for insurance comparison sites issued by the Financial Services Authority in October.

The guidelines were published due to concern over ‘the possibility that consumers could be misled about the services and information they receive’.

Nationwide has re-launched its Select Visa credit card which offers 0%-on-purchases for 18 months – the longest period currently available on the market for a 0% deal.

Cardholders also benefit from commission-free purchases while they are abroad and 0.5% cashback.

Balance transfers are eligible for the 0% interest deal, but for 17 months rather than 18 and there is a 2.95% balance transfer fee.

At the end of the offer period the card reverts to 12.9% APR and it
is only available to customers who use Nationwide’s FlexAccount as their main current account.

To qualify for a FlexAccount, customers must pay in £750 or more each month, not including internal transfers.

Nationwide has also launched a new mortgage product to help first-time buyers who only have limited funds available for a deposit.

The two-year fixed-rate 90% loan-to-value deal is available at an interest rate of 5.29%, with a £900 fee.

House purchasers who can make a 40% deposit will benefit from an interest rate as low as 2.99%.

The building society’s new products offer a breath of fresh air to consumers whose satisfaction is at an all time low according to recent research.

uSwitch.com’s survey of over 10,000 credit card customers found there was an overall drop in satisfaction with providers, but especially with traditional banks.

The Customer Satisfaction Report names Marks and Spencer as top for overall satisfaction followed by the Co-op bank, American Express, Tesco and Sainsbury’s, in that order.

Vanquis and Bank of Scotland came bottom for overall satisfaction with Barclaycard, HSBC, Halifax, Lloyds TSB and Santander just above them.

Michael Ossei, personal finance expert at uSwitch.com, said: “with overall satisfaction and customer service getting worse across the board, and the high street banks still providing some of the worst service, consumers should look around further afield at new providers for the best credit card for them.”

A pan-European investigation carried out in September 2011 revealed that 70 per cent of websites offering credit cards, loans and finance are failing to meet EU standards.

The investigation, which followed a large number of customer complaints, looked at 562 websites across the 27 member states and found that 393 of the sites were failing to adhere to the European Consumer Credit Directive.

Many of the sites, including all of those checked in Spain, Cyprus and Slovakia, were failing to display an annual percentage rate (APR), which covers the rate of interest, the term of the loan and any fees.

Without this information customers are unable to compare the costs of credit offered by different providers.

The situation was only slightly better in the UK, where concern was raised over 38 of the 47 websites checked.

The report said: “We know that the financial services market – including consumer credit – is underperforming for consumers”.

Following the investigation, national enforcement authorities will contact the financial institutions and credit intermediaries whose sites caused concern.

These businesses will be required to take action to correct the errors and could face fines, or even closure if they still fail to meet the required standards, depending on the legislative framework of the EU state in which they operate.

In related news, Santander reported a 4 per cent fall in UK credit card spending last year.

However, the total number of transactions per cardholder has increased by one per cent.

While there has been an increase in credit card spending on mail order, eating out, utility bills and petrol, there has been a fall in the use of credit cards for larger purchases such as clothing and travel.

Santander’s Callum Gibson said: “During times of austerity, you’d expect cut-backs to hit non-essential items like holidays and clothes and our customer data supports this.”

Paypal is now more popular than credit cards as the preferred method of payment for online shopping according to a global survey by financial advisory firm KPMG.

According to KPMG’s “The Converged Lifestyle” report, consumers worldwide are rapidly adopting new technologies and Paypal is reaping much of the benefit.

The study looked at the online shopping habits of around 10,000 adults from 31 countries and found that in Europe and the Middle East, Paypal has overtaken credit cards as the preferred method of online payment.

The report found that UK shoppers were less keen on using mobile banking than shoppers in other parts of the world.

Just 27 per cent of UK shoppers had used mobile banking in the past six months compared with 52 per cent of shoppers globally.

Concern over mobile banking security seems to be a key issue for UK shoppers, with 66 per cent saying they feared that their credit card details would be intercepted and stolen and 62 per cent concerned that intruders would access personal information.

Tudor Aw, KPMG’s European head of technology said the report showed that: “consumers’ concerns over privacy and data security have increased over the last few years and companies across all sectors need to take this concern seriously.

“Whether its retailers or banks, consumers want transparency as to what companies do about data security and they want third parties to certify this security.”

Although mobile banking hasn’t been fully embraced by UK shoppers, they are using mobile devices to enrich their shopping experience in other ways.

When shopping at retail outlets, 45 per cent of UK shoppers reported using smartphones and tablets to find the nearest store, while 32 per cent used mobile devices to research products and services and 30 per cent to find online coupons.

Payment processor Sage Pay reported a 17 per cent increase in online shopping on 5 December 2011, compared with the same time last year.

The average amount spent also increased, by £3 to £91.

Payments business Visa has reported a 2.3 per cent fall in spending on credit and debit cards over the four weeks to 27 November, compared with the same period in 2010.

Last week, which is traditionally one of the UK’s biggest Christmas shopping weeks, spending on cards fell both on the High Street and online, with sales 6.2 per cent lower than in the equivalent week last year.

John Lewis also reported slower trading, supporting Visa’s figures and suggesting that consumers are cutting down what on Christmas spending this year.

In the week to 26 November, the retailer’s sales fell 1.2 per cent compared with a year earlier.

Retailers have been hit by a fall in consumer confidence due to uncertainty over the economy, rising unemployment and an increase in household costs, including steep rises in the price of energy.

This week, John Lewis’s sales were up 10.5 per cent in the four days to 20 November, compared with last year, however this time last year the UK was covered in heavy snow which caused shoppers to stay at home.

Visa, which accounts for one in every four pounds spent, said that the poor trading figures may just indicate that shoppers are leaving it later to do their Christmas shopping than last year.

Despite signs that shoppers are tightening their purse strings, recent research by MoneySupermarket.com found that 25 per cent of people in the UK expect to go over budget this Christmas.

Based on an average expenditure of £437 on Christmas presents, food and alcohol, and an average credit card APR of 18.44%, MoneySupermarket.com warns that Christmas spending could cost an extra £70.20 in interest by Christmas 2012.

The comparison site is encouraging shoppers to make sure their credit card is appropriate for their needs.

Credit card holders in the UK are paying less off their balance than at any point during the last two years, which isn’t surprising given the current pressure on household incomes from deteriorating employment conditions and record high levels of inflation.

The trend was noticed among ‘classic’ card accounts taken out within the last five years rather than student cards, premium cards and cards issued in Ireland which were excluded from the data.

The latest figures from the FICO Benchmark Reporting Service also revealed that the number of classic cardholders using credit cards for cash withdrawal is at the highest level for the last two years.

The average credit limit on classic cards continued to decline according to the report and have now fallen 4.3 percent since March.

Mike Gordon, FICO’s vice president, said: “The combination of flat spending on classic cards with lower payment percentages and higher cash usage indicates increasing strain on consumers’ wallets.

“While one month is not enough to call a trend, we are monitoring these and other patterns closely to help our clients manage their card portfolios and understand changes in the UK consumer’s financial health.”

Halifax has today launched a credit card designed to help consumers spread the cost of shopping and debt consolidation.

The bank’s latest ‘All in One’ offers 15-months interest-free credit for both balance transfers and new purchases, which could attract shoppers who want to spread the cost of Christmas.

However, there is a balance transfer fee of 3 per cent of the value of the debts transferred and the card is not available to customers who already have a Halifax card.

The Halifax All In One Credit Card offers a typical APR of 17.9 per cent, so shoppers need to ensure they pay off their balance before the promotional rate expires.

Despite stores offering tempting cut-price deals, shoppers are in a cautious mood in the run up to Christmas according to a high street banking report.

Although retail sales were up in October, there was little demand for loans and overdrafts according the British Bankers’ Association (BBA), and while consumers spent a total of £7.2 billion on plastic, they repaid £7.4 billion.

This continued a trend from September which also saw a higher level of repayments than new spending, with £6.9 billion being spent on cards and £7.2 billion being paid back.

There was some indication that people could be turning to their savings to fund Christmas, as the value of personal savings and deposits in high street banks fell by £900 million to £644.1 billion.

However, this figure does include current accounts as well as savings accounts.

According to BBA, 76,042 mortgages were approved in October, a slight increase from the previous month, but a substantial 16 per cent higher than the number approved in October 2010.

Gross mortgage lending totalled £8bn in October, slightly lower than in the previous month, reflecting a general unpredictability in the mortgage market.

A cautious approach to spending was also highlighted in a study by Legal and General in which 31 per cent of those questioned said they planned to reduce their spending on presents this year, while 51 per cent said they planned to spend the same as last year.

The survey revealed that around 1.6 million families could find Christmas unaffordable.

Families in London and the West Midlands are struggling the most, with 60 per cent of families in these regions saying they can’t afford the cost of presents and Christmas celebrations.

Legal and General’s research indicates that almost 80 per cent of households are worse off this year than they were last year.

New figures from Sainsbury’s Bank suggest that nearly two million credit card holders intend to switch providers over the next year, when their 0 per cent balance transfer offer expires.

A further 900,000 card holders will switch when their 0 per cent purchase deal expires, according to the bank’s latest research.

After the introductory offer on these cards ends, the percentage rate charge rises to 18.2 per cent on average while the APR on new purchases rises to around 18 per cent, so it’s hardly surprising that customers chose to move their business elsewhere.

There are several cards offering a much more competitive rate including Sainsbury’s card at 6.9 per cent and Barclaycard at 7.9 per cent, while many customers are likely to take up a new 0 per cent balance transfer deal.

However, significantly fewer people will be using a credit card to pay for Christmas this year, according to new research by Legal & General.

Around a third of households paid for Christmas with credit cards last year, but this number is expected to drop to a fifth this year.

With increasing pressure on household incomes coming for all directions, a third of households are planning to spend less on gifts this year, according to the Money Mood survey of 1,000 adults.

Sixty-seven per cent said they had enough money put aside for Christmas, while in the London and West Midlands, just 60 per cent of people said they had enough money saved for the festive season.

People in the north of England are the best prepared, with 79 per cent saying they had saved enough money to pay for what they need, while in Wales and Scotland the figures fell to 72 per cent and 68 per cent respectively.