There is a strong trend towards cashlessness in favour of electronic payments in the Australian economy and around the world, with many predicted benefits;
But overseas, drawbacks to a cashless society are leading some regulators to take measures to ensure continuing access to cash;
There are hurdles to clear before a transition to a fully cashless system is realistically possible, meaning cash is likely to remain a part of Australia’s payments mix for many years to come, despite the speed and ubiquity of the growth of electronic payments.
Point of View
In November 2018 the Governor of the Reserve Bank, Philip Lowe, told the Australian Payments Summit that rapid technological development in the payments sector means that “it is now easier than it has been to conceive of a world in which […] cash becomes a niche payment instrument.” UNSW economist Richard Holden has gone even further, saying that "If we wanted to, we could go completely cashless in three years."
Trends in the RBA’s triennial ‘Consumer Payments Survey’, covering the period 2013-2016, show that Australia is well on its way to that world:
The share of consumer payments made in cash has fallen markedly over the past decade or so – to 37 per cent of the number of payments in 2016 from 69 per cent in 2007.
Between 2013 and 2016, the decline in the use of cash relative to other payment methods was almost entirely due to consumers using cards more frequently for in-person payments
The share of payments of $10 or less made in cash was 16 percentage points lower in 2016 than in the 2013 survey (33 percentage points lower than in 2007);
Relatedly, the share of respondents who used cash for less than 20 per cent of their in-person transactions doubled between 2013 and 2016, to nearly one-third;
The share of survey respondents that did not use cash at all more than doubled to 18 per cent;
Meanwhile, there was little change in the share of consumers that use cash very intensively – one-fifth of respondents continue to use cash for more than 80 per cent of their transactions, compared with one-quarter in 2013;
Around the turn of decade, Australians went to an ATM, on average, around 40 times per year. Today, we go to an ATM around 25 times a year and the downward trend is likely to continue.
Despite these impressive figures, other countries are already even further down the path towards a cashless society, with Australians being only the world’s sixth highest users of electronic payments. Ahead of us, the Danish government has proposed removing the obligation for businesses to accept cash payments altogether, and half of Sweden’s retailers predict that they will stop accepting bills before 2025. In China, tech giants Alibaba and JD.com have eliminated checkouts in hundreds of stores. However, Australia’s implementation of the New Payments Platform (NPP), could make it possible to close the cashless gap with such parts of the world, allowing for instantaneous payments through mobile numbers and email addresses.
The rapid uptake of these technological innovations is being largely driven by:
The relative convenience of waving a card, phone, or watch to make payments;
The security benefits of not carrying cash;
Improved protection by consumer rights through easier record keeping; and
Billions in transaction costs saved every year.
Some foresee dramatic system and economy-wide benefits too. Holden points to the productivity boost from payments and invoices being processed instantly, "If we think about how many transactions happen in the economy, a few seconds here and there is going to add up to a lot of time." Cashlessness could also help recover much of the estimated $6 billion in tax revenue that goes missing every year by virtue of removing the most prevalent (anonymous) payment method of the black economy.
Despite these actual, perceived, and predicted benefits, the trend towards cashlessness may not be as irresistible as it can seem.
There remains a not-insignificant number of people who continue to rely heavily on cash for their transactions. For example, cash remains the most common payment method for respondents aged 65 and over, who made around half of their payments in cash in 2016. Rural areas too, with less digital coverage and technological capital, would struggle in a cashless system. Lower income households also tend to use cash more intensively than households in the highest income quartiles; some may not have a bank account or credit cards, may have poor credit, or may work cash-in-hand jobs.
Card payments also create a digital footprint that some may prefer to avoid for privacy reasons.
Beyond this, there is also the matter of security. More than 38 per cent of Australian consumers noted security as their number one concern when using banking applications.
Indeed, security is important on both an individual and a systemic level. Banknotes are an important emergency or back-up payment instrument because using cash does not require the internet to be up, electricity to be working and the banks' systems to be operational.
Such potential pitfalls of a cashless society are being taken up by politicians and regulators, particularly overseas, which could see the cashless transformation slowed or, beyond a certain point, halted.
In the United Kingdom, the Chancellor has announced the creation of a new Joint Authorities Cash Strategy Group (JACS), chaired by the Treasury, to ensure that access to cash is safeguarded, saying “Technology has transformed banking for millions of people, making it easier and quicker to carry out financial transactions and pay for services […] But it’s also clear that many people still rely on cash and I want the public to have choice over how they spend their money.” The needs of more than 8 million Britons who were considered to rely on cash to get by were cited in support of this move.
In the US, San Francisco, Philadelphia and the states of Massachusetts and New Jersey have taken the opposite path to Denmark by banning cashless stores and restaurants. Even Sweden, with its plans to phase out cash completely by 2025, has been given pause for thought. The Central Bank of Sweden, is now asking banks to keep circulating cash until the government can completely comprehend the ramifications. Its Deputy Governor has said that the trend towards cashlessness raises some crucial issues regarding the state’s role in the payment market, “If cash stopped working, it would leave all individuals to rely on the private sector for access to money and payment methods.”
For the time being, the key part of Richard Holden’s pronouncement that it would be possible for Australia to go completely cashless, may well be the his caveat: “if we wanted to”.
If the benefits of a fully cashless society are to be realised, the electronic system will need to offer the functionality, safety, and reliability that people require and not leave anyone behind – factors that formed a focus of the Australian Payments Council’s 2019 strategic agenda. These are not insignificant hurdles to that future, so while the shift to electronic payments will continue, reports of the death of cash may well have been exaggerated. It is likely to remain a part of Australia’s payments mix for many years to come.