Down Under, Cash Remains Steady

When it comes to making payments, Australian consumers tend to alternate between contactless and cash.

Between 2013 and 2016, growth in popularity of tap-and-go payments reportedly propelled the use of contactless payments from nearly 10 percent to more than 60 percent. While the change indicates a growing preference for payments through debit and credit cards, the country still heavily relies on cash usage. In fact, Australians made $143 billion in cash payments in 2015, according to the PYMNTS Global Cash Index.

To gauge the factors influencing payment preferences in Australia, and to discuss what’s driving cash usage in a market now dominated by card-based contactless payments, PYMNTS recently caught up with Raghavendra Bhat, Australia and New Zealand (ANZ) Banking Group’s head of technology. Digital payments in Australia have come a long way, Bhat said, but cash continues to compete and remains the go-to payment method for many consumers across the spectrum.

SMBs love cash

While Australian consumers tend to prefer credit and debit cards for making day-to-day payments, cash is often their hands-down choice when it comes to making small-value transactions. According to the Reserve Bank of Australia (RBA), the median size of cash payments has remained stable at $12 since 2013 and, as of 2016, cash reportedly powered more than 60 percent of transactions valued at $10 or less. The propensity of cash for small-value transactions is particularly high among smaller businesses in both rural and urban areas, according to Bhat.

“A lot of businesses in the service industry, like restaurants and mom-and-pop stores, prefer cash over cards so they don’t have to deal with the interchange rates that are associated with it,” Bhat said.

Smaller merchants, he said, don’t necessarily see value in accepting card-based payments unless they have modern day POS systems like Square and Hero extending value-added services such as inventory management. When it comes to accepting cards, according to Bhat, it’s not uncommon for smaller Australian merchants to pass the cost of those interchange fees on to the consumer.

“They generally incentivize people to pay in cash,” Bhat said. “If, for example, you use credit cards to pay for lunch, they generally charge you more to pay for that transaction.”

Recent findings of the RBA’s 2016 Consumer Payments Survey noted many merchants continue to only accept cash, even today.

Among consumers, 19 percent of respondents said the most common reason for using cash was that merchants did not accept other payment methods or had a minimum spend requirement. Another 16 percent cited a desire to avoid card surcharge fees, whereas 7 percent noted discounts for using cash as their primary reason for paying with it.

Unless smaller businesses see an incentive in value-added services offered by processors and acquirers, they are not going to move toward the use of alternative payment methods, Bhat said. The disposition of small businesses for using cash also points to its resilience and simplicity, traits which have powered its use among merchants and consumers for generations.

Changing cash accessibility

Similar to recent banking happenings in the U.S., leading Australian banks have moved to shutter some of their brick-and-mortar locations over the last few years amidst rising real estate costs and changing consumer preferences.

Between 2015 and 2016 alone, the number of physical branches of the Big Four banks in Australia — including ANZ, National Australia Bank (NAB), Westpac and Commonwealth Bank of Australia (CBA) — fell from 3,884 to 3,680, according to the Sydney Morning Herald.

The shift comes as banks focus on utilizing their branch locations to offer customer services such as loan advisement or mortgage and personal finance management rather than straightforward transactions like cash withdrawals and deposits, which have slowly been declining, Bhat explained.

And rightfully so. According to the PYMNTS Global Cash Index, total over-the-counter withdrawals in Australia fell from $50.5 billion in 2010 to $39.9 in 2015. At the same time, banks are increasingly focused on serving customers through smart ATMs, which both dispense cash — the ATM bread and butter, as it were — and provide a slew of other banking services, Bhat said.

The operational costs of relying more on ATMs, according to Bhat, are offset by the value of in-person, relationship-based banking through which financial institutions are working with customers on high-touch transactions.

In remote areas with fewer bank locations, banks such as Westpac and ANZ are also partnering with Australia Post, the government-owned postal service, to make cash accessible and offer other banking services through its network of 3,000 locations. The intent is to make up for brick-and-mortar branch closures and lack of access to banking services in remote parts of the country.

Cash will survive

In Australia, much of the recent shift toward adoption of digital payments has been driven by rapid adoption of contactless payments. In 2016, nearly one-third of POS transactions were conducted using contactless cards — three-and-a-half times more than in 2013, according to the RBA.

But, while Australia is collectively moving toward greater use of digital payments, it still has a long way to go as cash continues to be popular among older consumers. Consumers over the age of 65 paid for more than half of their transactions with cash in 2016 and, among 50- to 64-year-olds, more than 40 percent of transactions were cash-based. Though cash was not found to be the top choice among younger millennials, it was still used to pay for nearly one-third of their transactions, according to the RBA.

“I think, there’s still a significant runway in front of us before we become a cashless country,” Bhat said. “I don’t think that’s going to happen anytime in the next five to 10 years.”

Bhat advised that for a radical payment method shift to happen — as seen in countries like Sweden — digital payments need to be incentivized for all players in the value chain, from customers and merchants to acquirers and processors. Moreover, an overhaul of policy framework is crucial to the success of digitizing payments.

“Compared to Nordics, it’d be still a long way out where, perhaps, [that] we will be cashless,” Bhat said.

Until that happens, cash will continue to maintain its position as an imperative payment instrument in the country.

To download The PYMNTS.com Global Cash Index Australia Analysis, please click below.

About the Index

The PYMNTS.com Global Cash Index, a Cardtronics collaboration, focuses on the use of cash as a payment method that equally plays a role with cards, checks, direct debit and other methods of settling up between consumers and businesses. Unlike most reported estimates of cash, our proprietary data analysis focuses on the use of cash for making payments rather than hoarding.