Cash payments plummet thanks to pandemic

Reserve Bank of Australia has said cheques are on their death bed. The only question surrounding the long-term decline of cash is whether recent cliff drops are temporary or permanent.

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Image: Chris Duckett/ZDNet

As the coronavirus lockdown began to take hold across Australia back in March, the notice pictured above was placed inside one of my local coffee haunts. In the interests of protecting staff, contact with customers was reduced to a bare minimum, and the cafe was absolutely not handling cash or reusable cups.

This cafe was far from alone. As Australians stayed home, the use of contactless payments increased.

Back in 2018, it was clear that the use of cash was in severe decline as Australia became one of the highest adopters of contactless payments, and that trend has continued all the way into 2020.  

Since the lockdown began, I can count on one hand the number of times I have paid for anything in cash, and only one instance was that money placed into another's hand, and not into a machine. Anecdotally, coronavirus all but wiped out the use of cash in the economy as it was. That money I pulled out of an ATM in March, just in case, is still sitting untouched in my wallet.

Last week, assistant governor for the Reserve Bank of Australia Michele Bullock confirmed in a speech that cash had been pummelled during the pandemic.

Bullock presented the following graph which shows the rapid decrease in ATM use, as well its general decline before March.

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"This no doubt reflects both a decrease in spending overall as people stayed home as well as a shift to other payment mechanisms -- contactless cards and online shopping in particular," she said.

"It seems likely that a large part of this will become a permanent change in behaviour."

Bullock predicts that ATM consolidation around the country will accelerate, which on one hand is not the issue it was years ago since ATM interchange fees are mostly gone in the country, but on the other hand, cash is still heavily used by older and poorer Australians.

An RBA survey last year found that while one-third of respondents did not use cash at all, 10% use it for all payments.

With less reliance on cash, the focus turns to the electronic replacements and the fees and resilience of the payment networks. Bullock highlighted how least-cost routing, where merchants are able to route payments on multi-network cards through the cheapest network, has been available for a couple of years. It has not been pushed by Australian banks, however. 

The RBA said it could potentially mandate least-cost routing in future.

See also: Report from an almost cashless society

The potential for payment networks to get lock-in with security features, such as tokenisation, is another issue the RBA is taking into account. However, cash is not going to disappear altogether, Bullock said.

"While cash is not costless for merchants to accept, it does provide some competitive pressure on the cost of payments more broadly," Bullock said.

"So as cash use declines, it is even more important than ever that we ensure competitive pressure remains on the costs of electronic payments to merchants."

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However, one form of payment that might soon be extinct in Australia is cheques. Cheques are costly for banks to handle, have been on a 20% year-on-year decline for some time, which increased to 40% decline during COVID-19, and electronic conveyancing is replacing the use of bank cheques.

As the pandemic took hold, banks began sending out debit cards to account holders who did not have a card, and pushed the remaining users who didn't use internet banking towards online services, Bullock said.

"It seems likely that these changes, which have happened much more quickly than they might have otherwise, will further reduce the use of cheques and demonstrate to people that there are alternative and more efficient ways of making payments," the assistant governor said.

In much the same way how the pandemic has quickly shifted companies into embracing remote work, Australians have quickly dropped the use of cash. It is a shift that Bullock thinks is likely to become permanent.

"While it will be important to ensure that people who have traditionally used cash and cheques are adequately catered for, the experience of the past few months has demonstrated that the shift to electronic is perhaps not as difficult as many had thought," she said.

As someone that previously shied away from using mobile payments and clung to cash, the shift involved far less yelling and dragging than I'd previously promised from my ivory tower. At least in this aspect, the modern world is fine.

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