25 Jan 2016
But new technologies, the surge in online commerce and smart banking apps have once again caused many to ask the question “are the days of cash numbered?" Paper? Less so….
" These well-established community attitudes can take decades or even generations to shift and so the attractions of cash are likely to remain rather than wither away."
Steve Worthington, Adjunct Professor, Swinburne University
Sweden thinks cash has had its day. The Scandinavian country recently released research supporting its claim to be the world leader in cashless trading.
The international payments scheme MasterCard reckons that title actually belongs to Sweden's neighbour Denmark, noting retailers in Denmark could start phasing out cash payments this year.
According to MasterCard though, Australians think their big island west of New Zealand will be one of first in the world to go cashless. More than half the Australians MasterCard surveyed (58 per cent) believe more cash will be removed from general use within the next five years.
MasterCard argues that felling is supported by Reserve Bank of Australia figures confirming the decline in cash withdrawals from ATM's.
Yet cash – even paper cheques – have proved resilient.
Here two payments experts consider the evidence and behaviours which might trash cash in Australia – and more widely.
Do you want cash out? A familiar question at the checkout as retailers try to get rid of their cash holding and thus reduce their costs by offering a cash-out service to their customers.
Cash in Australia represents the vast majority of payment volumes. The Australian Payments Clearing Association (APCA) estimates this to be 30 million transactions per day. The Reserve Bank of Australia's 'The Evolution of Payment Cards in Australia', describes cash as 'the most widely used payment method in Australia for consumer transactions'.
Why is cash so resilient? Well, it is visible; tangible; trusted; nearly ubiquitous in acceptance; convenient and anonymous. People also keep cash for emergencies and as a safety net.
These well-established community attitudes can take decades or even generations to shift and so the attractions of cash are likely to remain rather than wither away.
But there are costs in holding and using cash: theft; possible fees for access e.g. via 'foreign' ATM's; interest forgone and time lost in acquiring and paying using cash. There are also costs to the economy and wider society in cash payments because cash supports the so-called 'black' or 'grey' economy. Who amongst us has never uttered the phrase “would that be cheaper for cash" ?
(Interestingly, MasterCard's survey found most Australians (89 per cent) have negative perceptions of 'cash-only' businesses, associating them with being very small (70 per cent), trying to avoid declaring income or paying tax (42 per cent) and being unsophisticated (19 per cent).)
Consumers are however accessing less and less cash through ATMs. The first ATM in Australia was unveiled in 1977 and there are now over 31,000 such machines in Australia. However both the monthly value and volumes of cash accessed through the ATM network has fallen since 2013, as consumers use less and less cash and hence less frequently need to replenish their supplies. Indeed ATMs may eventually go much the same way as public telephone kiosks, which in 2003 numbered over 70,000 but by 2013 had been reduced to around 30,000.
Digital disruption it is argued will make payments even more digital/virtual and create a world where mobility, “always on" and “big data" are the norm.
If “always on" is to be the new norm, then the payments industry needs to be able to deliver on that, for the peace of mind of all of the stakeholders in the payments arena and particularly for the user/consumer experience.
A recent system outage from a major Australian bank demonstrates what happens when “always on" fails to deliver and various stakeholders suffer inconveniences. In September 2015, customers raged on Twitter about an 18 hour outage that crippled the bank's payment cards, ATMs and online banking. Twitter has become the default mechanism for bank customers to vent their outrage at 'outages' and indeed for bank executives to apologise to customers, as the COO of HSBC did in January 2016, in response to two days of disruption to online and mobile banking services in the UK.
Nevertheless we have an ongoing psychological relationship with cash and its reliability as a store of value. This is best demonstrated by the fact that two-thirds of cash holdings in American dollars exist outside of the country. Indeed it could be argued that as the world becomes more uncertain people want to store their wealth in physical objects such as property, art or cash. So cash-out anybody?
Available data indicates cash use is in decline. Yet the RBA advises the stock of banknotes on issue is continuing to grow. Are these two trends contradictory and, if indeed they are both correct, what is driving these apparently opposite patterns?
In the RBA Bulletin article The Next Generation Banknote Project, the bank described its plans to protect the nation's banknotes against possible future counterfeit activity. In their introduction to the article, the authors cite an ongoing 5 per cent per annum growth in use of cash despite a strong increase in the use of electronic payment methods. The article references the Bank's Consumer Payments Use Study of 2010 to note cash accounted for 62 per cent of total consumer payments and around 80 per cent of transactions less than $25.
This suggests talk of a cashless society is somewhat premature. I'd agree. It is true however that the momentum is undoubtedly building towards a less-cash society as distinct from a cash-less society.
In 2004, the value of Australian banknotes on issue was $34.0 billion with 89 per cent of that value accounted for by $50 and $100 notes. In 2014, the total value of notes on issue had increased to $60.8 billion with 92 per cent of this total being in $50 and $100 notes. This means that over the 10 years from 2004 to 2014, the average annual compound rate of growth in value of total banknotes on issue was 6 per cent.
However, if we look at the value of $5, $10 and $20 notes in isolation, we note that they moved from $3.9 billion in 2004 to $4.9 billion in 2014 with an average annual compound rate of growth for these denominations being 2.3 per cent. But for $50 and $100 notes it was 6.3 per cent.
The RBA's 2014 Annual Report shows over the 10 years to 2014 the disparity in growth of the number of notes in circulation varied significantly by value: $20 notes increased by 20 per cent in number over the 10 years with $10 notes up 40 per cent in number, $5 notes by 55 per cent, $50 notes by 90 per cent and $100 notes almost doubling in number.
So it is clear the larger denomination notes are the ones in favour and one could hypothesise their utility is less clear for payments than for hoarding.
Whilst the Next Generation Banknote Project referred to a 2010 payments study, there is a more recent body of work in this area, The Changing Way We Pay: Trends in Consumer Payments. This report compared the results of three surveys into the payment behaviour of Australian households with the headline findings clearly showing the role of cash as a payment product is in decline. The three surveys were in 2007, 2010 and 2013 with the changes over the six years between the first and third surveys being considerable.
Some top level results include the following composition of payments:
In 2007, the value of payments made by card at 43 per cent was modestly ahead of cash at 38 per cent. Six years on and the updated survey showed the value of card based payments to be almost three times the value of cash transactions. In 2007, card based payment numbers were less than a third of those using cash but by 2013, there was very little difference in the relative shares of transaction numbers.
Reinforcing this very large shift within a relatively short timeframe is the movement in transaction numbers per respondent per week. The 2007 survey reported 8.6 cash transactions per respondent per week with this falling by 29 per cent to 6.1 transactions in 2013. Over the same period, the number of card transactions increased from 3.3 per respondent per week in 2007 to 5.5 in 2013, a rise of 67 per cent.
Cash as a payment method has been particularly strong when the transaction value has been less than around $20. It is therefore of interest to note the June 2014 paper reported the make-up of payments in this low value category was being transformed. Contactless card technology had begun to make an impact and this is demonstrated in the below change in composition.
A barometer of cash use is obtained from the RBA's C4 ATM Cash Withdrawal table as well as their C5 Debit card Statistics table. These show a decreasing appetite for cash. The total value of ATM withdrawals has declined over the last five years:
Accompanying the decline in value of total ATM withdrawals has been a drop in the number of ATM transactions. From a peak volume of $866.2 billion in the 12 months to March 2009, ATM withdrawals have steadily dropped to a current level of $704.9 billion.
Converted to the number of ATM withdrawals per debit account per annum, we note the number has dropped by 32 per cent over the last five years, from 25.3 withdrawals per account per annum to 17.3.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
25 Jan 2016
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