The Covid-19 pandemic has accelerated the decline of cash, with the volume of UK payments made using notes and coins plunging by 35 per cent in 2020 compared with the previous year.

Annual payments data from UK Finance, the banking trade body, showed a corresponding rise in contactless payments, online transactions and the use of mobile “wallet” apps that store bank and card details. But the banking trade body said it was “too early to say” if this would be a permanent change in consumer behaviour.

Since 2017, cash use has been declining by about 15 per cent per year, so the latest figures represent a significant acceleration. During the pandemic, shoppers have been encouraged to “tap and pay” to reduce contact owing to fears about the virus being transmitted via notes and coins.

Column chart of % of total payments showing Less than a fifth of payments last year were made in cash

Many businesses no longer accept cash, even though it remains the second most frequently used payment method in the UK, accounting for just under one-fifth of total payments.

Conversely, Bank of England data show the value of UK banknotes in circulation has never been higher, hitting £80bn last year.

Campaigners are urging retailers and businesses to start accepting notes and coins again as restrictions ease. A study last month by consumer group Which? found that over one-third of consumers reported being unable to pay with cash when making a purchase.

UK Finance said although there were 1.2m consumers who mainly used cash for their day-to-day spending in 2020, there were 13.7m who either didn’t use cash at all, or only used it once a month — nearly double the 2019 figures.

“The pandemic resulted in some marked changes in payments behaviour,” said David Postings, chief executive of UK Finance. “While it’s too early to say whether they are permanent changes . . . the banking and finance industry is committed to helping customers make payments in a variety of different ways.”

Contactless payments now account for more than a quarter of transactions (27 per cent) up from just 7 per cent in 2017. This reflects the increased limit of £45 that was rolled out last April. Chancellor Rishi Sunak announced the limit would be increased to £100 at the March Budget.

For the first time in six years, there was a decline in the overall volume of payments, which fell by 11 per cent year-on-year as lockdowns, business closures and the impact of working from home reduced consumer spending.

Debit cards were the most frequently used payment method in the UK, used for over four in ten payments. Although payment volumes declined 7 per cent during 2020, they remain one of the main payment methods used to pay for online shopping, which has soared during the pandemic.

There was a much steeper decline in credit card spending, which fell by 18 per cent year-on-year. UK Finance put this down to credit cards often being used for higher value purchases, like holidays, travel and entertainment, that have not been possible under lockdown.

The decline tallies with separate data showing how consumers have been paying down credit debt during the pandemic.

UK Finance said that 17.3m people — nearly one-third of the adult population — were registered for mobile payments in 2020, meaning they could pay by tapping a phone or smart watch. A 75 per cent increase on the previous year, the 16-24 age group were responsible for more than half of such payments.