There is mounting evidence that consumers are making less use of cash, while the use of electronic payment methods, particularly debit cards, continues to increase. But are we heading towards a cashless society?
The release in October, 2013, of the Reserve Bank of Australia’s Payment Systems Board annual report, gave more “hard” evidence of the trend towards a cashless society. In the year 2012/13, the average value of a debit card transaction continued its fall to A$56, as card payments replace cash for low-value transactions.
This trend will become more pronounced as contactless cards continue to be introduced and adopted by both consumers and merchants in Australia. These contactless payments facilitate faster transactions at the Point-of-Sale (POS), when compared to traditional card payments, where the card must be inserted or swiped at the POS terminal and then authorised via a PIN or signature.
Contactless cards use near-field technology to achieve a “tap and go” payment environment so there is no need to enter a PIN or sign for a purchase under A$100. The use of contactless cards will be further encouraged when signature verification is phased out from the end of June 2014. Thereafter verification will only be facilitated by the use of a PIN or by contactless verification, if the purchase is under $100.
The most common way that individual Australians access cash is through the Automated Teller Machine (ATM) network, of which there were just under 35,000 machines in Australia in June 2013. These accounted for 60% of the total value of cash withdrawals in 2012/13, however the value of ATM withdrawals fell by 3% in that year and the average value of an ATM withdrawal is now A$185.
The next most common way of acquiring cash is via an EFTPOS (electronic funds transfer at the point-of sale) cash-out. In 2012/13 cash-outs (either with or without a related purchase) accounted for around a quarter of the total number of cash withdrawals by volume, but only 7% by value; the average value of an EFTPOS cash-out being $63.
However in contrast to the fall in the value of ATM withdrawals in 2012/13, the use of cash-outs continued to grow and their value was 8% higher in 2012/13. There were by June 2013, just under 780,000 EFTPOS terminals in Australia, an increase of 15,000 terminals over the previous 12 months.
Recent research published by the Australian Centre for Financial Studies (ACFS), looked at the trends leading towards a less-cash society, if not a cashless society over the past 10 years. Comparing June 2003 with June 2013, (see table above), reveals that while the number of ATM withdrawals has grown over the past decade in terms of both value and volume. However this growth has been overshadowed by the increase in both the value and volume of debit card purchases.
Cash-out transactions at the POS have also increased substantially in both value and volume and by June 2013 the combined value of debit card purchases (including cash-outs) was A$16.04 billion, considerably higher than the value of ATM withdrawals at A$11.43 billion. Thus consumers appear to be using their debit cards more frequently, both to pay at the POS and to access their cash at the POS, rather than via an ATM.
The advent of the increased number of contactless cards and EFTPOS terminals that accept “tap and go” payments, will further reduce the need to make payment at the POS by cash. As contactless and mobile payments becomes more ubiquitous, they will provide both convenience for the consumer while reducing the cost inefficiencies of cash for merchants. Thus adding to the likelihood of a less-cash society.
Will this then lead onto the cashless society – a society where notes and/or coins are no longer a weight in our clothing or purses and no longer a feature of our everyday lives?
Opinions vary, but cash does have some ongoing advantages over non-cash payments. Firstly cash has widespread, if not ubiquitous, acceptance and is still particularly useful for small value transactions, for example a coffee. Secondly cash is anonymous; it does not leave a record, be it an electronic or paper “trail”. This still has an appeal, particularly in the “grey” or “black” economy where cash is still king. Who has never asked the question: “will it be cheaper for cash?”
So while we are moving relentlessly towards a less-cash society, for the foreseeable future we will not become a cashless society. Cash may well have a resilience that surprises many of us, in much the same way as despite the advent and widespread take-up of internet banking, there is still a large bank branch network in Australia.
Steve Worthington is an Associate at the Australian Centre for Financial Studies. He does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
This article first appeared in The Conversation.