RBA mulls cashless future
(3 December 2018 - Australia) RBA Governor Philip Lowe’s speech at the Australian Payment Summit revealed the shift towards a cashless economy is gathering pace but is still well away from coming to fruition.
The RBA’s view contends with differing views that ‘cash is king’ and will always be a means of exchanging goods through to a generational shift leaving many millennials querying “what even is cash? I don’t even own a wallet”. Addressing the 2018 Australian Payment Summit Governor Lowe stated “A turning point has been reached. It is now easier than it has been to conceive of a world in which banknotes are used for relatively few payments, that cash becomes a niche payment instrument.” The speech was structured around three broad points:
- The shift to electronic payments is occurring quite quickly and it is likely to continue. This shift is a positive development that should promote our collective welfare
- If we are to realise the benefits of moving to a near cashless payments system, the electronic system needs to offer the functionality, safety and reliability that people require
- There will be a greater focus on the cost of electronic payments. If almost all payments are electronic, then the cost of making these payments matters more than it used to
Governor Lowe highlighted Australia’s reducing reliance on the ATM from needing to visit one 40 times a year in 2008 to only 25 visits a year in 2018. Alongside the reduced usage of ATMs is the reduction of cash for payments as digital payments expand. On average consumers execute 500 electronic payments annually representing a fivefold increase in the last eighteen years. At the same time, cheque usage has dropped significantly, falling from 45 cheque payments per person to a mere three per person today over the same time period. In terms of card payments, merchants in Australia currently pay less than merchants in many other countries. The comparison with the United States is particularly stark. For credit cards, Australian merchants, on average, pay 0.8 percent of the transaction value for Visa/MasterCard transactions. In the United States the figure is much higher at over two percent. There are also differences in the cost of debit cards and American Express cards between the two countries. The main reason for the lower merchant costs in Australia is our lower interchange fees.
These fees were reduced in Australia as a result of regulation by the Reserve Bank commencing in 2003. The RBA’s reforms reduced average interchange fees in the Mastercard and Visa systems by around 45 basis points. This has been reflected in merchant service fees which is most cases have fallen by more than the cuts to interchange, reflecting an increased focus on card acceptance costs by merchants. As a result of competitive pressure, including from the removal of no-surcharge rules, fees on American Express and Diners Club have also fallen over time. Looking beyond interchange and acquiring competition, new technologies open up the prospect of new payment options developing.
“While I have talked about a near cashless payments system, I want to emphasise that we don’t yet envisage a world without banknotes. The RBA is committed to providing cash consistent with demand by users and to support its distribution. Our development of the Next Generation Banknote series is a clear commitment to ensuring that cash continues to have public confidence and to meet the needs of the community. For some decades, people have been speculating that we might one day go cashless – that we would no longer be using banknotes for regular payments and that almost all payments would be electronic. So far, this speculation has been exactly that – speculation. But it looks like a turning point has been reached.” The RBA expects the shift to electronic payments will continue - “The issues of functionality, security and cost are central to the development of the system. The launch of the New Payments Platform (NPP) this year was a big step forward for the industry and a credit to all of the staff at participating organisations who worked hard over the life of the project to bring it to fruition. There are some key things that need to be done for the full benefits of the NPP to be available to end-users, but I am optimistic that these can be achieved and this new infrastructure can provide great functionality for Australia.”