Cash use has plummeted but Australians are holding more of it than ever. Here is why we’re not going cashless.
by Jack Derwin
- Cash use in Australia plummeted among the general population during the COVID-19 pandemic, as consumers migrated to other payment methods amid health concerns.
- Paradoxically, however, the amount of cash in circulation has actually surged by $11 billion as a number of people began to “keep money at home”, according to the Reserve Bank of Australia (RBA).
- While experts say the coronavirus has accelerated Australia towards a cashless future, there are still some good reasons why cash isn’t disappearing altogether just yet.
- Visit Business Insider Australia’s homepage for more stories.
For 5,000 years, cash has been tied to humanity across millennia and continents.
From the first humble Mesopotamian shekel, nations around the world and through time have come up with their own versions of physical currency. From the pound to the peso, the dollar to the dram, cash and coin have become synonymous with money.
More rapid, and far more recent, has been the progress of the electronic transfer. First developed in the 1870s by the Western Union, citizens quickly became enchanted by the idea of sending money through electrical lines. By the end of the 1950s, American Express gave the world the first plastic card.
With the advent of the bank card, the seemingly indomitable bank note sighted its first real opposition. But it is only now, in 2020, that the threat to cash appears to have become existential.
The coronavirus made people fearful of fiat
As COVID-19 spread around the world at the start of 2020, so too did anxiety over how to avoid it. At the same time individuals stocked up on hand sanitiser and face masks, they spurned banknotes.
One clear line of reasoning was suggested by the World Health Organisation (WHO) in March.
“We know that money changes hands frequently and can pick up all sorts of bacteria and viruses and things like that,” a WHO spokesperson said.
Combined with moves from the Chinese government to collect, sanitise and even burn banknotes in virus-affected areas, a cautious tone was set from the onset of the pandemic.
Australian businesses – some of them having long operated as cash-only enterprises – set up EFTPOS systems seemingly overnight. One third went cashless altogether.
Meanwhile, more than 2,100 ATMs disappeared from sight in Australia as a result, erasing 12 years of growth in the space of three months, according to official statistics.
The only problem: the threat appears to have been blown out of proportion.
A WHO spokesperson quickly walked back the condemnation of cash, stating the surface of banknotes aren’t more likely than any other object to carry traces of the virus, and aren’t superior to other payment forms from a health standpoint.
The CSIRO essentially told the Reserve Bank of Australia (RBA) something similar during the 2003 SARs outbreak, stating “[bank]notes shouldn’t be singled out” and that “all regularly touched surfaces are suspect”.
In fact, one of its acting deputy chiefs at the time actually suggested letters, licked by the sender, posed a greater risk, yet no such war on the postal system has been waged this time around.
In this instance, however, the science appears to have arrived too late. The damage to cash’s once – ahem – sterling reputation has been done.
A rising tide of challengers
Zoom out, and it’s clear there is more to this transition than health scares.
Phil Pomford manages the Asia Pacific eCommerce arm for FIS, a Fortune 500 company built on the world of payment systems.
“Australia has been headed away from cash for a long time and, compared with other countries, is a lot further along that journey,” the former American Express director told Business Insider Australia.
“Before the pandemic started, we were already expecting cash to undergo a steep decline to less than 5% of total transactions.”
In that sense, Pomford says COVID-19 really only poured fuel on a fire that was lit long ago.
“There’s been this real drive towards digital payments which is a matter of convenience. Everyone with a mobile phone is walking around with a digital wallet in their pocket” Pomford said. “At the end of the day, people just want frictionless simple payments.”
Had the pandemic arrived 10 years ago then, Pomford says it’s hard to say whether the transition would have been as notable.
In 2020, there’s simply no shortage of genuine cash alternatives, with purchases made by the tap of a watch. Digital wallets from Apple Pay to AliPay operate on smartphones the world over, while social payment platforms like WeChat have amassed more than one billion users.
“I think we were at a tipping point and we’ve gone past that now where withdrawing cash now just seems archaic,” Pomford said. “I don’t think there’s any going back.”
Buy now, cash never
Of course, not every nation has gotten the same memo. While Japan might be renowned for its love of technology, it is still firmly committed to its paper yen.
Meanwhile, across the Sea of Japan and at the other end of the spectrum, half of South Korea’s bank branches have stopped dealing in cash altogether.
Closer to home, the explosion of buy now, pay later platforms have helped push Australia closer to the South Korean experience.
The appeal of the platforms is clear. Having dragged credit into the 21st century, companies like Afterpay and Zip allow consumers to pay off purchases over time, offering a host of different repayment arrangements.
By essentially extending a digital line of credit, users can be buy anything from a cup of coffee to a laptop – and it has taken a toll on credit card numbers. Exclusive data supplied to Business Insider Australia shows Afterpay alone now commands a greater market share than the entire credit card sector in Australia.
Reserve Bank of Australia (RBA) figures back this up, showing nearly 400,000 credit cards were closed in the four months since March, taking Australian cards back to 2009 levels. Anxiety around a looming recession no doubt helped as more than $5 billion was paid off balances, but platforms like Zip are riding the tailwind.
“Credit cards are on the nose, and people are responding. They like the simplicity, transparency and interest-free terms and that’s why platforms like ours are being adopted by mainstream Australia,” co-founder Peter Gray told Business Insider Australia.
Zip’s index of where Australians are spending their money during the pandemic shows that not only has cash use collapsed but that BNPL has picked up the slack on a broad range of products.
“I think we really are seeing an acceleration towards a truly cashless society. These trends we’ve seen during the pandemic will persist as we return to some level of normalcy,” Gray said.
While the average Zip user is in their mid-30s, Zip has seen that begin to increase during the pandemic, owing, Gray says, to wider adoption.
Cash is still king, to some
Despite the serious decline in cash use, however, cash does not appear to be dead. In fact, there’s a small pocket of the community gathering up serious stockpiles instead.
To be exact, the amount of cash currently in circulation has reached $94 billion, growing by $11 billion during the pandemic.
This “paradoxical” increase in demand can be easily accounted for, RBA Governor Philip Lowe told a parliamentary committee.
“Some people seem to be wanting to keep some extra money at home,” Lowe said.
To put that in perspective, the appetite of “some” is so extraordinary that it’s not only compensated for but overshadowed the fact that much of the country has turned its back on the stuff.
The central bank also noted at the outset of the pandemic a small number of individuals withdrew large amounts of their savings, some in the millions of dollars in March, as stock markets plunged 30% and economic fears abounded.
Fast forward six months and the latest statistics from the RBA actually show that cash withdrawals are bouncing upwards. While withdrawals were still down more than 22% in July, those using cash are taking out far more at a time.
“The idea that cash is dead is ridiculous, cash is king and will be around forever,” Tim Wildash, CEO of ATM operator Next Payments, said in response to the data.
Certainly, there are some reasons behind its rise.
“There’s a lot of people out there who are getting quite nervous,” economist John Adams told Business Insider Australia.
“Some people are freaking out about the state of the financial system, both in Australia and around the world, and just how solvent the banks might be.”
To be clear, Australia’s regulators have done much to combat the possibility of insolvency arising. APRA has instructed the banks to cut their dividends and shore up capital to see them through a recession, while the RBA has prepared emergency funding just to be sure.
But naturally, contrarians haven’t been convinced by such moves. The enormous rise in the amount of cash circulating would also suggest that there are more than just a few of them.
Adams, who works for a South Australia gold dealership, says as nerves around the financial system have grown, the appetite for precious metals has boomed as people look for other stores of wealth.
Cash, however, isn’t immune from deflation. The surge in circulation, Adams claims, is driven by fears of what could be enacted by policymakers.
“Philip Lowe has said the RBA doesn’t believe in negative interest rates but they haven’t ruled it out,” Adams said.
“I’m expecting we’re going to see negative interest rates and I think negative interest rates will lead to an even great demand for physical cash. We’ll have to wait and see though if people will use it to hold the wealth outside of the banking system or whether they will use it for transactions.”
Australia has tried to ban large cash purchases
However, no matter your macroeconomic views, what appears more mainstream is the idea that a truly cashless society isn’t something to aspire to.
In fact, nearly eight in ten Australians actually reported they would never go cashless, according to a 2017 ING survey of more than 14,000 people.
While a few years have passed since, it ranks Australia as one of the most cash-fixated among developed economies.
It’s a poll that elements of the Australian government perhaps aren’t aware of. A bill that would criminalise cash transactions over $10,000 has been endorsed by the Senate.
While it has since stalled during the COVID-19 crisis, the legislation has found plenty of criticism.
“By criminalising the use of legal tender, and by taking a rose-coloured view of a world without cash, this government is blithe to the fundamental freedoms provided by hard currency, and is instead laying down a path towards surveillance capitalism and negative interest rates,” Greens Senator Peter Whish-Wilson wrote in a dissenting report on it.
Meanwhile, there are serious question marks over whether the bill would achieve its stated objective of cracking down on criminal activity.
“It is debatable that a cashless society would mean less crime. For example, the ratio of damage caused by card fraud to the value of counterfeit notes in circulation is over 10 to 1,” Deutsche Bank economist Heike Mai wrote in a report combatting the premise.
The dangers of a cashless society
A former Liberal economic advisor, Adams has staunchly opposed the bill and says a cashless society could have dangerous ramifications for Australia.
“There’s a privacy issue in terms of being able to engage in commerce without being tracked by the banking system or by government,” he said.
Adams points to China’s social credit system, which grants the country’s government the power to punish or reward citizens based on their behaviour, as just one dystopian example of why cash is important.
“There are definitely massive financial implications around being free of the banks,” he said.
There are evidently plenty who don’t want to see cash and coins disappear.
Charities have sounded the alarm that the decline in cash puts their donations and 200,000 jobs at risk.
Older and vulnerable Australians are meanwhile at a similar disadvantage, while blackouts and EFTPOS system failures continue to leave Australians in the lurch.
While it’s unclear whether or not Australia will ever truly go cashless, the number of people using cash and coins is certainly in sharp decline.
In 2020 however, there appear to be as many threats to the humble banknote as there are good reasons for keeping them around.