Cashless? Or just less cash?

But recently we have seen an acceleration in the take up of cash replacements, whether that is contactless card payments or more exotic instruments like BitCoin. The question is whether cash is about to go the way of the Cowrie shell as a vesicle of value.

The release of the 2013 Reserve Bank of Australia’s Payment Systems Board annual report provided some 'hard' evidence of the trend towards a cash-less society which has become more apparent in recent years. There is mounting evidence that consumers are making less use of cash whilst at the same time their use of electronic payment methods, particularly debit cards, continues to increase. In the financial year 2012-13, the average value of a debit card transaction continued its fall to be now $56, as card payments replace cash for low-value transactions. 

Bank notes and coins have been used in Australia since the arrival of the first fleet although the first series of Australian bank notes were not issued until 1913. The polymer dollar notes now in circulation in Australia were first manufactured in 1988. Australia's first Automatic Teller Machine (ATM) appeared in 1977. Payment cards designed to replace cash at the Point of Sale (POS) were issued under the Bankcard acceptance marque in 1974 and the Electronic Funds Transfer at the Point of Sale (EFTPOS) payment system began operation in 1983. The arrival of telephone and then internet banking in the 1990's, and the subsequent recent development of contactless payments, have all contributed to the declining use of cash in Australia. 

But the question remains, are we moving to a Cash-Less Society? Or rather a Less-Cash Society? 

This trend will become more pronounced as contactless cards, both credit and debit, continue to be introduced and adopted by both consumers and merchants in Australia. These contactless payments facilitate faster transactions at the POS when compared with 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 - where there is no need to enter a PIN or sign for a purchase under $100 - at merchants whose EFTPOS terminals accept contactless cards. The use of contactless cards will be further encouraged when signature verification is phased out from the end of June 2014 after which verification will only be facilitated by the use of a PIN or contactless verification if the purchase is under $100. 

The payment scheme Visa says 40 per cent of all face-to-face Visa card transactions in Australia are now made using the group's contactless system, payWave. Visa says consumers made 40 million payWave transactions in January, compared with 28 million in September last year. 

The most common way that individual Australians access cash is through the ATM network, of which there were just over 30,000 machines in Australia by the end of 2013. However the average value of an ATM withdrawal is now down to $146 and this continues the decline year-on-year of accessing cash through this distribution channel. 

In contrast, the next most common way of acquiring cash via an EFTPOS cash-out is growing and by the end of 2013 the share of cash accessed by this distribution channel had growth to 11 per cent. There were just over 800,000 EFTPOS terminals in Australia by the end of 2013, an increase of nearly 50,000 terminals over the previous 12 months. 

Nevertheless, when these two methods of accessing cash are combined, giving us a proxy of cash usage, cash is indeed in decline. 

Recent research I undertook for the Australian Centre for Financial Studies (ACFS) looked at the trends toward a Less-Cash Society - if not Cash-Less - over the past 10 years. Comparing June 2003 with June 2013, (Table 1 below) reveals that whilst the number of ATM withdrawals has grown over the past decade in terms of both value and volume, that 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) at $16.04 billion was considerably higher than the value of ATM withdrawals at $11.43 billion. 

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 both credit and debit contactless cards and EFTPOS terminals that can accept this type of  'tap and go' payment will further reduce the need to make payment at the POS by cash. 

As contactless payments and mobile payments become more ubiquitous they will provide both convenience for the consumer and reduce the cost inefficiencies of cash from the merchant’s perspective, contributing to a Less-Cash Society. 

So is this  the advent of a Cash-Less Society where notes and/or coins are no longer a feature of our everyday lives and no longer a weight in our clothing or purses? 

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 like 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?” 

We are moving relentlessly towards a Less-Cash or Cash-Lite Society but for the foreseeable future we will not become a Cash-Less Society. Cash has on-going attractions, just as has gold. It is tangible; you can touch it, display it as a wad of notes and it does offer comfort in an era where payment cards can be 'compromised' and hence not always accepted at the POS. 

Cash may then 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.

Table 1: The Less Cash Society

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Professor Steve Worthington is adjunct professor at Swinburne University of Technology and a long time commentator on the global payments system. Outside of payments his research has covered fairness in banking.