www.rfintelligence.com
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Contacts
Industry Policy
Australian Payments Clearing Association Limited
ABN 12 055 136 519
Level 6, 14 Martin Place, Sydney NSW 2000
Telephone +61 2 9216 4888
www.apca.com.au
RFi Consulting
Lance Blockley: lblockley@rfintelligence.com
Ryan Yuzon:
ryuzon@rfintelligence.com
Published July 2014
Copyright © 2014 RFi Consulting
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TABLE OF CONTENTS
1.
Executive Overview .............................................................................................................................................. 2
2.
Study Objectives & Scope .................................................................................................................................... 8
2.1. Study objectives ............................................................................................................................................ 8
2.2. Study scope .................................................................................................................................................. 8
2.3. Study approach ............................................................................................................................................. 8
3.
Global Trends in Cash Usage.............................................................................................................................10
3.1. Historical Context ........................................................................................................................................10
3.2. The move to cards, especially contactless for low value............................................................................16
3.3. Increase in online shopping and online bill payment ..................................................................................18
3.4. Move to real-time payments .......................................................................................................................19
3.5. Movement toward a “less-cash” society .....................................................................................................20
4.
Cash Trends in Australia ....................................................................................................................................21
4.1. A highly carded population .........................................................................................................................33
4.2. Australian contactless usage is the strongest in the world .........................................................................35
4.3. The potential for mobile payments to displace cash ..................................................................................37
5.
Summary Observations – Australian Consumers...............................................................................................41
5.1. Results from the consumer survey .............................................................................................................41
6.
Summary Observations – Australian Merchants/Small Businesses...................................................................47
6.1. Large Retailers ...........................................................................................................................................47
6.2. Small Retailers ............................................................................................................................................51
7.
Summary Observations – Financial Institutions and Regulators ........................................................................53
7.1. Royal Australian Mint ..................................................................................................................................53
7.2. Reserve Bank of Australia ..........................................................................................................................56
7.3. Payment Card Schemes .............................................................................................................................59
7.4. Financial Institutions ...................................................................................................................................61
7.5. APCA survey of Financial Institutions .........................................................................................................63
7.6. Overall.........................................................................................................................................................67
8.
The Future of Cash .............................................................................................................................................68
8.1. The “Cash Conundrum” ..............................................................................................................................80
9.
Appendix .............................................................................................................................................................88
9.1. Habits ..........................................................................................................................................................88
9.2. Sweden Case Study ...................................................................................................................................91
10. Technical Appendix ............................................................................................................................................93
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Introductory Note
The Australian Payments Clearing Association (APCA) is the Australian payments industry's
principal self-regulatory body. APCA's role is to manage and develop regulations, procedures,
policies, and standards governing payments clearing and settlement within Australia.
It
currently coordinates and manages five payments clearing systems covering cheques, direct
debit and credit payments, EFTPOS and ATM, high value and bulk cash.
RFi Consulting is an independent strategy consulting firm, focused exclusively on the payments
industry. Through our affiliation with the RFi Group of companies, we have access to a wealth
of accumulated data and knowledge revolving around the usage of electronic and paper
payment types, as well as insight into current attitudes and future trends. This knowledge,
combined with our strategic advisory capability, enables RFi Consulting to provide actionable
insights to our clients across Australia and Asia Pacific.
APCA monitors payment trends and is aware of the rise of electronic payments globally at the
expense of paper instruments. This trend is also seen in Australia, for example with both credit
and debit card transactions experiencing growth, with the latter experiencing significant growth
in recent times.
APCA engaged RFi Consulting to conduct an independent study of the current level of cash
usage in Australia, as well as projected future trends. This study took place between June and
December 2013.
RFi Consulting interviewed consumers, merchants, small businesses,
government organisations, and other stakeholders in the payments value chain in Australia,
gathered information via desk research and online surveys, undertook analysis of the collected
information, and summarised its findings in this report.
RFi Consulting would like to thank the many organisations and individuals who provided
information and perspectives that collectively form the foundation for this report.
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1. Executive Overview
This report on the future of cash in Australia has been developed by RFi Consulting (RFi)
at the request of APCA, in order to assist APCA and its member organisations in the
planning of cash handling requirements and infrastructure over the medium term.
In
addition, APCA committed in its "Bridge to the Digital Economy" Report to undertake
preliminary research on the use of cash in Australia.
The report provides an overview on the history of cash, what has been happening in a
number of overseas markets and recent trends in Australia. RFi has used a wide range of
inputs to this study in order to build a model of future payment transaction volumes and
values across all payment methods, and put forth what we believe is a plausible vision of
the future of cash in Australia.
For the purposes of this study, “cash” includes both paper banknotes and coins. Cash is
used both as a means of making a payment transaction and as a store of value. There is
about $60 billion of cash issued in Australia, with over 90% of the value residing in
banknotes. Cash has been under “attack” from a variety of electronic forms of payment for
many years, but there are reasons to believe that its use has now reached a “tipping
point.”
On a per capita, CPI adjusted basis, ATM withdrawals have been trending down since
2008, and in absolute dollar terms ATM withdrawals began to decline in 2012, just as
open-loop contactless card payments “took off” in earnest.
Indeed, as the total number of payment transactions in the Australian economy has grown,
cash’s share of total payment transactions has declined from an estimated 73% in 2005 to
59% in 2013 — a loss of just under 2% of “market share” per year. We are forecasting this
rate of share decline to accelerate over the next few years, with cash’s share of total
payment transactions going from 59% in 2013 to 43% in 2018 — a loss of just over 3% of
“market share” per year.
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Figure 1.1: Total Payment Transaction Volume and Value by Method in Australia
We foresee cash usage undergoing an “S-bend” decline in both value and volume of
transactions over the next five years. The acceleration in the displacement of cash is
faster (from 2013 to 2018) when looked at in actual transaction numbers, which previously
held relatively constant between 2005 and 2013.
Table 1.2: Number of Cash Transactions by Year
Source: RBA Payments Statistics
Year
Number of Cash
Transactions (m)
% Change
2005
2013
2018
12,329
11,700
9,368
5% decline over eight years
20% decline over five years
The displacement of cash (and cheques) by electronic forms of payment is quite clear
when viewed on a percentage basis in relation to the total number of payment
transactions.
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Figure 1.3: Percentage of payment transactions by payment method 2005-2018
But the advantages of cash mean that it will remain in use in specific areas, including: the
black economy; illicit activities (drugs, guns, etc.); older generation & ethnic groups (both
as a store of value and for transactions); and some types of merchants.
Table 1.4: Disadvantages and Advantages of Cash
Disadvantages of Cash
Bulky
Advantages of Cash
Control (budgetary: only spend what you
have)
Unhygienic
Certainty of acceptance
You have to go and get it
No transaction failure
Unsafe to carry in large quantities Easy distribution (e.g., easy to pay staff)
Not always fast and convenient
Instant transfer of value
Can’t track where or what you’ve Anonymity, not traceable
spent
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On the basis that cash could have held its same 2013 percentage of transactions through
to 2018, our forecast indicates that $56,551 million in “potential” cash transactions will be
displaced by electronic forms of payment between 2013 and 2018.
Our model has
forecast that this cash displacement will be comprised as shown in the charts below.
Figure 1.5: Cumulative Cash Displacement Breakdown (by Dollars), 2014-2018
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Figure 1.6: Cumulative Cash Displacement Breakdown (by Percentage), 2014-2018
We forecast that the majority (68%) of cash displacement between 2013 and 2018 will
occur due to card-based payments, encompassing:
•
A continuation of the general migration of cash to cards (a long, historic trend);
•
The growth in contactless card transactions, both in EFTPOS and Scheme cards;
•
The introduction of mPOS devices, which will allow small/infrequent merchants to
accept card payments instead of cash.
The cash conundrum in Australia is that, just as the amount of cash being used in
everyday transactions is going down, the amount of cash (coins and banknotes) on issue
is increasing. Such that there are eleven $100 denomination banknotes on issue for each
man, woman and child in Australia, whereas the majority of the public do not use or hold
this denomination (and very few ATMs dispense it); further, for each man, woman and
child there are almost $2,500 of banknotes on issue, whereas the majority of the public
only hold a few hundred dollars’ worth of banknotes.
If there is around $60 billion of Australian cash on issue, where is it located? We have
attempted to estimate where the issued Australian cash is being held, but put this forward
more as an “educated guess.”
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Table 1.7: Cash Inventory Location
Source: RFi Estimates
Location
Australian Bank Branch Holdings
Australian ATM Network Holdings
Australian Cash Depots
Foreign Exchange Speculation in Australia
Overseas Bank & FX Trade Physical Holdings
Retail Trade Holdings
Non-Retail Trade Holdings
Consumer Holdings for Normal Expenditure
Gambling
Black Economy (Legitimate) Activities
Illicit Activities
Coin “Hoarding” / Saving
Domestic “Hoarding” of Banknotes
Offshore “Hoarding” of Banknotes
Total
Billion $
1.8
2.0
2.2
0.1
7.5
1.0
2.0
7.2
1.0
3.0
6.0
1.2
10.0
15.0
60.0
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2. Study Objectives & Scope
2.1. Study objectives
The primary objectives of the study include providing a view on the current usage of cash
in Australia, as well as projecting future trends for the growth of (or decline in) cash usage
for domestic payments. The findings rendered in this study are important inputs to APCA
as it plans for future resource allocation in managing its five core payments clearing
systems, including: cheques, direct debit and credit payments, EFTPOS and ATM, high
value payments, and bulk cash.
This report also delivers on APCA’s commitment to
undertake preliminary research on the use of cash in Australia, as referenced in its “Bridge
to the Digital Economy” report.
2.2. Study scope
The scope of the study includes all electronic and payment forms used for domestic
payments in Australia.
International examples are included to provide context and to
illustrate global best practices in payments. Consumer-initiated payments (e.g., person-toperson, consumer-to-government, and consumer-to-business) are included, as are
business- and government-initiated payments (e.g., business-to-business, business-toconsumer, business-to-government, etc.). For the purposes of this study, “cash” includes
both paper banknotes and coins.
2.3. Study approach
RFi Consulting has endeavoured to include a comprehensive set of sources, both primary
and secondary, in order to fully inform our view of the current and future uses of cash.
Specifically, over the course of the study, we have undertaken in-depth interviews (with
industry stakeholders from the banking, merchant, and regulator communities), fielded
internet-based consumer surveys amongst more than 2,000 respondents, conducted
secondary research on current usage trends in Australia and abroad, and created a
financial model to help forecast the future trajectory of cash transactions.
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Our model projected out 10 years into the future, but in the main body of the report we
have only included forecasts to 2018, as we believe that the accuracy of predictions
beyond a 5 year horizon is less robust.
As with any prediction of future events, there is inherent uncertainty in our findings.
However, given the wide range of comprehensive inputs to this study, we believe that with
this work we have put forth a plausible vision of the future of cash in Australia.
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3. Global Trends in Cash Usage
3.1. Historical Context
Primitive Currency 1
Within primitive cultures, a strange diversity of objects commonly termed “money” or
“currency” have been found. These are of two main kinds, one comprising articles of
practical use, the other those of which the primary purpose is ornament. The rock salt of
Ethiopia, the hoes of the Dinka and Shilluk of the upper Nile, the iron and cloth of central
and west Africa, the brilliant red feather bands of Santa Cruz, the dentalium shell strings of
California and British Columbia, the wampum of the eastern American tribes, the tridacnashell chamlets and large stone axe
blades of eastern Papua New Guinea,
the sperm-whale teeth of Fiji and the feI
or “millstone money” of the Caroline
Islands have all been termed “money.”
Well known among “native money” are
the strings of shell disks characteristic of
the Melanesian islands, such as the
diwara of New Britain, the rongo of
Malaita or the sapisapi of east Papua New Guinea. Much work was involved in their
manufacture, and their value varied according to their length and colour. Red discs being
worth more than white, the shell from which they are obtained being more rare. These
strings, whether in coils or made up into necklaces, formed most important items of wealth,
and passed from hand to hand in settlement of social obligations.
But according to precise terminology, such objects cannot be correctly described as
currency or money. In any economic system, however primitive, an article can only be
regarded as true money when it acts as a definite and common medium of exchange, in a
1
Primarily based on Encyclopaedia Britannica
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convenient stepping-stone in obtaining one type of goods for another. Moreover, in so
doing it serves as a measure of value, hence the worth of all other articles can be
expressed in terms of itself. Again, it is a standard of value with reference to past or future
payments, while as a store of value it allows wealth to be condensed and held in reserve.
Strings of shell disks and similar articles are certainly a form of condensed wealth, and act
as a store of value. But they do not consistently perform any other function of money.
They may pay for canoes or be traded against one another, but they do not facilitate
every-day exchanges, as those of food or implements, nor are market values of other
commodities expressed in them.
With many African tribes the case has been different. The use of hoes or cattle as true
money is dubious, but it is clear that such objects as iron bars (often in the form of
conventionalised spear-heads or knives), cowrie shells, salt and cloth served as definite
media of exchange and as common
measures, standards and stores of value.
The cowrie (Cypraea moneta) is one of
the
most
striking
forms
of
native
currency: it ranged in west Africa from
the Sahara to the Gulf of Benin, taking in
the whole basin of the Niger-Benue, and
including also the upper Congo-Lualaba
area,
its
economic
sphere
centred
especially in Timbuktu, the district of the middle Niger, and the country around Lake Chad.
Sometimes the shells were strung on a cord, sometimes kept loose in a leather bag, and
transactions of all kinds, from simple village marketing to buying and selling on a large
scale, were accomplished through this medium.
Coins
A coin is a piece of metal or, rarely, some other material (such as leather or porcelain)
certified by a mark or marks upon it as being of a specific intrinsic or exchange value.
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The use of cast-metal pieces as a
medium of exchange is very ancient
and probably developed out of the
use in commerce of ordinary ingots of
bronze
and
other
metals
that
possessed an intrinsic value.
Until
the development of bills of exchange
in medieval Europe and paper currency in medieval China, metal coins were the only such
medium. Despite their diminished use in most commercial transactions, coins are still
indispensable to most modern economies.
Money and Cash
Money is a commodity accepted by general consent as a medium of economic exchange.
It is the medium in which prices and values are expressed; as currency, it circulates
anonymously from person to person and country to country, thus facilitating trade, and it is
the principal measure of wealth.
The subject of money has fascinated people from the time of Aristotle to the present day.
The piece of paper labelled 1 dollar, 10 euros, 100 yuan or 1,000 yen is little different, as
paper, from a piece of the same size torn from a newspaper or magazine, yet it will enable
its bearer to command some measure of food, drink, clothing, and the remaining goods of
life while the other is fit only to light the fire. Whence the difference? The answer is that
modern money is a social contrivance. People accept money as such because they know
that others will. This common knowledge makes the pieces of paper valuable because
everyone thinks they are, and everyone thinks they are because in his or her experience
money has always been accepted in exchange for valuable goods, assets, or services.
Originally meaning a box, the word cash, derived from the French casse (a box or chest),
is now commonly applied to ready money or coins and banknotes. Hence “to cash” means
to convert cheques, bills, drafts and securities into coins and banknotes. Whereas the
term currency has been used variously to designate a part or the whole of the circulating
medium or money of a country.
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Paper as a form of currency in Australia 2
The use of paper as a form of currency dates back to ancient China and possibly Carthage
BC. The first issue of banknotes as we know them today began with the foundation of the
Bank of England in July 1694. In Australia during the early days of the Colony of New
South Wales, there was a great scarcity of money as the First Fleet did not bring any
money with it. Various methods were adopted to overcome this lack of currency. Many
Colonists resorted to barter, the exchange of goods for other goods, whilst others resorted
to IOUs.
The earliest notes were store receipts and paymaster’s bills issued by the military
authorities for produce or labour. These receipts passed freely from hand to hand, but
were supposed to be presented to the Commissary General every quarter for payment —
although frequently they remained in circulation for much longer periods. Often the private
IOUs and promissory notes proved worthless, as many were issued by dishonest people
and those issued by honest merchants were subject to forgery. In 1800, Governor King
attempted to regulate matters by ordering that no handwritten promissory notes were to be
issued and that printed promissory notes were to be used. Unfortunately, the handwritten
notes continued to be issued during Governor Macquarie’s time. In 1810, Macquarie
issued a proclamation outlawing the issuing of promissory notes of five pounds or less.
However the situation did not improve until the arrival of an adequate supply of coinage
and improved facilities for printing notes.
Some of the first notes issued were the Police Fund Notes, around 1816. Shortly after
these were issued the Bank of New South Wales was established, and commenced to
issue Bank notes. Subsequently other banks were established, and they too issued notes.
Banks continued to issue notes until there was a major depression in the early 1890s.
This caused 54 of the 64 banks operating to close, many never to re-open, and the
2
Primarily based on “Banknotes of Australia,” written by Barrie Winsor and printed by Standard Publishing House
Pty Ltd
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Queensland and New South Wales State Governments were forced to issue State
Government Treasury Notes. Federation in 1901 gave the Commonwealth Government
the right to legislate for an Australian note issue, but it was not until 1910 that the first
Australian note was issued. At the same time a tax of 10% on private bank notes was
introduced, and this effectively stopped the circulation of the private bank notes.
The first notes were temporary issues, as the Commonwealth Treasury did not have the
ability or time to produce their own notes. Unissued Bank Notes were purchased from the
banks, overprinted and then issued. These overprinted or “super scribed” notes were
withdrawn when the first Australian notes were printed and issued from 1913 onwards.
The original overprinted notes were payable in gold coin.
Denominations of 10 shillings, 1, 5, 10, 20, 50 and 100 pounds circulated in the economy,
although 1000 pound notes were used by the banks for inter-bank settlements.
During the Second World War the 50 and 100 pound notes were withdrawn.
On 7 April 1963 the Treasurer announced the change to a decimal currency. Over 1,000
names for the new currency were considered before Sir Robert Menzies, showing loyalty
to the Crown, decided it should be called a “Royal,” but public opinion was so strong
against the “Royal,” that it was changed in favour of “Dollar.”
On 14 February 1966 four denominations were issued: 1, 2, 10 and 20 dollars.
Subsequently 5, 50 and 100 dollar notes were issued, and the 1 and 2 dollar notes were
replaced by coinage.
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Case Study: Sweden – a front runner as a cashless society
Sweden, the first nation in Europe to introduce banknotes in 1661, is aiming to be the
first cashless society. This goal is realistic in the very near future with less than 20% of
retail transactions currently involving cash and currency representing only 3% of the
economy and trending downwards. A concerted effort needed to be conducted to bring
about such a low transaction rate utilising coordinated bank action, mobiles, internet and
payment cards.
Not only are fewer notes and coins being printed each year, but also the major banks are
limiting the handing out and receiving of cash at branches.
Approximately 70% of
branches of the major lenders are currently cashless.
The advent of a real time payment platform in 2012 has also and will continue to
accelerate the ease away from cash transactions and uptake of electronic payments,
such as P2P (Person to Person) payments.
Swish, a mobile app developed in
conjunction with Sweden’s six largest banks allows transactions between people in real
time.
Public transport in Sweden, particularly buses, is not possible with cash. Tickets can be
either purchased with a text message using a mobile phone or be pre-paid.
It is important to note that the move away from a cash transaction society is not as utopic
as it may appear. Whilst bank robberies have obviously reduced (currently at its lowest
levels in 30 years)*, the prevalence of online crime, including card-present fraud, has
increased greater than 80% (between 2000 and 2011).
*Indeed, this trend has become problematic for some bank robbers, particularly for a
man who held up a cashless Swedish bank branch and was forced to leave empty
handed: http://www.thelocal.se/47484/20130422/ Also see a further article on Sweden
in the appendix.
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3.2. The move to cards, especially contactless for low value
The move to card payments is nothing new, dating back over 60 years to the first Diners
Club cards in 1950. The more relevant point regarding card payments is their ubiquity
across the world, with a handful of internationally dominant brands competing against
regional and domestic payment systems. All of these card programs combined, whether
they are from the international giants such as MasterCard and Visa or domestic payments
such as EFTPOS, are driving cash payments out of the system at an ever-increasing rate.
Add to this “alternative” forms of payment that are not card-based, notably PayPal and bill
payment systems such as BPAY, and the presence of cash, is further eroded.
Electronic forms of payment are furthering their reach around the world in developed and
developing economies alike.
In developed nations, the move to electronic payments
promotes efficiency, speed and convenience, and security — rendering more benefits from
existing payment methods. However, in developing nations, electronic payments often
represent a step toward financial inclusion. Whereas previously people did not have a
way to participate in the banking system in many developing nations, systems such as
GCash in the Philippines and M-Pesa in Kenya offer everyday electronic payment
capabilities to millions of people previously excluded.
Electronic payments continue to displace paper-based transactions (including cheques) in
the consumer and business realms, but it can be said that there is still a long way to go
before we approach a “cash-less” society. Scanning the globe, New Zealand provides a
benchmark for the level of penetration that electronic payments can achieve, starkly
highlighting the challenge that lies ahead for much larger economies around the world.
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Figure 3.1: Cash as % of GDP Versus Total Electronic Transactions per Adult (2012)
Clearly, large Asian economies have enormous potential to increase their use of electronic
payments, and thus improve the efficiency of their payment systems. Indeed many of the
Governments in these countries are “pushing” the increased use of electronic payments,
but primarily in terms of tracking transactions in order to improve the taxation base
(circumventing the anonymity of cash).
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Case Study: Technology promoters of a cashless society
The use of contactless cards are associated with a quick take-up as a result of their fast
transaction speeds and their replacement of small value transactions, especially when
utilised in transport settings. Key examples of this are the Octopus and Oyster Cards.
Octopus Card (Hong Kong)
The Octopus card, which was launched in 1997, is an NFC enabled rechargeable
prepaid card for use in Hong Kong.
Currently, there are over 20 million cards in
circulation generating greater than 12 million daily transactions at an average
transaction value of $10.
Its initial use was for the mass transit system as a closed loop technology. It was then
expanded to vending machines, parking meters and retail outlets, including convenience
stores, pharmacies, supermarkets, and restaurants, such as McDonalds and Starbucks.
Oyster Card (London)
A smart card that is also a strong proponent for a cashless society is the Oyster card in
London. It is the most highly circulated smart card in Europe with over 20 million cards
issued since its 2003 inception and generates ~10 million transactions per day.
As a result of the Oyster card, cash-only fares comprise ~3.5% of Tube tickets and less
than 1% of bus fares (significantly reduced compared to figures in 2003 of ~19% and
18% (for bus and Tube respectively). It is with this low cash transaction value that
Transport for London is looking to remove cash permanently from London buses.
3.3. Increase in online shopping and online bill payment
As the internet continues to expand and reach more and more households globally, so too
does the reach of online payments for shopping and bill payment. Growth in payments for
online shopping on scheme credit and debit cards, in particular, are accelerating the shift
from cash to electronic payments, as it is not possible to pay with cash on the internet.
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(Note that this functionality delivered by the major international payment schemes is
causing chagrin amongst the domestic PIN debit networks that are unable to transact
online.) Electronic bill payments and associated systems, on the other hand, due to the
size of the transaction and historical usage bias, are mainly displacing paper cheques
(depending on the country 3). The combined effect of these two phenomena serves to
boost the percentage of transactions that are now electronic.
The table below shows the strong growth in online “shopping payments”, which have
grown at an average compound rate of 24% for the three year period of 2010/11 to
2012/13.
Table 3.2: Online Payments in Australia 4
3.4. Move to real-time payments
One of the recent global developments encouraging a further shift to electronic payments
is the establishment of real-time payment platforms in some of the more advanced
economies. The Faster Payments platform in the UK became operational in May 2008,
and has processed over 2.5 billion payments worth over £1.4 trillion (equivalent to £54,000
3
Some countries, such as China, have never developed a major usage of cheques.
4
From the Payments System Board 2013 Annual Report.
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for every household in the UK).
Singapore is currently reviewing its options for
implementing a similar platform, due to be in place later this year. The US has long
considered real-time settlement for its ACH system, with the FedACH® SameDay Service
currently available. 5 Closer to home, APCA is coordinating the New Payments Platform to
facilitate real-time payments for consumer and business use by the end of 2016.
These platforms attack paper-based transactions from two angles.
The first
implementation envisioned for Australia’s New Payments Platform is a consumer-toconsumer convenience payment function, essentially targeting cash transfers between
individuals.
The second prong of the attack is against cheque usage, specifically for
business-to-business use. Due to the need for data that accompanies many business-tobusiness transactions (for reconciliation purposes, for example), the direct entry system
has been eschewed in favour of a paper cheque that can be appended to an annotated
invoice.
The New Payments Platform will have rich-data capability to overcome this
problem, informing the recipient of the specifics related to each payment.
3.5. Movement toward a “less-cash” society
Although noble in its aspiration, a “cashless” society is most likely unattainable in the
foreseeable future, given the inertia in consumer behaviour and the continued use of cash
for nefarious purposes. Instead, some economies have set their sights on a “less-cash”
society, working not to eliminate, but to reduce cash.
Bank Indonesia, for one, has
adopted the “less-cash” mantra in its publications as the central bank of Indonesia. With
almost 250 million people and a card penetration rate of less than 15%, even small
movements to electronic payments will benefit Indonesia in terms of efficiency and cost
reductions in supporting the payment infrastructure.
5
Source: www.nacha.org/node/1403
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4. Cash Trends in Australia
In Australia, cash is issued in the form of banknotes by the Reserve Bank of Australia
(RBA) and coins by the Royal Australian Mint (RAM). A very small amount of the issued
currency is collected for numismatic purposes, for keepsake/memento, rarity and/or
potential increase in value. The vast majority, however, goes into general circulation (via
the banking system) where it is used as a means of exchange of value in transactions and
as a means of stored value. Both the RBA and RAM will exchange damaged/mutilated
items for new, replacement banknotes and coins; but, whereas the RBA will allow
“repatriation” of any surplus banknotes, the RAM currently has a legislated policy of not
accepting back unwanted/surplus coins.
As the world moves away from “paper-based” payments and adopts a variety of different
forms of electronic payments, Australia is positioned ahead of most countries in this trend.
The chart below provides our estimates of payment transaction volumes and values by
various methods in Australia from 2005 (DCITA data) 6 to today (2013) — Section 8 below
provides our views on how this will change further in the future.
6
“Exploration of future electronic payments markets” published by the Australian Federal Department of
Communications, Information Technology and the Arts, June 2006
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Figure 4.1: Total Payment Transaction Volume and Value by Method in Australia
Understanding that it covers all forms of payment (including for example inter-company
transfers of funds), the chart shows how the volume and value of payments has expanded
in the Australian economy over the last eight years, with:
•
the number of transactions growing from 16.8 billion in 2005 to 19.7 billion in 2013
(+17%);
and
•
the value of payments climbing from $10,024 billion in 2005 to $15,100 billion in
2013 (+51%).
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Over the eight year period, only the two paper-based payment methods, cheque and cash,
have reduced in their share of both payments transactions and payments value — with all
forms of electronic payment growing. Although its transaction share has declined by an
average of almost two percentage points per year (from 73% in 2005 to 59% in 2013), due
to the overall growth in the payments market, our estimates are that cash has seen only a
small decline in absolute terms:
Table 4.2: Cash Payments 2005 vs. 2013
Source: RBA Payments Statistics
Cash Payments
Number of Transactions (#million)
Value of Transactions ($million)
Average Transaction Value ($)
Value of Transactions per Capita per year ($)
Value of Transactions per Capita per month ($)
2005
2013
12,329
11,700
$203,113 $187,193
$16.47
$16.00
$9,991
$8,409
$833
$701
Change
-5%
-8%
-16%
-16%
The majority of this absolute decline appears to have occurred recently, as payment
methods such as contactless card transactions have risen rapidly (spurred by the
acceptance of contactless transactions by the two main supermarket chains in mid-2012).
The recency of this decline seems to be supported by the reduction in ATM withdrawals
seen in 2012-2013, although not by any drop in cash on issue (see below).
This recent decline in cash usage is also detected in consumer research, as shown in the
chart below.
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Figure 4.3: Regular Payment Methods, March 2013
As can be seen, cash usage dropped by around 10 percentage points in the six months
between the September 2012 and March 2013 rounds of the survey, having held relatively
steady for the previous three rounds. The chart indicates that these cash transactions
were substituted by payment methods already/previously in use by the consumers, as
there was no significant lift in any of the other methods between September 2012 and
March 2013.
Similarly when consumers are asked to assess changes in their level of spend across
different payment methods, both cash and cheque (as well as charge card) are nominated
as having less spend, and a broad range of different types of electronic payment are
nominated as having higher spend; as shown in the chart below.
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Figure 4.4: Changes in Spending Methods, March 2013
As shown in the chart below, on a per capita basis, ATM withdrawals have fallen among
Australians since peaking around January 2009 at just over $600 per month. Current
withdrawals of around $525 per month per person are down 14% from the peak — a
similar reduction to the cash transactions per capita seen between 2005 and 2013 in Table
4.2 above.
Figure 4.5: Australian Monthly Total ATM Transaction Value per Capita 2002-2013
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At the level of retail payments, the overall value of ATM cash withdrawals first stagnated
and then began to fall as card activity continued to increase in terms of overall value; as
shown in the chart below.
Figure 4.6: Australian Annual Transaction Value by Type of Payment 2002-2012
Consumers still prefer cash for some payment scenarios, as shown in the research results
below.
Figure 4.7: Cash Preferences for Different Purchase Types, March 2013
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As can be seen, consumers still see cash as playing a large role in:
•
Mass transit ticketing – but this is being changed in Brisbane, Perth, Melbourne and
Sydney through the introduction of eTicketing;
•
Low value purchases and arena purchases – but these areas are being “attacked”
by contactless card transactions (e.g., ANZ Stadium in Sydney);
•
Taxi payments – this is a more difficult area for open-loop card payments, which are
currently surcharged 10%, driving consumers to continue their use of cash.
As noted above, ATM cash withdrawals have been decreasing in overall and per capita
value. This has primarily been driven by a reduction in the number of transactions rather
than any major change in the average transaction value. The chart below shows that ATM
cash withdrawal transactions have fallen from about 72 million per month in early 2009
down to 68 million per month in early 2013.
Figure 4.8: Monthly ATM Withdrawals, 12 Month Rolling Average, 2009-2012
Reviewing ATM activity over a longer period of time, one can see that there has been
significant deployment of ATMs across Australia, but that this appears to have peaked.
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Figure 4.9: Evolution of the ATM Industry (1994-2013)
A similar peak in ATM transactions occurred in 2009. We would assume that in the earlier
years of ATM transaction growth, there was a significant substitution for “over the counter”
cash withdrawals at bank branches rather than a strong growth in cash-based
transactions.
Figure 4.10: Total ATM Transactions per Annum 1995-2013 (12 months to 30 June)
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But deployment of new ATMs outstripped growth in overall transactions, such that the
number of transactions per ATM has been in decline for almost 20 years. Although the
average current level of activity per ATM almost certainly hides a spectrum of higher and
lower activity per machine, the impact on economic performance of the overall drop in
activity is likely to lead to a period of rationalisation amongst the Australian ATM fleet.
Figure 4.11: Average Transactions per ATM per Month 1995-2013 (12 months to 30
June)
It is true that there are other ways to access cash than just the ATM, including “cash out”
transactions at point of sale via EFTPOS. The following chart shows the percentage
breakdown of transactions between ATM cash withdrawals (both “on-us” and “off-us”) and
EFTPOS cash out. It shows that the introduction of Direct Charging at ATMs in 2009 had
two effects:
•
Moving ATM transactions more to “on-us” in order to avoid the direct charging
associated with “off-us” activity, although the percentage of “on-us” transactions has
now declined close to pre-direct charging levels;
•
Increasing the cash out transactions at EFTPOS, from about 20% to 25% of
combined cash withdrawal transactions at ATM and EFTPOS.
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Figure 4.12: % of Cash Transactions at Own ATM, Foreign ATM and EFTPOS (July
2007 to October 2013)
The average amount of cash withdrawn in an ATM transaction versus an EFTPOS cash
out transaction 7 is quite different and quite constant over time (regardless of inflationary
effects), as shown in the chart below.
7
Note: The data for EFTPOS cash out transaction includes both “cash only” and “cash with purchase” transactions.
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Figure 4.13: Average Cash-out Transaction Value at Own ATM, Foreign ATM and
EFTPOS (July 2007 to October 2013
As the percentage of cash withdrawals is dominated by ATM activity and as each ATM
withdrawal is 3-4 times the size of an EFTPOS cash out transaction, ATMs dominate the
source of cash withdrawals, as seen in the chart below.
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Figure 4.14: Monthly Value of Cash Withdrawn via ATM, EFTPOS and Credit Card
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Jul-2003
Nov-2003
Mar-2004
Jul-2004
Nov-2004
Mar-2005
Jul-2005
Nov-2005
Mar-2006
Jul-2006
Nov-2006
Mar-2007
Jul-2007
Nov-2007
Mar-2008
Jul-2008
Nov-2008
Mar-2009
Jul-2009
Nov-2009
Mar-2010
Jul-2010
Nov-2010
Mar-2011
Jul-2011
Nov-2011
Mar-2012
Jul-2012
Nov-2012
Mar-2013
Jul-2013
Total Cash-out Value (millions)
Cash Advances, July 2003 to October 2013 — 12 month rolling average
ATM Cash-out Value
EFTPOS Cash-out Value
Credit Card Cash Advance
Source: RBA, RFi
Although the value of EFTPOS cash out transactions has been rising, the increase has not
been sufficient to offset the decline in ATM withdrawals, hence overall cash withdrawals
have declined in absolute terms since the end of 2008.
Just as there has been a move from credit cards to debit cards in purchase transactions,
since 2008, the increase in the amount of cash accessed by EFTPOS cash out (debit) has
closely mirrored the reduction in cash advances taken on credit cards, as shown in the
chart below.
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Figure 4.15: Monthly Value of Cash Withdrawn via EFTPOS and Credit Card Cash
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Jul-2003
Nov-2003
Mar-2004
Jul-2004
Nov-2004
Mar-2005
Jul-2005
Nov-2005
Mar-2006
Jul-2006
Nov-2006
Mar-2007
Jul-2007
Nov-2007
Mar-2008
Jul-2008
Nov-2008
Mar-2009
Jul-2009
Nov-2009
Mar-2010
Jul-2010
Nov-2010
Mar-2011
Jul-2011
Nov-2011
Mar-2012
Jul-2012
Nov-2012
Mar-2013
Jul-2013
Total Cash-out Value (millions)
Advances, July 2003 to October 2013 — 12 month rolling average
EFTPOS Cash-out Value
Credit Card Cash Advance
Source: RBA, RFi
4.1. A highly carded population
Australia has a very highly carded population, where over 50 million payment cards
circulate amongst 23 million people (of whom 81% are over the age of 15 years old) and
everyone who qualifies for a credit card already owns (at least) one card. The prevalence
of annual fees on credit cards does limit the number of cards per person, the average
being about 1.3, unlike the card proliferation in for example the USA and Taiwan where
cards without annual fees are the norm. In addition, consumers have fully embraced
EFTPOS and Scheme debit cards.
Indeed, combined with an average debit card
penetration of close to two per person, each consumer over 15 has, on average, access to
about three cards by which they can make online and/or in-person purchases.
The high penetration of payment cards is shown in the consumer research results charted
below.
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Figure 4.16: Card Ownership by Type, Sept 2011 to Sept 2013
Credit cards still dominate on a total value basis (compared to Scheme and EFTPOS debit
cards) due to their higher average ticket size. On a transaction volume basis, however,
debit cards have surpassed credit products, and continue to widen the gap rapidly — as
shown in the chart below.
Figure 4.17: Australian Annual Transaction Volume by Type of Retail Payment 20022013
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Despite a recent slowdown in the growth of credit card activity, the long-term trend from
2003 shows an increase in both the average purchase activity per account, as well as the
average balance per account — as shown in the chart below.
Figure 4.18: Indexed credit card average per account spend versus average per
account balances
Although total payment activity in the economy is growing due to increases in the
population, GDP and CPI, this strong increase in debit and credit card usage means that
Australians are choosing to use their cards on more occasions, necessarily substituting
away from other payment mechanisms, including cash.
4.2. Australian contactless usage is the strongest in the world
Despite its lukewarm reception in other parts of the world, open-loop contactless
payments8 are proving to be a runaway success in Australia, where per capita use of the
product has been reported as the highest in the world.
On the consumer side, measures of contactless card ownership, awareness, activation,
and usage are all growing steadily, as shown in the market research results charted below.
8
Note: Use of closed-loop contactless cards, particularly associated with mass transit systems, have extremely
high usage levels in a number of overseas countries (e.g., the Octopus card in Hong Kong), which would exceed
current usage of open-loop contactless in Australia.
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Figure 4.19: Contactless Engagement, March 2013
Just as important, the acceptance side is also developing rapidly, with supermarkets,
petrol stations, convenience stores, and quick service restaurants leading the contactless
acceptance curve — as shown in the chart below.
Figure 4.20: Annual Number of Transactions, Contactless vs. Total (millions)
Indeed, Coles reports that over 70% of its MasterCard and Visa card transactions are now
contactless.
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This convergence of access to contactless payment cards and the ability to use them for
purchases, where speed and convenience are important, is resulting in a reduction in cash
usage as evidenced by a declining average card transaction value, and a decrease in
cash withdrawals from ATMs. As can be seen in the chart above, the average transaction
value (ATV) for personal credit cards has decreased from $145.18 in December 2010 to
$136.97 in December 2013, as the number of transactions jumped by 17 per year,
indicating that card payments are encroaching into low value payments that were
previously the domain of cash.
4.3. The potential for mobile payments to displace cash
The next expected development in electronic payments is in the area of mobile phones.
The proliferation of contactless acceptance devices (whether they be fixed line terminals at
merchants, wireless acceptance devices linked to a base station such as in restaurants, or
truly mobile devices such as in taxis) paves the way for NFC-based mobile payments from
a handset. In a recent survey of Australian consumers, it was found that over 20% of
Australian consumers said that they would be likely or very likely to use NFC payments, if
they were available – as shown in the chart below.
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Figure 4.21: Likelihood to adopt new Mobile Payment Methods, March 2013
The major banks in Australia are all trialling and/or rolling out mobile phone NFC
capability. In a number of overseas markets, the adoption of this form of payment has
really only been adopted by consumers once the mass transit eTicketing system has been
embedded within the mobile phone, thereby “training” consumers in a new behaviour of
tapping on and tapping off with their mobile (instead of a card); this has yet to occur in
Australia.
However, with the emergence of new payment methods, consumers are cognisant of
security concerns, which may ultimately limit adoption, at least in the near-term — as
shown in the chart below.
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Figure 4.22: Security Concerns for New Payment Types, March 2013
Probably as large an opportunity as consumers utilising mobile handsets to make
payments, is the ability of small/infrequent merchants to accept payments via a mobile
handset, e.g., mPOS devices. This is explored in more detail in Section 8 below.
The chart on the following page attempts to show the major flows of cash throughout the
Australian economy.
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Figure 4.23: Domestic and International Stores and Flows of Cash
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5. Summary Observations – Australian Consumers
As part of its Research and Advisory division, the RFi Group runs multiple surveys
annually to understand Australian consumers’ payment behaviours and attitudes toward
payments. Each year, we survey over 200,000 consumers and small businesses globally
through a variety of means, primarily on-line and over the phone. The aggregation of
these results gives us a strong indication of consumer sentiment regarding current and
emerging payment methods, as well as a view as to where the future might lie for
payments.
The primary consumer study used for the analysis in this Section is the RFi HP Australian
Payments Report, conducted most recently in September 2013. This is a twice-yearly
study, reaching over 2,000 respondents from across the country. The data presented
herein spans a two-year period from September 2011 to September 2013.
5.1. Results from the consumer survey
Overall, consumers indicated a move away from cash to electronic payments, particularly
to credit and debit cards. Micro- and low-value payments remain the domain of cash, but
the threshold for what constitutes a “low value” payment appears to be decreasing.
While cash remains strong as a payment type, with 70% of consumers saying they use it
regularly for payments, that percentage has decreased markedly down from almost 90% a
mere two years ago.
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Figure 5.1: Proportion of Usage by Payment Type, Sept 2011 to Sept 2013
Within those two years, we have seen the proliferation of contactless cards and
acceptance terminals, which has no doubt hastened the move to electronic payments
away from cash. On a transaction volume basis, consumers report a 28% reduction in the
number of cash transactions over the two-year period.
Figure 5.2: Average Number of Transactions by Payment Type in One Month, Sept
2011 to Sept 2013
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This reduction in cash spending comes as a result of two phenomena — spending less
overall, and shifting spending to other types of (electronic) payment. More spend online
(for purchases, services, and bill payments) has also increased the proportion of electronic
payments, as cash is not a viable form of payment to online merchants.
Figure 5.3: Proportion of Spend and Switching Behaviour, Sept 2011 to Sept 2013
For those substituting away from cash-based payments, upwards of 80% are shifting
payment volume to credit or debit cards. Again, this is partially due to scheme debit and
credit acceptance online, whereas EFTPOS currently suffers from a technological gap for
online payments.
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Figure 5.4: Proportion of Payment Methods Switched to, Sept 2011 to March 2013
The survey data confirms that consumers are embracing contactless technology for low
value payments. While the average proportion of payments made by contactless hovers
around 10% for almost every category of purchase presented below, the obvious outlier is
payments for low value items such as coffees, newspapers, and snacks, where the
percentage exceeds 20%, over double the average of other categories.
Figure 5.5: Proportion of Payment Method Authentication, Sept 2013
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In fact, 50% of consumers say they prefer (or strongly prefer) using contactless over cash
for small value transactions, while a stalwart 15% retain their penchant for cash. The
existence of this recalcitrant, cash-centric segment supports our hypothesis that cash will
never truly disappear from the Australian (or even global) economy — at least in the
foreseeable future.
Figure 5.6: Preference for contactless or cash, Sept 2013
Where cash does persist is in small value transactions. The preference for cash for lowvalue payments is likely due to a combination of merchant steering (including minimums
for card payments as high as $20), consumer perception of relative speed, and consumer
misperception that cards cannot (or should not) be used for very small transactions. We
believe, however, that as more and more merchants make contactless available for low
value transactions, we will continue to see a decrease in the average transaction size for
credit and debit cards.
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Figure 5.7: Attitudes toward cash usage, Sept 2011 to Sept 2013
However, despite the industry’s promotion of digital and on-line payments, most
consumers agree that there will always be a place for banknotes and coins. The day
when Australians forgo cash entirely is still unforeseeable, and indeed, may never occur at
all.
Figure 5.8: Proportion of respondents who believe that they will eventually stop
using cash for payments, Sept 2011 to Sept 2013
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6. Summary Observations – Australian Merchants/Small
Businesses
In addition to reviewing prior work in this sector, interviews were conducted specifically for
this assignment with the following organisations:
•
Transport for New South Wales
•
Woolworths
•
Coles
•
Australia Post
•
Boffa Hairdressing Salons
•
Australian Retailers Association
6.1. Large Retailers
Large retailers/merchants fully understand the costs associated with handling cash as a
method of payment, and would prefer to see its use displaced by forms of electronic
payment. Some have taken specific action to remove/reduce cash transactions from their
business, whereas others prefer to allow their customers to choose the payment method
(albeit sometimes making electronic payments easier, for example by adopting contactless
technology).
Transport for NSW
Transport for NSW commented that “It would be beneficial to remove cash everywhere in
transport in order to improve the on-time running of the system.” Hence the organisation
has taken specific action on the road system with eTags replacing cash tolls and on the
mass transit systems with the Opal card being rolled out, to begin replacing other forms of
payment (following on from a previous move to prepaid tickets which successfully speeded
up the bus system).
Both eTags and Opal are contactless prepaid systems, with a
direction/preference for users to establish “auto top up” direct from a card or bank account.
Transport for NSW has seen a rapid adoption of technology amongst its customer base,
with over 50% of RTA vehicle registrations now conducted via the internet, and the
downloading of “apps for transport” by over one million users within a matter of a few
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months. The hope is that the contactless Opal card will be adopted with similar speed and
success, although the 1.5 million users of public transport around Sydney are “a very
mixed group” — including a high proportion of single rail fare purchases, the purchasers of
which they believe will be the “longest cash group.”
The plan is to incent people to move onto Opal, and to permit anonymous cards with
remote (not auto) top-up.
Indeed the use of cash to top-up Opal cards will still be
permitted, with the Government increasing the number of cash machines to be installed
versus the original plan — wanting to avoid any inconvenience and minimise reasons not
to use the system.
The next horizon will be allowing the mass transit contactless touchpads to accept EMV
open-loop contactless cards, a move being seen in a number of other mass transit
systems around the world, including in London, UK. Although all of the hardware being
installed for Opal is open-loop capable, it is unlikely to “go live” until the original Opal
closed-loop card has been well embedded across the mass transit network.
Transport for NSW also believed that “cash in taxis is probably here to stay.” Partly
because of the surcharge levied on card payments, but also because it has historically
been a cash environment.
Australia Post
A major part of Australia Post’s handling of cash is associated with its agency activities
(i.e., transactions processed on behalf of other entities). Australia Post supports a variety
of payment methods and although they are increasingly enabling customers to utilise
payment cards to speed up transaction processing time and value realisation, e.g.,
through the installation of contactless touchpads, a number of their agency agreements do
not permit payment by credit card and cash remains a preferred method of payment for
many customers.
Approximately 50% of Australia Post’s over the counter transaction payments are made
with cash, but these only account for about 20% of the total value transacted. The data
provided by Australia Post (2008-2011) shows the number of cash transactions has been
falling but the average transaction value growing significantly (38% increase from 2008 –
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2011).
This trend has been relatively consistent over time.
About 15% of the cash
received by Australia Post goes out again in cash payments or disbursements, for
example through “Bank @ Post” withdrawals and Money Order redemptions.
Australia Post has observed some demographic consistency in the profile of customers
using cash as a payment method. It also anticipates a “generational change” in the use of
cash, however, there has been limited evidence of this as yet.
Australia Post has
indicated that, depending on contractual obligations, it will continue to accept most forms
of industry standard payment methods, including traditional payment methods such as
cheques and cash.
A significant attraction of cash is its anonymity. During a study that the RFi Consulting
team undertook for the NSW Office of State Revenue during 2012, we were surprised at
the large proportion of parking and speeding fines being paid in cash over the counter at
Australia Post outlets; anecdotally it was felt that (a) children did not want their parents and
(b) spouses did not want their partners knowing about these infringements and the costs
of the penalties.
Similarly, RFI would observe that consumers receiving cash as payment have a higher
tendency to use cash for their own physical payments. Australia Post provides one of the
only convenient channels for the payment of bills, etc. using cash.
Supermarket Chains
The two major chains are experiencing slightly different trends, but both agree that, from
the viewpoints of cost and security, a reduction in the number and value of cash
transactions would be beneficial. Further areas of commonality are:
•
Millions of dollars are spent each year on “cash transit,” both to and from stores;
some concern was raised about what will happen to the unit costs of these services
as the use of cash declines;
•
Some stores in particular locations have abnormally high usage of cash, 80+% of
transactions, which tends to be driven by the ethnicity/demographics of the local
population;
•
Cash transactions take the longest time to complete at the till;
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•
There is a cost and security risk to holding cash in store;
•
Cash will not disappear and cashless lanes are unlikely in the near future, except
perhaps at self check-out — many of the people choosing self check-out appear to
prefer to pay by card; there is also a substantial premium in both capital cost and
operating cost of a self check-out machine that accepts cash versus a card-only
machine
•
Neither company wishes to do anything that inconveniences their customers in any
way, so have been careful to avoid overt moves away from cash.
Recent experience in one of the major chains has shown:
•
Usage of cash in store has been declining year on year by absolute count of value
and transactions, especially since the introduction of contactless card payments;
this trend seems to be accelerating;
•
In terms of share, value is now about 70% card vs. 30% cash, and transaction
volumes about 50/50;
•
About 70% of card transaction value is now contactless, and accounts for an even
higher share of card transactions;
•
Self check-out usage has grown to be around 40% of activity even though it
accounts for a small proportion of lanes, with a bias to contactless card payment;
•
A small proportion of the self check-out terminals are card-only (no cash accepted);
•
Consistent surplus of 50 cent coins (which need moving to bank), and a deficit
(hence need to purchase) 10 and 20 cent coins
Recent experience in the other major chain has shown:
•
Strong growth in payment by debit cards is leading to the percentage of cash-out
debit transactions declining, but the absolute number of cash-outs is holding steady;
however the dollars per cash-out transaction are increasing, by about 10% over the
last two years — presumably driven to some extent by direct charging at ATM;
•
The number of cash transactions has not declined significantly, even since the
deployment of contactless;
•
A significant proportion of “baskets” are below $10 and most of these are paid for in
cash; a portion of this customer base includes “unbanked” children, who use cash;
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•
Coin usage within each store seems reasonably stable, so the main movement
in/out of stores is banknotes.
6.2. Small Retailers
Small retailers have very varied preferences and views on cash, encompassing the full
spectrum from those wanting to remove cash from their business to those who avoid
electronic payments (and not just for the potential tax benefits).
Regardless of their
disposition, the view is that cash will diminish over time as a proportion of payment activity,
with consumers wanting to carry less and less cash due to it being both “bulky” and “a risk”
(from robbery, loss, etc.) — the trend will accelerate as electronic payments become
easier, faster, ubiquitous, and 100% reliable (“must work every time to create confidence”).
The majority of small retailers, however, wish to take their customer’s money in whatever
manner the customer wishes to pay, as “making the sale” is the absolute top priority.
Those retailers preferring electronic payments appear to be driven by factors such as:
•
Eliminates pilferage of cash by the staff;
•
Customers want to pay this way;
•
Eliminates the need for going to the bank;
•
Easier accounting and reporting;
•
Reduces risk of robbery, counterfeits and other perils associated with cash.
These retailers indicate that they do not require minimums or put surcharges on card
payments, as they want to encourage customers to pay by card. Indeed, the merchant
service fees are seen as “not unreasonable” (but “could always be lower”) in relation to the
costs of cash. In two specific merchants, a shoe retailer and hairdressing group, cash
payments have been reduced to 13% and 4% respectively of total value — and both have
deployed contactless touchpads to further encourage card use by customers.
Those retailers preferring cash appear to be driven by factors such as:
•
Cost of accepting electronic payments seen as high;
•
Cost of accepting cash seen as “nil”;
•
Faster speed of transactions;
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•
Customers want to pay this way;
•
Avoidance of employment costs, such as penalty rates;
•
Avoidance of taxes.
The “avoidance” factors seem to be significantly more at play in the bar, restaurant and
café trade and amongst retailers of specific ethnic backgrounds. Many of these retailers
require minimums and put surcharges on card payments, as they want to encourage
customers to pay by cash.
In research conducted amongst merchants in December 2012, there was good recognition
of the potential benefits from the acceptance of contactless card transactions; as shown in
the chart below.
Figure 6.1: Realisation of Contactless Benefits, December 2012
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7. Summary Observations – Financial Institutions and Regulators
In addition to reviewing prior work in this sector, interviews were conducted specifically for
this assignment with the following organisations:
•
ANZ Bank (three separate areas covered in three interviews)
•
Commonwealth Bank of Australia (two separate areas covered in one interview)
•
EPAL
•
MasterCard
•
PayPal
•
Reserve Bank of Australia (RBA)
•
Royal Australian Mint (RAM)
•
Visa
7.1. Royal Australian Mint
The RAM has a coin consultative committee involving the four major banks, which has
been working on a coin supply chain model to better manage the physical distribution and
gain efficiencies, as clearly the weight and size of coins (more volume and weight for less
value, compared to banknotes) impacts physical movements. A revised supply chain has
been in operation for the last year or so, and seems to have stabilised; the key principle
has been “no risk of shortage.”
Four to five years ago the RAM was issuing about 500 million new pieces of coin into
circulation each year, this has now reduced to around 280 million new pieces of coin.
Internally this reduction in new issuance has been put down to improved efficiency rather
than reduced coin usage by the public, but there has been no specific research conducted
on this.
The total value of coins in circulation is believed to have declined by 10-15% over the last
five years due to efficiency improvements, and is now thought to have stabilised. Such
that today there are about six billion pieces of coin on issue (approximately 300 per person
in Australia), with estimates that 40% of these are hoarded (primarily lower denominations
held in “jam jars”) and 60% in active day-to-day circulation.
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In consumer research conducted by the RAM, 74% of respondents said that they used
coins for low value transactions. RAM management do not believe that the growth in cardbased payments (or other forms of electronic payment) has yet impacted the public’s use
of coins.
Three areas of interest to the RAM are:
1. Coin holdings with the banks
The bank holdings each day are driven by the level of “recirculation” in and out of the
banks via consumers and merchants. The banks are trying to reduce their coin
holdings through better management of the inventory. The banks incur a lower cost
if they can reprocess (and then re-issue) the coins, as this is much cheaper than
freight;
hence
the
banks
are
working
hard
on
reprocessing
their
coin
lodgements/deposits faster. There are geographic peculiarities, with Darwin and the
Gold Coast seeming to lose/”leak” coins and other specific parts of the country
generating surpluses; the banks have to manage the movements to balance these
changes. The RAM is just issuing new coins in order to fill the “leakage” (see item 2).
2. Underlying demand for coins
The underlying demand for new coins seems to be driven by change in usage (either
up or down), damaged/mutilated coins and “leakage.”
Damaged/mutilated coins
seem to run at about 0.01% of the stock, with the average life of an Australian coin
being about 35 years, and within that the life of 5 and 50 cent pieces being about 45
years (as these tend to be the denominations that are most hoarded, and thereby
kept out of circulation and in good condition). Leakage of coins (out of circulation in
Australia) occurs due to hoarding, overseas tourists leaving the country with coins,
and other events. For example, the RAM’s discussions with the Singapore Mint have
indicated a significant leakage of coins from Singapore due to tourist traffic, as it is a
major international hub.
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3. Behaviour of consumers in hoarding
With 2.4 billion coins held in “jam jars” (hoarded) by the Australian public, there is a
significant reservoir of coins that can be re-injected into (or taken out of) circulation
by changes in hoarding behaviour. The RAM reports that the Global Financial Crisis
saw a significant number of coins come back into the market, and thereby back into
circulation, as people tapped their coin “savings.”
In the reverse direction, and somewhat paradoxically, when eTags were introduced
across Sydney to replace what was primarily a coin-based transaction, there was a
shortage of coins as drivers increased their hoarding: that is, previously the coins
were circulating from the driver to the toll operator to the bank and (either directly or
indirectly) back to the driver; when eTags arrived, the drivers just held on to their
coins and did not immediately place them back into the banking system, causing a
shortage.
The introduction of self-service coin counters at banks and supermarkets has also
impacted hoarding, making it easier and more convenient for people to “cash in” their
coin savings.
There is a seasonality to coin usage in Australia, with summer being the high usage period
(with additional coins distributed in October-November each year). Anecdotally this is
driven by children on school holidays, sales of ice creams and soft drinks, events, and
increased domestic and international tourism.
The coins flow back into the banking
system in February, with the “low season” then continuing through to June.
Of importance for this report, the RAM does not “repatriate” (accept back) coins, with the
exception of damaged/mutilated pieces.
change this.
It would require a specific policy decision to
Our forecast of cash displacement through to 2018, with the specific
targeting of low value payments by mass transit eTicketing, the cardification of parking
meters and the growth of contactless and mobile payments, would indicate that the major
banks may see a build up of coin inventory over the next five years. During this period, the
banks will probably need to request a policy review of repatriation by the RAM, and the
Treasury will need to consider the impact on seigniorage (as the RAM currently books all
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seigniorage as profit to its P&L statement, on the basis that coins issued will never be
returned).
It should be noted that Hong Kong is reportedly the only jurisdiction that has needed to
recall coins back into the Mint for re-melting. This was due to the great success of the
Octopus prepaid card (originally just mass transit, but then expanding into mainstream
retail) in being used for low value, particularly coin-based, transactions. We anticipate that
Australia may be heading for a similar set of circumstances.
7.2. Reserve Bank of Australia
The RBA agrees with many of the market and forecast observations/predictions that we
discuss in the future of cash section (Section 8) later in this report, including:
•
Transactional demand for currency/cash may well decline in absolute terms, but its
function as a store of value may keep “cash on issue” higher than one might expect;
at a transactional level, the RBA sees cash as attractive for consumers in P2P
transactions (hopefully to be addressed electronically by the New Payments
Platform) and for its speed (although contactless cards are challenging this);
•
Merchants appear to be removing minimums on card transactions, which may
further displace cash through increased card usage;
•
Online shopping, self check-out, unattended terminals, etc. are all expanding the
use of electronic forms of payment and leading to the displacement of cash;
•
Mobile acceptance of cards (e.g., mPOS) is likely to grow in the future;
•
The cost of upgrading cash receiving vending machines to receive the planned new
series of banknotes9 (see next page) may lead them to cutting out cash
acceptance, and moving to acceptance of only electronic payments;
•
The anonymity of cash is a major attraction, particularly in the black economy and in
criminal/illicit activities;
9
Note: A new set of designs for Australia’s banknotes are to be released into circulation in the near future.
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RBA Bulletin (March 2014): The Next Generation Banknote (NGB) Project
Mindful of the increasing threat posed by counterfeiters – particularly to banknotes
printed on polymer – the Bank has for a number of years been undertaking research into
new anti-counterfeiting technologies. This work was formalised in the NGB project that
was established in 2007, publicly announced in 2012 and will culminate in a new, more
secure banknote series being introduced in coming years.
There are many aspects to the NGB project that make it an undertaking of considerable
complexity. In addition to production and design, a number of key stakeholders have had
to be engaged and there are significant logistical issues that need to be addressed.
Banknote production and design
The production of the current banknotes involves many complex processes and the
application of multiple layers of inks and security features. The NGB project brings
further complexity to the production cycle with the addition of new security features and
changes in design.
To determine which security features would be appropriate for the next generation of
Australian banknotes, over 200 features were assessed based on the criteria of
resilience to counterfeiting, functionality, durability, production-readiness and cost of
production. Further, to take full advantage of the opportunities that polymer substrate
offers, the new banknotes will incorporate state-of-the-art security printing technologies
as well as multiple windows with designs that are significantly more complex than those
on the current series. The new banknotes will also feature up-to-date intaglio and offset
printing techniques, which will achieve greater fidelity in the print quality.
As part of the design process, the Bank is consulting with designers, artists and
historians to ensure that the new banknotes reflect Australia’s cultural identity while
remaining functional and recognisable. Accordingly, a decision was made to retain many
of the salient characteristics of the current series including the people portrayed on the
banknotes, size, general colour palette and denominational structure. An important driver
in this decision was the Bank’s continued commitment to assist the vision-impaired
community, who rely on the size differentials, the distinct colours of our banknotes and
the bold numerals to distinguish between different denominations.
The Bank was also conscious of the multitude of machines that accept banknotes and
the benefits to manufacturers and users of these machines of retaining the size and
denominational structure. In the process of finalising the design, the Bank is conducting
rigorous production trials with its banknote printer, Note Printing Australia.
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•
Cash is unlikely to disappear, but there may be a generational change (reduction) in
the level of use.
The amount of cash on issue continues to increase at a rate of around 6% per year, with
most of the additional value being in $50 (the ATM “note of choice”) and $100
denominations, and minor increases in $5, $10 and $20 banknotes. The demand for $100
banknotes showed a sharp increase during the GFC and seems to spike every time the
value of the Australian dollar falls on Foreign Exchange markets. The RBA is aware that
the banks and foreign exchange operators, e.g., American Express, are shipping
banknotes to overseas locations, but the quantum is not clear.
The amount of hoarding of banknotes by consumers in Australia was highlighted during
the Victorian bushfire disaster, when significant quantities of burnt banknotes (most in neat
bundles) were returned to the RBA for replacement — with replacement effected as long
as it was clear that the burnt item was formerly a legitimate banknote. Indeed, cash usage
in disaster areas does appear to be an important issue, as cyclones, flooding and
bushfires can disrupt the equipment and communications systems used for/by electronic
payments and people revert to paying by cash.
Unlike the RAM, the RBA treats seigniorage as a Balance Sheet (rather than P&L) item
and states that seigniorage does not enter its thinking when considering banknote supply
— which is driven purely by the demands of the commercial banks. Further, the RBA has
two “windows” each year when the commercial banks are free to return any surplus, fit
banknotes — such that there is a mechanism for the value of banknotes on issue to
decline, if cash usage reduced to levels that generated a surplus.
The RBA has no particular preference for cash usage to rise or fall, but does want greater
efficiency in the payments system. To this end, it is happy for people to make their own
choices on payment methods and for the market to decide.
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7.3. Payment Card Schemes
It is obviously in the interests of all payment card Schemes (domestic & international,
closed loop & open loop) to see cash transactions displaced by card transactions, and this
has in fact been the long-term trend. Indeed, the authorities in a number of countries have
encouraged the move to card payments for, amongst other things, reasons of efficiency
and traceability.
Historically, low value transactions have, however, been the domain of cash, but the rapid
adoption of contactless card payments in Australia has seen this key bastion of cash come
under severe attack. Vipin Kalra, Australian Country Manager for Visa projected that “Just
as our children under 30 today do not understand how to write a cheque, maybe our
grandchildren or great grandchildren won’t understand why their aged grandparents
needed wallets to hold cash.”
Comments from the Schemes on cash activity include:
•
Cash has been declining in relation to all forms of electronic payment for five years
or more, driven by:
o The proliferation and adoption of electronic forms of payment;
o ATM direct charging;
o Introduction of contactless card payments, eTags, eTicketing, etc.;
o Growth in online sales.
•
All new POS terminals will be contactless enabled, such that in about five years’
time all retail outlets will be covered;
•
Cash is a high cost payment system, but the cost is not suffered by the people who
use it;
•
The black economy and criminal activities will continue to use cash, and significant
Government intervention will be needed to impact this; if these become the only
sectors using cash, then they will stand out and be easily identified for law
enforcement;
•
Merchants’ use of “minimums” on card transactions seem to be reducing in both
frequency and quantum;
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•
A segment of incoming travellers from overseas are still likely to rely on cash, as
they may not come from countries with the same level of development in
banking/card systems as in Australia;
•
Future developments, such as the New Payments Platform, mobile NFC and
contactless EFTPOS cards, are likely to further displace cash;
•
The average size of a payment card transaction is dropping:
o Debit seems to be dropping faster than credit;
o One Scheme noted that transactions under $15 were growing at four times
the average growth rate.
The Schemes understand the advantages and disadvantages of cash, and use these
when positioning their products:
Table 7.1: Disadvantages and Advantages of Cash
Disadvantages of Cash
Bulky
Unhygienic
You have to go and get it
Unsafe to carry in large
quantity
Not always fast and convenient
Can’t track where or what
you’ve spent
Advantages of Cash
Control (budgetary: only spend
what you have)
Certainty of acceptance
No transaction failure
Easy distribution (e.g., easy to
pay staff)
Instant transfer of value
Not traceable
The Schemes would like to see the Government play a bigger role in the displacement of
non-electronic forms of payments, e.g., the tax on cheques in Ireland; tax deduction
capability of card payments in Korea; expansion of the Basics card and use of reverse
EFTPOS for medical payments.
The Schemes talk of “a world beyond cash” and see a secular change to all forms of
electronic payments, which, together with the launch of new payment methods, will see a
significant reduction in cash usage over the next few years.
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7.4. Financial Institutions
The major banks were surprised by the decline in ATM withdrawals in 2012 (and ongoing),
and by its severity. The onset of the decline appears to have been obfuscated by the
impacts of direct charging, gaming legislation and other factors; hence the great success
of contactless cards (driven by the issuing and acquiring divisions and the Schemes) in
displacing cash transactions appears to have crept up on the ATM divisions, with
unexpected consequences.
There is a feeling that the launch of contactless EFTPOS could lead to another wave of
cash displacement as big as seen with Visa payWave and MasterCard PayPass, as
consumers view EFTPOS as more interchangeable with cash (i.e., “their own money”).
Some see this as potentially leading to a further 10% decline in ATM withdrawals.
Given the decline in ATM withdrawals, but at the same time the need for re-investment in
the fleet both for EMV compliance and the provision of multi-functional capability, it would
appear that both a reduction in the number of ATMs deployed in Australia and a
rationalisation of the players in the ATM market are likely to occur.
Cash is seen as holding more sway with:
•
Saving for a rainy day (hoarding);
•
The “older generation” (as well as being habitual cash users, many have concerns
about the security of electronic payments);
•
Certain cultures/ethnic groups;
•
Café’s and small traders — with many of these still retaining “minimums” on card
transactions — continue to “sow the seed of doubt” in the minds of consumers that
they can survive without cash in their pocket;
•
Rural and resort towns, where there are a large number of “cash only” shops;
•
Pensioners moving assets into cash (an untraceable asset) in order to meet various
“means testing” regimes;
•
The black economy;
•
Illicit/illegal activities.
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In addition to domestic hoarding of cash by some consumers, there were thoughts that
significant holdings of Australian dollars may reside in Hong Kong, Toronto, London, and
elsewhere.
Clearly, the growth in the use of debit and credit cards, and the expanding points of card
acceptance in Australia have been significant over the last 10 years. More recently the
average ticket size of card transactions has been declining and the proportion of
transactions under $50 has been growing strongly, driven in the last 18 months by the
rapid adoption of contactless transactions.
The launch and adoption of contactless
EFTPOS and mobile NFC are likely to see a further acceleration in the displacement of
low value cash transactions.
The mobile payment arena is currently nascent, but may well be boosted by services like
V.me, MasterPass and PayPal’s mobile wallet. The further adoption of digital, mobile,
online, etc. all cuts into cash usage.
PayPal’s research indicates that consumers do in fact worry about carrying a large amount
of cash on them, and have tended to cut down on their holdings. But carrying less cash
on your person tends to lead to using less cash and paying more using electronic methods
— further leading to less need for cash.
The feeling amongst the banks is that repatriation of coin to the RAM will be needed, as
“there already appears to be enough coin in the banking system to last 18 months.” This
situation will only be exacerbated as coin-based transactions are displaced by eTicketing
(e.g., the roll out of the Opal card in Sydney), the cardification of unattended terminals and
parking meters, the growth in low value contactless card transactions, etc.
The Financial Institutions felt that the Government could do more to assist in the
displacement of cash in the economy10; not only in attacking the black economy, but also
in educating the public about the lower cost of electronic payments and moving to stop
using cash (both receiving and paying) itself.
10
The Government leading by example in the displacement of paper-based payments was one of the
recommendations of the DCITA Report in 2006.
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7.5. APCA survey of Financial Institutions
In parallel with our work on this study, APCA undertook a survey of a number of its
member Financial Institutions regarding their cash activities. Although the survey findings
are being reported separately, we felt that the inclusion of some of the data in this
document may be beneficial.
Hence the following charts provide some graphical
representations of the survey findings.
The annual value of notes purchased by the survey respondents has fallen by 3% each
year between 2010-2011 and 2012-2013, as shown below.
Figure 7.2: Total Value of Notes Purchased (Annually)
There is a seasonality to the banknotes purchased in by the Financial Institutions, with
peaks around Christmas and Easter. The chart below shows that, for the most part, each
successive year is showing a reduced purchase of banknotes in the same month.
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Figure 7.3: Total Value of Notes Purchased (Monthly)
Despite purchasing less cash than in previous years, the value of cash held at the
branches of the survey respondents appears to have increased between 2010-2011 and
2012-2013, as shown below.
Figure 7.4: Total Branch Cash Holdings (Annually)
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Again there is a seasonality to the branch cash holdings of the Financial Institutions, with
peaks around Christmas and Easter. The chart below shows that, for the most part and
counter to the trend in banknote purchases, 2012-2013 is showing an increased branch
holding of cash in the same month.
Figure 7.5: Total Branch Cash Holdings (Monthly)
ATM cash holdings show a similar pattern to branch cash holdings: such that, despite ATM
withdrawals (as discussed in Section 4 above) and banknote purchases declining each
year, the cash holdings at ATMs rose between 2010-2011 and 2012-2013.
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Figure 7.6: Average ATM Cash Holdings (Annually)
This growth in cash holdings at ATM is more exacerbated if reviewed on a monthly basis,
with levels in January-June 2013 rising by over 10% from the prior two years.
This
appears to have been caused by replenishments being held constant, whilst withdrawals
dropped away.
Figure 7.7: Average ATM Cash Holdings (Monthly)
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Figure 7.8: ATM Replenishments (Monthly)
7.6. Overall
There was overall agreement amongst industry respondents that cash usage in Australia
is likely to undergo an “S-bend” shaped reduction in both transaction volumes and total
value. The key questions being how deep is the reduction and over what time period?
Following this “one time step change” in cash usage, it was felt that there would be
ongoing cash displacement, but at a slower rate as the “harder to attack” areas of cash
usage (older generation, ethnic groups, black economy and illicit activities) would remain
resistant to electronic payments.
There were some thoughts about a “snowball effect”: if cash withdrawals at ATM decline,
then the ATM fleet is likely to rationalise and reduce in number, making consumers’
access to cash more difficult, so that consumers become more reliant on other forms of
payment; as consumers see that they can easily live day-to-day with a lower amount of
cash, as acceptance of electronic payments becomes more widespread (even at the
lowest values of transaction), then they access even less cash causing cash withdrawals
at ATM decline further; and so it goes on.
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8. The Future of Cash
Human behaviour tends to dictate that payments are habit forming 11. Indeed research
indicates that most people are “locked in” to their payments behaviour by the age of 30,
such that they tend to use a specific method for a particular payment and use that same
method for each occasion on which that payment occurs. This tends to be because it is
easy to repeat what was successful previously, almost on “auto-pilot,” rather than to have
to think about a new way of doing something — this goes for many things in life, with
payments being just one of them.
Therefore to “change the way we pay” takes both a long time (with limited changes
occurring year on year) and a much stronger value proposition to the consumer (in order to
break “the habit”).
This is seen in the chart below, where substantial changes have
occurred in Australia’s use of payment methods — but only over a 12 year period.
Figure 8.1: Australian Annual Transaction Volume by Type of Retail Payment 20022013
11
See Appendix for further information on habits.
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The extremely rapid adoption of contactless card payments by Australians in 2012-2013
has been an outstanding exception to the normally slow rate of change in payment
behaviour, with Coles Supermarkets quoting that 70% of all Visa and MasterCard card
transactions in their stores had changed to contactless within less than 18 months of the
technology being introduced at the cash registers.
As noted in the DCITA Report, the “6 C’s” influence the choice of payment instrument by
consumers:
Capability
the functional ability to actually undertake a payment
Convenience
the ease of use of a payment method
Coverage
how widely a payment method or system is accepted by merchants and
other recipients of payments
Confidence
the users’ belief that a payment will be successfully executed and
completed
Confidentiality concerns about the creation and release of information about the payer
Cost
the cost to the payer and recipient of using the product
Clearly Australian consumers saw a strong value proposition in contactless card
payments, possibly around “Convenience,” and felt that it passed muster on the other
factors. The adoption of contactless payments is pushing down the average transaction
value (ATV) in credit cards, due to its use in lower value transactions, as shown in the
chart below.
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Figure 8.2: Annual Number of Transactions, Contactless vs. Total (millions)
Indeed, mathematically, the additional 6.56 transactions per account between December
2012 and 2013 must have been at an average of $60.49 each, less than half the average
ATV seen in December 2012.
Back in 2005, when consumer research was undertaken for the DCITA Report, cash
outscored all other payment methods on the six C’s. Since that time, however, it appears
that other forms of payment have improved their rankings on these factors, and cash
usage is now being displaced.
In addition to the continued adoption of card payments, including contactless open-loop
cards, a myriad of factors are attacking cash, including:
•
The removal of toll booths on roads/tunnels/bridges and the growth in eTags;
•
The cardification of parking meters & unattended terminals/kiosks;
•
The introduction of mass transit eTicketing (albeit different systems in different
Australian cities);
•
The growth in online shopping (where cash cannot be used);
•
The introduction of mobile payments, both for payers and recipients (e.g., mPOS).
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In the DCITA Report of 2006, it was noted that a reduction in higher value cash
transactions would be beneficial to the Australian economy, as cash payments were
responsible for over half the estimated cost of making payments (approximately $7.4
billion out of a total of $13.5 billion, as in Table 8.3) and were the lowest cost method of
payment only for payments under about $10 (see Table 8.4).
Table 8.3
Economy-wide costs for different payment types (2005)
Settlement
type
Payment
method
Estimated
total cost
per year
($millions)
Delayed
notification of
guaranteed
funds
Direct credits
350 – 400
0.45–0.50
0.01–0.02
Direct debits
150 – 200
0.40–0.55
0.01–0.02
Cheques
850 – 900
1.60–1.75
0.05–0.08
Real-time
notification of
guaranteed
funds
Debit cards
650 – 700
0.60–0.65
1.00–1.10
Charge cards
900 – 950
5.65–6.00
3.00–3.20
Credit cards
3100–3200
2.65–2.75
2.00–2.10
Cash payment
7300–7500
0.70–0.80
3.60–4.00
Total
Approximate
cost per
transaction
($)
Indicative cost
per $ value
transferred
(%)
13 300–13 850
Source: DCITA Report 6
Table 8.4
Economy-wide cost of payments: ranking of payment methods by
transaction size (2005)
Size of transaction
$5
$20
$60
$100
1. Lowest transaction cost
Cash
Direct entry
Direct entry
Direct entry
2.
Direct entry
Debit card
Debit card
Debit card
3.
Debit card
Cash
Cheque
Cheque
Cheque
Credit card
Credit card
Credit card
Cash
Cash
12
4.
Credit card
5. Highest transaction cost
Cheque
13
Source: DCITA Report 6
12
Refers to proprietary bank EFTPOS debit card, not scheme based debit card.
13
Subject to specific merchant arrangements and acceptance at this low transaction amount.
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Hence the relative reduction in cash usage in favour of the growth of electronic payments
that has occurred over the last 8 years should have been beneficial in reducing the
average cost of payments across Australia.
We have built a model of all payment transactions in the Australian economy 14, and the
chart below provides our estimates/forecasts of payment transaction volumes and values
by various methods in Australia from 2005 (DCITA data) to today (2013) and over the next
five years.
Figure 8.3: Total payment transaction volume and value by method in Australia
The chart shows that as the total number of payment transactions in the Australian
economy has grown, cash’s share of total payment transactions has declined from 73% in
2005 to 59% in 2013 — a loss of just under 2% of “market share” per year. We are
forecasting this rate of share decline to accelerate over the next few years, with cash’s
share of total payment transactions going from 59% in 2013 to 43% in 2018 — a loss of
14
Including changes in average transaction values and transaction volumes, hence transaction value, each year
across the different methods of payment.
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just over 3% of “market share” per year. It should be pointed out that, although cash has
been the dominant method of payment in the Australian economy in terms of the number
of transactions, cash has always accounted for a very small percentage (~1%) of the value
of payments — as the vast majority of cash transactions are of low value, with our model
using an average transaction value of $16.
As discussed in prior sections, we foresee cash usage undergoing an S-bend decline in
both value and volume of transactions over the next five years.
The acceleration in the displacement of cash is faster when looked at in actual transaction
numbers:
Table 8.4: Number of Cash Transactions by Year
Year
Number of Cash
Transactions (m)
2005
12,329
2013
11,700
5% decline over
eight years
2018
9,368
20% decline over
five years
% Change
This decline in cash transactions and growth in various forms of electronic payments is
shown in the chart below, where a very gradual reduction in the number of cash
transactions can be seen from 2005 to 2013 and a more rapid decline thereafter
(reflecting the forecasted S-bend effect).
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Figure 8.5: Annual transaction volume by payment method, in Millions
The following chart shows the same year by year data, but on a percentage basis in
relation to the total number of payment transactions. The displacement of cash (and
cheques) by electronic forms of payment is quite clear.
Figure 8.6: Percentage of payment transactions by payment method 2005-2018
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On the basis that cash could have held its same 2013 percentage of transactions through
to 2018, our forecast indicates that $56,551 million in “potential” cash transactions will be
displaced by electronic forms of payment between 2013 and 2018.
Our model has
forecast that this cash displacement will be comprised as shown in the charts below.
Figure 8.7: Cumulative Cash Displacement Breakdown (by Dollars), 2014-2018
Figure 8.8: Cumulative Cash Displacement Breakdown (by Percentage), 2014-2018
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We forecast that the majority (68%) of cash displacement through to 2018 will occur due to
card-based payments, encompassing:
•
A continuation of the general migration of cash to cards, which has been occurring
for many years;
•
The growth in contactless card transactions, both EFTPOS and Scheme, with
further deployment of contactless terminals amongst the merchant base and
continued growth use by Australian cardholders, who appear to have a strong
affinity to the convenience and speed offered by this form of payment; EFTPOS has
indicated that its issuers should be launching contactless chip cards before the end
of 2014;
•
The introduction of mPOS devices, which will allow small/infrequent merchants to
accept card payments instead of cash.
Implicit in the charts are the timelines for new activities displacing cash, each of which is
then expected to go through a period of growth; as follows:
Year
Status
2014 The start of the issuance and use of contactless EFTPOS and the
deployment of mPOS devices
2015 The real beginning of mobile phones usage for payments, including a
step change in usage when the New Payments Platform comes into
use in 2017
2016 The full deployment and adoption of eTicketing, such that little further
displacement of cash occurs from this system thereafter
2017 The introduction of the New Payments Platform, covering both
mobile (as above) and non-mobile payments
The mPOS displacement of cash is based on the experience of Square in the USA, which
has been that most of their mPOS devices have been adopted by merchants who have
never previously accepted card payments (primarily using cash), including market stall
holders, hobbyists, tradesmen, etc.
We are predicting about 200,000 mPOS will be
deployed in the Australian market over the next 6 years or so, bringing the total number of
POS card terminals in the market to more than 1 million.
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mPOS seems to be a significant area of growth, where the mobile payments
business model is more straightforward
•
•
•
Square claims to have 4.2 million merchant accounts in the USA
- 3.5 million of these did not previously accept card payments
Visa estimates 38 million mPOS locations will be in place by 2017
- almost doubling the number of Visa acceptance locations (although some
will cannibalise existing fixed line locations)
- by comparison, mPOS locations in 2011 were 4.5m, in 2012 went to 9.5m
Starbucks are already accepting over 60 million mPOS payments per year
Australia is one of the global leaders in the adoption of non-cash payments, as noted by a
recent newspaper article in Australian Banking & Finance. 15
We expect Australian
consumers will continue to be at the forefront of usage and adoption of non-cash
payments, as Australians are historically more rapid adopters of new technology and seem
very comfortable in using electronic payments.
There has been a lot of press about Bitcoin in recent times and the anonymity that it
provides to electronic payments, thereby matching a key feature of cash.
However,
Bitcoin could be the Napster of money and burn out spectacularly in layers of lawyers and
lawsuits; but, just as Napster normalised “peer to peer” for music content, so Bitcoin could
be the sacrificial harbinger for new ways of doing things.
In the short term, Bitcoin, as an unregulated eCurrency, is going to come up against
significant hostility from Central Banks, with the Indian and Chinese Governments already
taking a position to shut down Bitcoin activity. 16
15
“Australia leads in non-cash payments,” Australian Banking and Finance; 17 September 2013;
http://www.australianbankingfinance.com/banking/australia-leads-in-non-cash-payments/
16
Is bitcoin anything more than a passing fad?” The Sydney Morning Herald; 26 November 2013;
http://www.smh.com.au/business/world-business/is-bitcoin-more-than-a-passing-fad-20131126-2y79p.html
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Mobile and online payments will also be facilitated by the current deployment of payment
buttons and/or eWallets. The PayPal payment button on check-out screens of online
merchants will soon be joined by buttons from Visa (V.me) and MasterCard (MasterPass),
which will aim to both address the security concerns of some consumers about entering
their card number onto a website and improve the speed of check-out process. As noted
above at the beginning of this chapter, payments are “habit forming” and those habits take
time to break/change (especially for people over about 30 years old) - hence the adoption
of new payment methods tends to take a reasonable length of time, with the adoption of
contactless card payments in Australia being the outstanding exception. Nonetheless, the
media tends to pick up on the technology hype and promulgates the belief that change is
rapid, as with the article in the following vignette, which predicts “Wallets could be obsolete
by 2021 as mobile payments take over”.
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“Wallets could be obsolete by 2021 as mobile payments take over”
By SmartCompany, March 2014
Mobile payment technology could swipe out the use of traditional wallets in eight years, a
Commonwealth Bank of Australia survey finds. After surveying 1024 Australians the bank
forecasts that paying with cash or cards could give way to mobile phones by 2021, according
to a report in the Australian Financial Review. CBA executive general manager of cards,
payments, analytics and retail strategy, Angus Sullivan, told the AFR he thinks a digital or ewallet will become an important part in people’s lives. “We’re reaching almost to the point of
ubiquity around smartphones so I think that’s one big driver,” he said. “You’re also seeing
more convergence around technology solutions – the wide scale rollout of contactless
terminals in Australia has been a really big tipping point.”
The AFR reports that mobile phone payments are growing by around 58.5% a year.
Kounta founder and CEO Nick Cloete says he thinks the prediction of 2021 is too cautious and
that change will likely happen much sooner. “I most definitely agree with the findings but I’d
bring that date forward,” he told SmartCompany. “Most countries like Australia now have such
a high mobile phone penetration. Because the future of technology is moving so fast,
consumers are demanding that they want to do everything on their phone.” Cloete says with
the payment technology his business creates, many businesses are already using it to offer
mobile phone payment to customers, but a challenge is building customer awareness in order
to increase uptake. He explains that a typical mobile payment works with a customer logging
into a payment App on their phone, choosing the business they are in, and allowing it to
connect to the retailer’s computer system. “The future of retail online and the future of online is
mobile,” he says.
However, while Cloete and the CBA are confident about consumer uptake, late last year
Reserve Bank of Australia governor Glenn Stevens told an APCA conference that elements of
Australia’s payments infrastructure are “a bit dated”. “It is very clear that both individuals and
businesses are demanding greater immediacy and greater accessibility in all facets of their
day-to-day activities,” Stevens said. “This includes payments.”
The results of Accenture’s Consumer Mobile Payments survey from 2013 found that many
consumers know that mobile payments are an option, but still do not make them. Once
consumers had made a mobile payment, they were much more likely to become converts.
Incentives from retailers or businesses also helped take-up rates. Accenture found 60% of
consumers who already make mobile payments said they would probably do so more often if
they received instant coupons as a result. It also found that 36% said they would hand over
personal information in exchange for such rewards, while 46% of users indicated that they
would increase payments if offered short-term location-based coupons. Security concerns
were found to hold back consumers from taking up mobile phone payments more rapidly.
“While the industry is pre-occupied with the technology roll out, consumers are much more
concerned about the security, privacy, convenience and value of using their phones to make
payments,” Accenture reported.
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8.1. The “Cash Conundrum”
The cash conundrum in Australia is that, just as the amount of cash being used in
everyday transactions is going down, the amount of cash (coins and banknotes) on issue
is increasing.
The following tables provide the value and number of the different
denominations of banknotes on issue as at June 30 for each of the last 10 years, as
published by the RBA.
Table 8.9: Banknotes on Issue in Australia ($millions)
At end June
$5
$10
$20
$50
$100
Total
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
533
539
572
591
614
644
673
731
737
768
791
837
857
894
917
954
983
1,010
1,059
1,090
2,533
2,584
2,690
2,846
2,732
2,651
2,653
2,796
2,980
3,089
15,941
16,740
18,044
19,228
20,111
23,721
23,711
24,288
25,663
26,987
14,224
14,924
15,903
16,730
17,690
20,117
20,740
21,234
23,156
25,009
34,022
35,624
38,066
40,289
42,064
48,087
48,760
50,059
53,595
56,943
Table 8.10: Banknotes on Issue in Australia (# millions)
As at 30 June
$5
$10
$20
$50
$100
Total
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
106.6
107.8
114.4
118.2
122.8
128.8
134.6
146.2
147.4
153.6
79.1
83.7
85.7
89.4
91.7
95.4
98.3
101.0
105.9
109.0
126.7
129.2
134.5
142.3
136.6
132.6
132.7
139.8
149.0
154.5
318.8
334.8
360.9
384.6
402.2
474.4
474.2
485.8
513.3
539.7
142.2
149.2
159.0
167.3
176.9
201.2
207.4
212.3
231.6
250.1
773.4
804.7
854.5
901.8
930.2
1,032.3
1,047.2
1,085.1
1,147.1
1,206.9
Hence as at 30 June 2013, there were 1.2 billion Australian banknotes on issue with a
total face value of $56.9 billion. The $50 and $100 banknote denominations together
accounted for 69% of the number of notes on issue and 91% of their value. The value of
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banknotes on issue increased by 6.2% from 2012 to 2013, significantly faster than
Australia’s rate of economic growth, and at the same time as ATM cash withdrawals were
in decline.
Banknotes issued by the Reserve Bank of Australia comprise the vast majority of cash on
issue in Australia, with coins issued by the Royal Australian Mint making up less than 5%
of the total value of cash issued. However, coins are much more numerous. Compared to
the 1.2 billion Australian banknotes on issue, there are estimated to be six billion pieces of
coin in the market — or about 300 pieces per head of Australian population. Of the total
number of coins, about 40% are estimated to be “hoarded,” both for numismatic purposes
(very small numbers) and for “jam jar savings,” 17 and about 60% in actual circulation.
Figure 8.11: Value of Cash on Issue (A$ millions)
There was a significant jump in the value of banknotes on issue during 2008 (see chart on
growth rates, below), believed to be in response to the Global Financial Crisis (GFC) and
the desire to ensure that any wavering of confidence in the Australian financial system
17
Primarily 5 and 50 cent pieces.
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would be met with an ability for consumers to readily access cash — as any lack of access
to “cash out” would immediately undermine confidence. However, even removing the
2008 aberration, it is clear that the value of Australian coins and banknotes on issue per
person has grown in recent years well beyond changes in both the Consumer Price Index
and Gross Domestic Product.
Figure 8.12: Growth in Cash On Issue vs. CPI and GDP
Source: RBA and BIS statistics; 2013 Coins on issue projected
When viewed on a per capita basis for the Australian population of all ages, the number of
banknotes on issue seems significantly higher than would be expected from “everyday
experience.”
For example, for each man, woman and child there are eleven $100
denomination banknotes on issue, whereas the majority of the public do not use or hold
this denomination (and very few ATMs dispense it); further, for each man, woman and
child there are almost $2,500 of banknotes on issue, whereas the majority of the public
only hold a few hundred dollars of banknotes.
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Table 8.13: Banknotes on Issue in Australia
June 2013
Banknotes on Issue ($million)
Percentage breakdown by value
$5
$10
$20
$50
$100
Total
$768
$1,090
$3,089
$26,987
$25,009
$56,943
1%
2%
5%
47%
44%
100%
Number of Notes on Issue (#million)
154
109
154
540
250
1,147
Percentage breakdown by number
13%
10%
13%
47%
22%
100%
6.7
4.7
6.7
23.4
10.9
Number of notes per person
$ value of all notes per person
52.4
$2,473
In fact, a recent RFi study indicates that approximately 90% of consumers keep little to no
emergency cash stored at home.
Figure 8.14: Proportion of Consumers who keep emergency cash at home, Sept
2013
So there is the conundrum of large amounts of cash on issue and an apparent reduction of
cash in everyday payment transactions. There are of course some activities that might
account for this paradox; these would include:
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•
Foreign exchange speculation (in cash);
•
Gambling;
•
The black economy (tax avoidance);
•
Illicit activities: drugs, guns, etc.;
•
Domestic hoarding;
•
Offshore hoarding.
The following section attempts to quantify the cash funds involved in these areas.
Where’s The Money?
If there is around $60 billion of Australian cash on issue, where is it located? It was clear
in our series of industry interviews that this question had occurred to many people, but that
nobody had the answer. We have attempted in the following chart to estimate where the
issued Australian cash is being held, but put this forward more as an “educated guess.”
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Figure 8.15: Cash Inventory Location
Our breakdown of the cash inventory has been based on the following estimates and
hypotheses –
•
The value of cash held by Australian banks at their branches and ATMs has been
estimated based on APCA survey data of its members, and the total held in the
banking system from the RBA 18. The survey of 29 institutions indicates that on
average, they held $1.4 billion in cash every month across their branches and $1
billion in ATMs. Taking into account the additional financial institutions and ATM
operators not surveyed, and information gained in our interviews, we concluded that
18
RBA Research Discussion Paper entitled “Currency Demand during the Global Financial Crisis: Evidence from
Australia”, January 2013, which quotes the currency holdings of the bank sector at 30 June 2012 as $5.9 billion.
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the value of cash held by all Australian bank branches and ATMs to be $1.8 billion
and $2.0 billion respectively. We estimate a further $2.2 billion to be held in cash
depots, making up a total of $6.0 billion held by the banking system.
•
The values of cash held by Overseas Banks and the Foreign Exchange (FX) trade,
and foreign exchange speculators in Australia, were determined from previously
conducted FX studies and interviews conducted with Australian banks. The studies
found that foreign visitors carried $2.5 billion of Australian cash into Australia
annually.
Domestically, anecdotal evidence suggests a small group of FX
speculators in Australia make significant value trades by physically exchanging
cash at banks.
•
Retail Trade holdings of cash were estimated based on information provided by
Australia Post, Coles and Woolworths. Taking into account their high levels of
efficiency in handling cash compared to other retailers, we developed a valuation of
$1 billion in cash held by businesses engaged in the retail trade. For the remaining
cash held by businesses in the non-retail trade sector, the $2 billion value was
estimated based on only 50% of such businesses handling cash, and an average
cash holding size of $2,000 per business.
•
Cash held by consumers for normal expenditure purposes was estimated to be $7.2
billion, based on total cash spending of over $187 billion and consumers holding
two weeks’ worth of cash spending ($313). Cash held for the purposes of gambling
was considered separately from previous trade and normal consumer expenditure
categories, and was calculated to have a value of $1 billion in physical cash, based
on the $18 billion spent on gambling annually according to a 2010 Productivity
Commission paper into gambling.
•
The value of cash held in Black Economy (legitimate) activities was derived from a
recent Australian Bureau of Statistics (ABS) report indicating such activity is worth
around $24 billion a year.
The majority of this activity would be cash based
transactions for the purposes of tax evasion, but most of the cash would be
accounted for in other categories such as business and consumer expenditure.
Therefore, to estimate the value of the remaining cash, we use the household
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savings rate of around 11% as a base (from ABS studies) and hence valued it at $3
billion.
•
The ABS report looking at the Black Economy also estimated the amount of activity
in the illicit drug trade at $6.5 billion per year. In addition, there are illicit trades in
other items such as guns, endangered/exotic animals, etc.
According to the
Australia Institute of Criminology, the value of cash being laundered for illicit
activities was $4.5 billion in 2004, allowing for inflation and expansion of these
activities, we estimate around $6 billion of cash is being held for these purposes.
•
Finally, hoarding activities accounted for $25 billion of cash on issue. In Australia,
coin hoarding accounts for $1.2 billion (as estimated by the RAM), while estimates
from industry sources suggest that at least 500,000 Australian residents are
“hoarding” significant amounts in banknotes. We have used an average of $20,000
per person being held, calculating out to $10 billion of domestic banknote hoarding.
This leaves a remainder of $15 billion from the total of $60 billion of cash issued; we
believe that the vast majority of this is held in the Offshore “Hoarding” of banknotes.
Our industry interviews indicated that much of this Offshore Hoarding was occurring
in countries within the Asia-Pacific region.
Clearly the black economy causes all legitimate taxpayers to pay more tax than they would
otherwise need to, with businesses using cash in order to avoid one or all of GST, income
tax, PAYG, workers compensation insurance, payroll tax, superannuation contributions,
etc. The Australian Taxation Office has this sector in its sights, as noted by a recent
newspaper article in the Sydney Morning Herald. 19
19
“Taxman zeroes in on cash economy,” The Sydney Morning Herald; 17 December 2013;
http://www.smh.com.au/business/taxman-zeroes-in-on-cash-economy-20131216-2zhim.html
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9. Appendix
9.1. Habits
Habits (from Wikipedia)
A habit is a routine of behaviour that is repeated regularly and tends to occur
subconsciously. In the American Journal of Psychology (1903) it is defined in this way: "A
habit, from the standpoint of psychology, is a more or less fixed way of thinking, willing, or
feeling acquired through previous repetition of a mental experience." Habitual behaviour
often goes unnoticed in persons exhibiting it, because a person does not need to engage
in self-analysis when undertaking routine tasks. Habits are sometimes compulsory. The
process by which new behaviours become automatic is habit formation. Old habits are
hard to break and new habits are hard to form because the behavioural patterns we repeat
are imprinted in our neural pathways, but it is possible to form new habits through
repetition.
As behaviours are repeated in a consistent context, there is an incremental increase in the
link between the context and the action. This increases the automaticity of the behaviour
in that context. Features of an automatic behaviour are all or some of: efficiency, lack of
awareness, unintentionality, and uncontrollability.
Habit formation
Habit formation is modelled as an increase in automaticity with number of repetitions up to
an asymptote.
In fact, the habit formation is a slow process. Lally et al. (2010) found the average time for
participants to reach the asymptote of automaticity was 66 days with a range of 18–254
days.
Automaticity increases along an asymptotic curve, which is unique to each
individual.
Habits form in three parts: there is the cue, the behaviour, and the reward. The cue would
be the thing that causes your habit to come about; the trigger to your habit. This could be
anything that your mind associates with that habit and you will automatically let a habit
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come to the surface. The behaviour is the actual habit that you are exhibiting and the
reward is your brain liking it therefor continuing the “habit loop.” A habit may initially be
triggered by a goal, but over time that goal becomes less necessary and the habit
becomes more innate.
Habits and goals
The habit–goal interface is constrained by the particular manner in which habits are
learned and represented in memory.
Specifically, the associative learning underlying
habits is characterised by the slow, incremental accrual of information over time in
procedural memory.
Habits can either benefit or hurt the goals a person sets for
themselves.
Goals guide habits by providing the initial outcome-oriented motivation for response
repetition. In this sense, habits are often a trace of past goal pursuit. Although, when a
habit forces one action, but a conscious goal pushes for another action, an oppositional
context occurs. When the habit prevails over the conscious goal a capture error has taken
place.
Behaviour prediction is also derived from goals. Behaviour prediction is to acknowledge a
habit will form, but in order to form that habit, a goal must have been initially present. The
influence of goals on habits is what makes a habit different from other automatic
processes in the mind.
Habits as described by animal behaviour experiments
The following is from a Scientific American MIND Guest Blog post called “Should Habits or
Goals Direct Your Life? It Depends.”
"A series of elegant experiments conducted by Anthony Dickinson and colleagues in the
early 1980s at the University of Cambridge in England clearly exposes the behavioural
differences between goal-directed and habitual processes.
Basically, in the training
phase, a rat was trained to press a lever in order to receive some food. Then, in a second
phase, the rat was placed in a different cage without a lever and was given the food, but it
was made ill whenever it ate the food. This caused the rat to “devalue” the food, because
it associated the food with being ill, without directly associating the action of pressing the
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lever with being ill. Finally, in the test phase, the rat was placed in the original cage with
the lever. (To prevent additional learning, no food was delivered in the test phase.) Rats
that had undergone an extensive training phase continued to press the lever in the test
phase even though the food was devalued; their behaviour was called habitual. Rats that
had undergone a moderate training phase did not, and their behaviour was called goaldirected. ... Goal-directed behaviour is explained by the rat using an explicit prediction of
the consequence, or outcome, of an action to select that action. If the rat wants the food,
it presses the lever, because it predicts that pressing the lever will deliver the food. If the
food has been devalued, the rat will not press the lever. Habitual behaviour is explained by
a strong association between an action and the situation from which the action was
executed. The rat presses the lever when it sees the lever, not because of the predicted
outcome."
__________________
A significant number of scientific references on human behaviour and habits are provided
by Wikipedia at http://en.wikipedia.org/wiki/Habit.
In addition, Professor Jeffrey
Brantingham in the Anthropology Department at UCLA (and many other academics) has
written numerous papers on behaviour patterns.
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9.2. Sweden Case Study
Stockholm homeless accept credit cards as cash king no more
The Independent, 29 October 2013
Stockholm's homeless magazine vendors no longer need to ask if you can spare any krona. They take cards.
In the most cashless society on the planet, the sellers of Situation Stockholm, a culture magazine sold by
homeless people, were last month equipped with card readers to accept donations from fellow Swedes. The
move marks a world first, according to their employer.
“More and more of our sellers come in and say that people don't have cash — they have told us this for a long
time,” Pia Stolt, the magazine's chief executive officer, said in a telephone interview. “This becomes
frustrating, but now they feel they offer an opportunity to buy the paper.”
A stable financial system and a tech-savvy population have encouraged Swedes to favor devices over cash in
a country that printed Europe's first banknotes in 1661. Bills and coins represented just 2.7% of the Swedish
economy in 2012, compared with an average of 9.8% in the euro area and 7.2% in the U.S., according to the
Bank for International Settlements. Many Swedes think that figure is still too high.
“We could and should be the first cashless society in the world,” Bjoern Ulvaeus, a former member of Abba,
says on the website of a Stockholm museum dedicated to the Swedish band.
Situation Stockholm, which costs 50 kronor ($8) and whose cover stories have featured Swedish celebrities
such as pop star Robyn and actress Noomi Rapace, already can be bought via a text-message service. By
using card readers supplied by Swedish mobile-payments company iZettle, the magazine is seeking to
accelerate sales growth.
“This will make it easier to sell the paper and I also think this changes a little the image that people have of our
sellers,” who get to keep 50% of the money they take from selling the magazine, Stolt said. The response from
both customers and vendors has been “very positive,” she said.
Five of Situation Stockholm's 350 vendors are using the new equipment and the publication plans to introduce
the devices on a broader scale after its initial trial led to increased sales.
“Before, everyone said they don't have cash, or that they cannot pay with their mobile phones because it was
a corporate phone. But now they can't get away,” magazine vendor Stefan Wikberg said with a smile as he
stood outside the underground entrance at Stockholm's central station. “I take cards, SMS payments, cash
and they can also pay in dollars and euros.”
Wikberg, who has worked for Situation Stockholm since 1999, forecasts that sales of the magazine could jump
20% as the card-payment program is rolled out further.
Some Swedish retailers have already made cash a thing of the past, including bedding seller Kungsaengen,
mobile phone chain 3 and phone company TeliaSonera.
Cards are also the only form of payment at Abba The Museum, where Ulvaeus is a co-investor. Less than 1%
of visitors at the tourist destination don't have a form of plastic money when they arrive at the entrance, the
composer wrote in an Oct. 22 opinion piece in Dagens Industri newspaper.
(continued…)
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(continued…)
Ulvaeus — whose hits with Abba included the song “Money, Money, Money” — lived for a year without coins
and notes and said the only inconvenience he found “was that you need a coin to borrow a trolley at the
supermarket.”
While it is common even for big international retailers such as Ikea and Metro's Saturn not to accept
MasterCard or Visa in Germany, cash is used in only 30% of Sweden's shop transactions, according to the
Swedish Trade Federation.
SEB, Swedbank and Nordea Bank, three of Sweden's four largest banks, have all stopped manual cashhandling services in 65% to 75% of their local branches as Swedes instead rely on credit cards, the Internet
and mobile phones to make their payments. Only Svenska Handelsbanken still has cash handling in all its
Swedish branches.
“Changing customer behavior has resulted in a long-term trend with less cash usage and more card usage,”
Swedbank said in an Oct. 22 earnings report. On a rolling 12-month basis, the number of ATM transactions
decreased by 11% and the total value of withdrawals fell by 7%, according to the bank. The number of card
purchases in stores rose by 11%.
The popularity of paying by card in Sweden reflects both a love of technology among the country's consumers
and trust in the financial system, according to Bengt Nilervall, head of payments at the Swedish Trade
Federation.
Situation Stockholm was initially concerned that Swedes would be hesitant to use a card on the street.
“This was one of the things we were wondering about — how safe people would feel with iZettle and this box
— but they do,” CEO Stolt said. “Now we will reach people who actually never carry cash.”
Copyright Washington Post/Bloomberg News 2013
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10. Technical Appendix
The purpose of this Technical Appendix is to provide APCA and its members:
•
more granular detail of the payments model on which the forecasts are based;
•
a longer term forecast of payment volumes and values, beyond 2018;
•
further graphical output, providing both absolutes and percentages across the different
payment methods.
Year
Number of Cash
Transactions (m)
% Change
2005
2013
2018
2023
2028
12,329
11,700
9,368
7,788
6,896
5% decline over eight years
20% decline over five years
17% decline over five years
11% decline over five years
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Total Transaction Volume by Payment Method in Australia
Number of Transactions (Millions)
25,000
20,000
15,000
10,000
5,000
2005
Cash
Cheque
2013
Credit & Charge Card
2018
Debit Card
Direct Entry
Total Transaction Value by Payment Method in Australia
Value of Transactions ($ Millions)
20,000,000
18,000,000
16,000,000
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
2005
Cash
Cheque
2013
Credit & Charge Card
2018
Debit Card
Direct Entry
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Total Transaction Volume by Payment Method in Australia
Number of Transactions (Millions)
30,000
25,000
20,000
15,000
10,000
5,000
2005
Cash
2013
Cheque
2018
Credit & Charge Card
2023
Debit Card
2028
Direct Entry
Total Transaction Value by Payment Method in Australia
Value of Transactions ($ Millions)
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
2005
Cash
Cheque
2013
2018
Credit & Charge Card
2023
Debit Card
2028
Direct Entry
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Percentage Transaction Volume by Payment Method in Australia
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005
Cash
2013
Cheque
2018
Credit & Charge Card
2023
Debit Card
2028
Direct Entry
Percentage Transaction Value by Payment Method in Australia
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005
Cash
2013
Cheque
2018
Credit & Charge Card
2023
Debit Card
2028
Direct Entry
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Total Transaction Volume (millions) in Australia
25,000
20,000
15,000
11,700
12,329
10,000
3,189
5,000
1,147
1,194
1,662
507
2005
Cheque
Direct Entry
1,857
2,774
209
2013
Credit & Charge Cards
Debit Cards
Cash
Total Transaction Value ($m) in Australia
16,000,000
187,193
197,643
263,721
14,000,000
12,000,000
10,000,000
203,113
78,223
163,710
8,000,000
6,000,000
13,254,226
7,900,394
4,000,000
2,000,000
1,679,223
1,196,971
2005
2013
Cheque
Direct Entry
Credit & Charge Cards
Debit Cards
Cash
97
Annual number of transactions by payment method
30,000
Number of Transactions (Millions)
25,000
20,000
15,000
10,000
5,000
2002
2003
2004
Cash
2005
2006
Cheque
2007
2008
2009
Credit & Charge Card
2010
2011
Debit Card
2012
2013
Direct Debit
2014
2015
2016
2017
2018
Direct Credit
98
Annual number of transactions by payment method
30,000
Number of Transactions (Millions)
25,000
20,000
15,000
10,000
5,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028
Cash
Cheque
Credit & Charge Card
Debit Card
Direct Debit
Direct Credit
99
Transaction volume percentages by payment method
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2005
2006
2007
2008
2009
2010
Cash
2011
2012
Cheque
2013
2014
2015
2016
Credit & Charge Card
2017
2018
Debit Card
2019
2020
Direct Debit
2021
2022
2023
2024
2025
2026
2027
2028
Direct Credit
100
Model of payment transactions by payment method in Australia
All cash numbers are estimates, with actuals shown for the other payment methods through to 2013.
Number of Transactions (M) in Australia
2005
Cash
%
Credit &
Charge
Card
%
Debit
Card
%
Direct
Debit
%
Direct
Credit
%
Total
Transacti
ons
%
2007
2008
2009
2010
2011
2012
2013
2014
2015
[%tages refer to Year On Year growth rate]
2016
12,329 12,250 12,172 12,095 12,017 11,941 11,864 11,789 11,700 11,233 10,600 10,000
-1%
%
Cheque
2006
507
1,194
1,147
474
1,188
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-4%
-6%
-6%
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
9,600
9,368
9,274
9,181
8,814
8,285
7,788
7,477
7,327
7,180
7,037
6,896
-4%
-2%
-1%
-1%
-4%
-6%
-6%
-4%
-2%
-2%
-2%
-2%
467
437
395
351
311
275
241
209
175
145
120
100
85
68
54
38
-
-
-
-
-
-
-
-8%
-6%
-10%
-11%
-12%
-12%
-12%
-13%
-16%
-17%
-17%
-17%
-15%
-20%
-20%
-30%
-100%
-
-
-
-
-
-
1,276
1,342
1,427
1,471
1,557
1,650
1,736
1,857
1,990
2,120
2,245
2,360
2,485
2,585
2,688
2,796
2,907
3,024
3,145
3,270
3,401
3,537
3,679
7%
5%
6%
3%
6%
6%
5%
7%
7%
7%
6%
5%
5%
4%
4%
4%
4%
4%
4%
4%
4%
4%
4%
1,290
1,423
1,632
1,872
2,123
2,445
2,809
3,189
3,671
4,184
4,770
5,438
6,199
6,819
7,433
8,028
8,509
8,850
9,204
9,572
9,955
12%
10%
15%
15%
13%
15%
15%
14%
15%
14%
14%
14%
14%
10%
9%
8%
6%
4%
4%
4%
4%
4%
4%
501
531
588
622
665
695
722
764
795
826
860
894
930
967
1,006
1,046
1,088
1,131
1,188
1,247
1,309
1,375
1,444
6%
6%
11%
6%
7%
5%
4%
6%
4%
4%
4%
4%
4%
4%
4%
4%
4%
4%
5%
5%
5%
5%
5%
1,269
1,365
1,489
1,596
1,717
1,847
1,935
2,010
2,130
2,258
2,394
2,537
2,690
2,851
3,022
3,203
3,396
3,565
3,744
3,931
4,127
4,334
4,507
7%
8%
9%
7%
8%
8%
5%
4%
6%
6%
6%
6%
6%
6%
6%
6%
6%
5%
5%
5%
5%
5%
4%
10,353 10,767
16,838 17,053 17,270 17,625 17,929 18,314 18,776 19,232 19,729 19,994 20,134 20,388 20,929 21,757 22,564 23,384 23,924 24,185 24,358 24,756 25,347 25,973 26,636 27,293
1%
1%
2%
2%
2%
3%
2%
3%
1%
1%
1%
3%
4%
4%
4%
2%
1%
1%
2%
2%
2%
3%
2%
101
Model of payment values by payment method in Australia
All cash figures are estimates, with actuals shown for other payment methods through 2013.
Value of Transactions ($B) in Australia
2005
Cash
203
%
Cheque
1,679
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
[%tages refer to Year On Year growth rate]
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
201
199
197
195
193
191
190
187
180
167
163
154
150
139
138
132
124
109
105
103
101
91
90
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-4%
-7%
-2%
-6%
-2%
-7%
-1%
-4%
-6%
-12%
-4%
-2%
-2%
-9%
-2%
1,675
1,773
1,773
1,500
1,496
1,346
1,242
1,197
1,015
841
708
590
510
415
381
381
-
-
-
-
-
-
-
0%
6%
0%
-15%
0%
-10%
-8%
-4%
-15% -17% -16% -17% -14% -19%
-8%
0%
-100%
%
Credit &
164
178
194
214
221
233
246
255
264
277
285
297
309
321
330
340
351
361
372
383
395
408
421
434
Charge
Card
9%
9%
10%
3%
5%
5%
4%
3%
5%
3%
4%
4%
4%
3%
3%
3%
3%
3%
3%
3%
3%
3%
3%
%
Debit
78
88
98
112
130
143
160
178
198
224
251
281
315
353
382
409
442
470
478
497
517
528
549
571
Card
13%
11%
15%
16%
10%
12%
11%
11%
13%
12%
12%
12%
12%
8%
7%
8%
6%
2%
4%
4%
2%
4%
4%
%
Direct
3,324 3,759 4,284 4,909 4,976 5,057 5,447 5,979 5,710 6,053 6,416 6,801 7,209 7,530 7,832 8,145 8,471 8,810 9,162 9,620 10,101 10,606 11,136 11,693
Debit
13%
14%
15%
1%
2%
8%
10%
-4%
6%
6%
6%
6%
4%
4%
4%
4%
4%
4%
5%
5%
5%
5%
5%
%
Direct
4,577 5,262 6,010 6,841 7,053 6,446 6,689 7,285 7,544 7,695 7,849 8,006 8,166 8,338 8,496 8,764 8,969 9,507 9,626 9,733 9,827 9,905 9,954 10,153
Credit
15%
14%
14%
3%
-9%
4%
9%
4%
2%
2%
2%
2%
2%
2%
3%
2%
6%
1%
1%
1%
1%
0%
2%
%
Total
Transacti 10,025 11,759 13,633 14,211 13,694 13,627 14,687 15,057 15,100 15,443 15,809 16,256 16,742 17,202 17,594 18,176 18,745 19,273 19,747 20,338 20,942 21,548 22,152 22,941
ons
17%
16%
4%
-4%
0%
8%
3%
0%
2%
2%
3%
3%
3%
2%
3%
3%
3%
2%
3%
3%
3%
3%
4%
%
102
Model of average transaction value by payment method in Australia
All cash figures are estimates, with actuals shown for other payment methods through 2013.
Average Transaction Value ($) in Australia
2005
Cash
16
%
Cheque
3,315
%
Credit &
137
Charge
Card
%
Debit
68
Card
%
Direct
7,008
Debit
%
Direct
3,854
Credit
%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
[%tages refer to Year On Year growth rate]
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
16
16
16
16
16
16
16
16
16
16
16
16
16
15
15
15
15
14
14
14
14
13
13
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
-6%
0%
0%
0%
-7%
0%
0%
0%
-7%
0%
3,627
4,211
4,099
4,270
4,566
4,661
5,008
5,718
5,800
5,800
5,900
5,900
6,000
6,100
7,000
10,000
-
-
-
-
-
-
-
9%
16%
-3%
4%
7%
2%
7%
14%
1%
0%
2%
0%
2%
2%
15%
43%
-100%
-
-
-
-
-
-
146
153
154
154
154
151
150
142
139
135
132
131
129
128
127
125
124
123
122
121
120
119
118
7%
4%
1%
0%
0%
-2%
-1%
-5%
-2%
-3%
-2%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
72
74
74
73
71
69
67
62
61
60
59
58
57
56
55
55
55
54
54
54
53
53
53
6%
2%
1%
-1%
-3%
-2%
-3%
-8%
-2%
-2%
-2%
-2%
-2%
-2%
-2%
0%
0%
-2%
0%
0%
-2%
0%
0%
7,976
8,859
8,547
7,854
7,868
8,278
8,105
7,473
7,617
7,763
7,912
8,064
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
8,100
14%
11%
-4%
-8%
0%
5%
-2%
-8%
2%
2%
2%
2%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
0%
4,409
4,822
4,726
4,233
3,729
3,817
3,807
3,754
3,612
3,476
3,344
3,218
3,100
2,980
2,900
2,800
2,800
2,700
2,600
2,500
2,400
2,297
2,253
14%
9%
-2%
-10%
-12%
2%
0%
-1%
-4%
-4%
-4%
-4%
-4%
-4%
-3%
-3%
0%
-4%
-4%
-4%
-4%
-4%
-2%
103