“The challenge with cash is that it really does have a big community public service sort of aura attached to it.”
The Reserve Bank of Australia’s new governor, Michele Bullock, just said the quiet part out loud in the rapidly intensifying war against cash. Speaking at the Australian Payments Network Summit last Tuesday (Dec 12), she was asked whether it’s perhaps time for retailers to stop offering cash as a fee-free payment option to consumers. Bullock responded by pointing out that as the share of consumer payments made using cash has declined, the running costs of processing cash for banks and businesses are mounting. As such, she said, it may be necessary some day to begin charging people for using cash in retail settings:
The issue with cash has always been that businesses don’t really understand the costs of cash in their business. They are at the moment, I think, understanding it a bit more, but in the past they haven’t really. They call “shrinkage” their main cost, which is basically theft, but really they haven’t internalised the cost of processing cash.
The challenge with cash is that it really does have a big community public service sort of aura attached to it. If you try to charge people to use cash, they’re prepared to pay to get it out of an ATM but if businesses started charging people to use cash, I suspect there’d be a very big backlash. Having said that, it’s also true that as economists we want people to face the prices of using particular services that reflect the cost of those services.
So, at the moment I think we are probably in a position where it’s very difficult to actually enforce payment for cash but it’s going to end up… with the costs being embedded in the cost of the financial institutions that are providing these services and people don’t face them. I think it will be a very big challenge.
This sentence bears repeating:
“The challenge with cash is that it really does have a big community public service sort of aura attached to it.”
“Aura” is a curious choice of words to describe people’s continued attachment to cash, as if there were something almost mystical or magical about it. Another interesting word she uses is “challenge,” which in this context I take to mean “problem.” In other words (and this is merely my reading of what she said), the apparent problem with cash is that it is widely perceived to serve the community and the public at large. Yet those are the exact same interests the governor of Australia’s central bank is supposed to be serving, says LNP Senator Gerard Rennick, a former banker who initiated and sits on a Senate committee conducting an inquiry into bank closures:
It’s legal tender and that’s just absurd to say you should pay fees… She should be representing the interests of the Australian people. This is the problem of having a so-called independent reserve bank, that over the years it has shifted its focus from protecting the people to protecting the banks. The RBA is technically saying the banks don’t have a social licence whatsoever and that’s not on.
Judging by the backlash her comments have already triggered, including on social media and even in parts of the mainstream media, Bullock is clearly right about one thing: an important part of the Australian public is still emotionally and financially attached to cash, even though they may not be using it as much as before, and the mere idea of paying extra fees to use a form of money that has existed for millennia would be anathema to them. The national broadcaster ABC posted a number of readers’ comments on its website, including the following three:
Business owner here, instead of a cash surcharge, we need a government option for card transactions, to keep those lower. Operators like Square and Stripe are getting away with charging 2.75% and traditional banks are racing to increase their fees to catch up (we have gone from 0.9% to 1.19% which doesn’t sound large until you remember that it is a 20% increase!). If cash is erased from the arena, you can bet the card transactions will keep getting more and more expensive when the cost associated decreases.* Government needs to step in before the price gorging gets out of hand.
– Rob
We taught our children from a very young age the value of money by paying them in cash for chores, good grades, etc. They would then go and deposit that money at a bank branch and have watched their savings grow. They certainly have a greater appreciation of money and how to manage it via the cash in hand approach, rather than paying them via a banking app. Forms of cash have been around for 5000 years and society shouldn’t be paying a premium to use a physical currency.
– Mark
One reason cash transactions have dropped is that there are fewer opportunities to pull cash out of your account and supermarkets, big box stores and other locations have shifting towards card only payment options.
– Alex
This is a key point. As the financial analyst, author and pro-cash activist Brett Scott noted in a 2018 article for The Guardian, when the big banks announce branch closures and shut ATMs, they create a feedback loop that constantly reinforces the impression that people are turning their back on cash when, in actual fact, banks are making it harder and harder for them to access it:
In closing down their branches, or withdrawing their cash machines, they make it harder for me to use those services. I am much more likely to “choose” a digital option if the banks deliberately make it harder for me to choose a non-digital option.
In behavioural economics this is referred to as “nudging”. If a powerful institution wants to make people choose a certain thing, the best strategy is to make it difficult to choose the alternative.
Financial institutions… are trying to nudge us towards a cashless society and digital banking. The true motive is corporate profit. Payments companies such as Visa and Mastercard want to increase the volume of digital payments services they sell, while banks want to cut costs. The nudge requires two parts. First, they must increase the inconvenience of cash, ATMs and branches. Second, they must vigorously promote the alternative. They seek to make people “learn” that they want digital, and then “choose” it.
Australia’s “Big Four” banks — Commonwealth Bank of Australia, Westpac Banking Corporation, ANZ Group Holdings Ltd, and National Australia Bank Ltd — were recently able to claim yet another major victory in their war of attrition against physical money. More than a billion dollars worth of physical cash disappeared from circulation in the last financial year, marking the first time the number of notes in circulation officially declined since dollars and cents were introduced in 1966. According to Channel Nine News, this is the “strongest sign yet” that Australia is truly on its way to becoming a cashless society.
The pandemic has, of course, intensified this trend. While changing demographics and consumer behaviour have also played a key role, so too has the increased difficulty of accessing and using cash. As a recent article in the Australian Financial Review lays bare, the much lower levels of cash usage are now making the business of delivering cash a lot less profitable, particularly in a country as large and sparsely populated as Australia (h/t bwilli123):
Lindsay Fox’s Armaguard received approval in June from the Australian Competition and Consumer Commission to merge with its major competitor, Prosegur, arguing this was required to make its business sustainable despite the reduction in competition. Yet within a few months of controlling 90 per cent of the cash distribution market, Armaguard is suddenly warning it needs a massive new injection of $190 million over three years to even keep going…
Already, the RBA estimates that 72 per cent of Australians were low cash users in 2022, defined as using cash for 20 per cent or less of their transactions, compared with 50 per cent of the population in 2019. The percentage of high cash users – using cash for more than 80 per cent of transactions – has halved to only 7 per cent over that same period…
Australia’s not the only country facing such dilemmas from the rapid decline in the circulation of cash although this country’s big distances requiring coverage do present particular problems. Once a week, for example, an armoured vehicle is loaded onto a plane in Perth and flown to Broome and back again (an over 2,000 mile round trip) in order to keep cash available in Australia’s remote northwest.”
To help accelerate this shift away from cash even further, three of the Big Four — ANZ, Commonwealth Bank and the National Australia Bank — have announced plans to cease handling physical currency altogether in select city branches, directing customers to withdraw and deposit cash at ATMs instead. The Commonwealth Bank and National Australia Bank refer to their cashless branches as “expert centers” and “specialist centers” respectively. ANZ unofficially calls their cashless outlets “digital branches.”
Now, the governor of the Reserve Bank of Australia is suggesting that citizens should one day have to pay extra fees in order to pay with cash — to protect the banks and retailers from the exorbitant costs of maintaining cash infrastructure. Yet the very same Big Four banks she wants to protect just posted record or near-record profits, in part because of surging interest rates but also because of the rising fees they charge on card payments.
What makes this particularly irksome is the fact that these same banks received huge sums of cheap debt to tide them over during the COVID-19 pandemic.
“They got $188 billion in cheap loans at 1%, some of which still haven’t rolled off,” says Senator Rennick. “This netted the banks over $30 billion in reduced lending costs, which has all been paid for by the taxpayer.” Now the banks are paying the public back by progressively restricting the basic services they offer to their customers.
Perhaps the most absurd aspect of Bullock’s comments is their timing, coming little more than a month after the Optus telecoms system crashed nationwide, leaving many retail businesses unable to accept digital payments as they relied on EFTPOS (electronic funds transfer at point of sale) linked to the telco. That outage, caused by a software upgrade error, lasted for about 14 hours before services were fully restored. It came just a year after Optus suffered a cyber-security failure that resulted in the data of millions of customers being compromised.
Australia has a long track record of disruptive bank IT outages, including one in 2022 that affected the Reserve Bank of Australia (RBA) itself. The latest big episode occurred just last week. Big Four lender Westpac’s online banking system suffered a major crash, leading to customers being shut off from their accounts and payment systems for around eight hours. Social media was abuzz with people complaining about not being able to access their accounts, pay bills or make contactless payments on their phones.
Yet instead of talking about the need to strengthen banks’ digital accounts and payment systems, the central bank governor seems to be more concerned about the costs of maintaining cash infrastructure. This despite the fact that said infrastructure provides greater resilience to a country’s payments system, as the Riksbank, the central bank of Sweden, arguably the world’s most cashless economy, admitted in a recent document (that also calls for government legislation to prepare the ground for an e-Krona, Sweden’s proposed CBDC):
Cash is needed to avoid people suffering digital and financial exclusion. Cash is also important for Sweden’s preparedness. If electricity and telecommunications were eliminated, cash would initially be the only viable means of payment. Retailers would therefore be obliged to accept cash as payment for essential goods, such as pharmacy goods, fuel, food and drink. Exceptions can be made, for example, for smaller businesses. In addition, banks should be obliged to accept consumer cash deposits.
Lastly, it is worth noting that Bullock made these statements on cash at the same time that the institution she heads is working around the clock to develop and roll out a central bank digital currency, or CBDC, which will compete directly with cash as what the central banks call “sovereign” money. As I’ve noted in a previous piece, Australia is closer to launching a CBDC than any of its “Five Eye” peers.
In fact, barring Sweden, it is the only country in the NATO-plus-friends collective to have reached the pilot stage of the development process, according to the Atlantic Council’s CBDC Tracker.
Readers may recall (from my September 9, 2022 article, Big Banks in Australia and Canada Are Leading the Way on Digital Identity) that Australia’s Big Four are also heavily involved in developing ConnectID®, a national infrastructure for digital identity verification, which (according to ConnectID®’s official website) “makes it easier to verify who you are, using organisations you already trust. You can expect to see ConnectID rolling out gradually across institutions and businesses in Australia during 2023.”
As an article in Australia Financial Review reported at the time (emphasis and comment in parenthesis my own), the banks apparently “see ‘identity-as-a-service’ as an incremental revenue stream that will allow them to charge retailers, utilities or fintechs for validating customer details, given banks are highly trusted [no, seriously, that is what the banks say] in the digital economy”. Which, I suppose, is just one more reason for wanting to kill off cash.
* It’s pretty clear by now why Mastercard and Visa’s “biggest enemy” (their words) is cash. “Card issuers are aggressively trying to increase the size of their market, and the enemy is cash,” Christophe Uzureau, a banking analyst, told Financial Times in 2006. “They want to replace as many cash transactions as possible with card transactions, so they can earn fees.” Eleven years after that, in 2016, Ajay Banga, the then-CEO of Mastercard (and now managing director of the World Bank) said: “My enemy is cash, not an electronic payment. Eighty-five percent of the world’s retail payments are still in cash. Paypal and Mastercard and Visa are working only in that remaining 15%.”