The amount of money spent in cash slumped 10% last year as new ways to pay including PayPal increased in popularity.

The BRC’s annual Cost of Payment Collection Survey revealed that, while 54.4% of transactions are paid in cash, the number of transactions was down 6.7% and money spent fell 9.7% in 2012.

This is the first time in the survey’s 13-year history that both measures have seen a decline.

Credit and charge card use fell 3.4% in terms of numbers of transactions.

By contrast, transactions made on debit cards were up by 3.2% and alternative payment methods more than doubled on the previous year. This was driven by money-off coupons and the rapid growth of PayPal and online payments, which now account for 5% of all transactions.

The survey of 10 billion retail payments also shows the average cost from banks to a retailer of having a credit or charge card payment processed was 25 times higher than for cash at 38p against 1.5p.

Credit and charge cards account for 10.6% of transactions but over half of costs, and total costs associated with those cards were up 7%, despite being down on the previous year.

BRC director-general Helen Dickinson said: “New ways to pay and new ways to shop are shaping the retail landscape like never before. Changing customer preferences are driving the increase in debit card use – they’re helping people to manage their money better and are a natural fit for online shopping and self-service checkouts.

“Cash is still the most popular way to pay, but our survey shows how rapidly alternative and emerging methods are gaining ground, with growth more than doubling on the previous year, albeit from a low base.”

She added: “Against a backdrop of greater retail efficiency and innovation, the one jarring note is that charges remain disproportionately high. They continue to rise even though credit card use has fallen. It beggars belief that retailers incur average charges of 38p per credit and charge card transaction, 25 times more than for cash.

“Retailers have been arguing this in court for more than a decade now, and a resolution to the case is long overdue. The right conclusion would reduce these excessive costs for retailers and support their ability to invest and innovate.”