When was the last time you used cash? For many Australians, using cash or even swiping a card has become a rare occurrence.
The movement towards a cashless society started 50 years ago with the introduction of the bank card and was driven by technological advances. But the pandemic only really took off when consumers and retailers became reluctant to handle potentially infected banknotes and coins.
The federal government underlined its recognition of this trend last week by unveiling reforms to regulate digital payment providers. Treasurer Jim Chalmers said:
‘As payments become increasingly digital, our payments system must remain fit for purpose so that it delivers results for consumers and small businesses. We want to ensure that the shift to digital payments happens in a way that drives greater competition, innovation and productivity across our economy.”
From major cities to remote rural areas, the shift to digital payments is evident. This begs the question: is a cashless society inevitable?
National Australia Bank, ANZ and the Commonwealth bank have all recently opened ‘cashless’ branches (stock image pictured)
The phenomenal growth of digital payments
The convenience of digital transactions has become irresistible to consumers and businesses and has led the industry to eclipse traditional payment methods.
The relentless march of technology has spawned countless innovative platforms, from mobile wallets to buy-now-pay-later (BNPL) systems, each vying for a piece of this fast-growing market.
A recent report from the Australian Banking Association paints a vivid picture of the explosive expansion of the digital payments industry.
The use of digital wallet payments on smartphones and watches has increased from $746 million in 2018 to more than $93 billion in 2022. Cash will represent just 13% of consumer payments in Australia at the end of 2022, a stark contrast to 70% in 2007.
The use of digital wallet payments on smartphones and watches has increased from $746 million in 2018 to more than $93 billion in 2022
Digital wallets are popular among most age groups. Young Australians aged 18 to 29 are leading the way, with two-thirds using digital wallets to pay for goods and services.
About 40% of Australians are comfortable leaving the house without their wallet or even credit or debit card, as long as they have their mobile devices with digital wallets.
The astonishing speed at which Australians have embraced digital payments places the country among the top users of cashless payments globally, surpassing the United States and European countries.
Digital wallets are not the only players in this space. The use of BNPL products is also growing rapidly in Australia, where many of the large-scale products in this category started.
The Australian Securities and Investment Commission (ASIC) reports that the total value of all BNPL transactions increased by 79% in the 2018-2019 financial year. This will continue into 2022 with annual growth of more than 30% according to the Reserve Bank of Australia (RBA).
PayID and PayPal payments are also claiming their share in this area.
The planned government regulation of the system, contained in amendments to the Reforms to the Payment Systems (Regulation) Act 1998, is a major step towards creating a safe and secure cashless society in Australia.
It will subject BNPL and providers of digital wallet services such as Apple Pay and Google Pay to the same RBA oversight as traditional credit and debit cards.
Three in four Australians now consider themselves ‘low cash users’, meaning they claim to use cash for less than 20 percent of all their personal transactions
The regulations require providers to meet clear standards for security measures, data protection and dispute resolution to give Australians confidence that their money and personal information is safe.
As concerns about cyber attacks increase, the regulations will help reduce the risk of fraudulent activity and money laundering and identify suspicious transactions, thereby maintaining the integrity of the financial system.
Regulations will also promote fair competition and market stability by leveling the playing field and preventing monopolies.
Although banks support the coming regulations, new market players are less positive. Apple Pay, for example, says it only offers technical architecture instead of payment services.
The current regulatory debate is not new. When credit cards debuted in Australia in the early 1970s, there were few safeguards for consumers. This led to card users being hit with high interest rates on money owed, sneaky fees and aggressive marketing tactics.
The shift to a cashless society in Australia is not just a possibility, but is already well underway, says Angel Zhong (pictured)
As a result, rules were introduced to require card providers to adhere to a standard of responsible behavior. Today, they must openly disclose interest rates, fees, and charges and follow strict guidelines when advertising their products and services.
Regulating digital wallet providers strikes a critical balance between innovation and responsibility, ensuring life-changing technology continues to serve the public interest.
The shift to a cashless society in Australia is not only a possibility, but is already well underway.
The combination of technological advances, changing consumer preferences and regulatory adjustments has paved the way for this transformation. The new regulations will help Australians navigate this transition with more confidence.
Holding cash will cost each customer $40, Commonwealth Bank says – as it warns services like ATMs are becoming ‘unsustainable’
The boss of the Commonwealth Bank has told a government inquiry that continuing to provide physical cash to Australians is costing the company $400 million a year, despite fewer customers using it.
Matt Comyn said this week that “transporting and making available cash across our vast country entails significant costs in logistics and security.”
His comments follow CommBank, NAB and ANZ making some of their branches cashless, and Macquarie Bank announcing just days ago that its cash services would be shut down completely by 2025.
Commonwealth Bank CEO Matt Comyn (right) told the survey that all his customers were funding the cost of keeping physical money in circulation, despite a small minority using it
Numerous concerns have been raised about Australia moving to a cashless society, including an increase in fees siphoned off with each tap-and-go, certain groups being left behind in the transition, and reduced privacy as every transaction is recorded.
But Mr Comyn said CommBank’s 10 million customers each paid about $40 to finance the $400 million cost of keeping physical cash circulating in its branches.
He and the other three bosses of Australia’s ‘big four’ banks were grilled at Parliament House in Canberra last month by a Senate inquiry into the closure of rural and regional branches, amid allegations that banks are targeting rural areas to leave.
“Many of our customers do not use cash and these customers cross-subsidize those who do,” he said.
Mr Comyn said that as demand for cash, personal banking services and ATMs declines, they are becoming increasingly unprofitable for the company.
“It becomes unsustainable to invest substantial resources in maintaining expensive services that fewer and fewer customers use,” he said.
‘This is important given the speed at which customers are changing the way they bank with us.
He said that five years ago, 43 percent of all sales transactions were cash, but today the figure is around 15 percent.
In contrast, he said, customers transact more than $18 billion through the CommBank app, which is a 64 percent increase in just two years.
He added that the bank had no plans to remove cash completely.
“I don’t think that’s feasible, and I don’t think that would be desirable,” he said.
Commonwealth has suspended branch closures in regional Australia while the investigation is ongoing and Mr Comyn made a plea for customers to bank with CBA if they wanted to maintain the service in their local community.
“Our decision to pause rural bank closures is based on customers and communities appreciating our decision to remain in place,” Comyn said.
“I remember meeting a community leader in a regional town who challenged our decision to close a branch.
“He told me about the negative effect closing the branch would have on the community, especially since it was the last one in town.
‘But, consistent with our experience, he had not moved his own bank and was a customer of one of our competitors who had long since left town.
“So to other municipalities, small businesses, farmers, homeowners and regional areas, if you value CBA supporting your communities, we will be happy to serve you.”
According to estimates from the Financial Sector Union, more than 1,600 bank branches have closed across Australia in the five years to June 2022, with a disproportionate number of these branches located in regional and rural Australia.
Without government intervention, it appears this trend will continue as customer demand shifts to online banking.