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Australia: Electronic Payments Increase Inequality and Costs

Categories : Cash ensures competition among payment instruments, Cash is a public good, Cash is available to all users, Cash is the first step of financial inclusion
April 3, 2024
Tags : Australia, Card payments, Digital payments, Financial inclusion
While the use of cash has declined in Australia, many still rely on cash for payments, including seniors, lower-income households, migrants, and rural inhabitants.

The Payments Mix in Australia

“Australians have been following the fashion cycle towards cashless-ness, but there is still this contingent of Australians who use it. The statistics […] don’t actually capture all of the use of cash in our society. Do they capture when a parent gives an allowance to a child […] or when somebody is simply holding cash to feel safer, feel secure? […] It would increase inequality to prohibit cash, to go all the way.” – Gigi Foster, professor of economics at the University of New South Wales (1:36-2:16).

According to the Reserve Bank of Australia (RBA)’s 2022 Consumer Payments Survey (CPS), Australians use cash less frequently (see Graph 1). The share of cash in retail payments declined from 69% in 2007 to 13% in 2022, while the share of cards increased from 26% to 76% (Nguyen, Watson 2023: 22).

Graph 1. Australia: Consumer Payment Methods, 2007-2022.

Source: Nguyen, Watson (2023: 22).

By number, the share of cash in Australian payments halved from 32% in 2019 to 16% in 2022, reflecting the impact of the Covid-19 pandemic on payments behavior (Mulqueeney, Livermore 2023: 30-31). By value, the decline in the cash share was more modest, going from 19% in 2019 to 13% in 2022 (see Graph 2).

Graph 2. Australia: Share of Cash in Payments, 2007-2022

Source: Mulqueeney, Livermore (2023: 31).

Cash Users in Australia

“Any society can embrace change but you’ve always got to bring everybody with you, and the concern is we’re leaving a cohort behind by racing towards this digital economy. It would be good to see a number of banks across the country start to really look at their customers that have been customers for 40, 50, 60 years.” – Chris Grice, National Seniors Australia CEO.

 While the decline in cash use has crossed demographic groups, seniors, lower-income households, and rural inhabitants are likelier to be high cash users (see Graph 3).

Graph 3. Australia: Cash User Groups, 2022

Source: Mulqueeney, Livermore (2023: 32).

Heavy cash users prefer to use cash due to privacy and security concerns, followed by merchants only accepting cash in payments, and budgeting (see Graph 4).

 Graph 4. Australia: Reasons to Use Cash, 2022

Source: Mulqueeney, Livermore (2023: 32).

The transactional demand for cash and the cash infrastructure have contracted, but the precautionary demand for cash has grown, as Australians demand cash as a store of wealth. Between 55% and 80% of all banknotes in circulation are hoarded in Australia and abroad (Elkington, Guttman 2024: 2). Since 2007, high-denomination notes ($50 and $100) have grown strongly, while low denominations have grown more slowly (see Graph 5).

Graph 5. Australia: Banknotes in Circulation, 2007-2023

Source: Elkington, Guttman (2024: 2).

Card Payments and Credit Card Surcharges

Debit cards have become the main payment instrument in Australia: their share in payments went from 15% in 2007 to 51% in 2022 (see Graph 6). The share of credit and change cards in payments increased from 11% in 2007 to 26% in 2022 (Nguyen, Watson 2023: 22).

Graph 6. Australia: Cash and Card Payments, 2007-2022

Source: Nguyen, Watson (2023: 23).

Recent outages have affected card payments in Australia, such as Optus’s failure in November 2023 and the ANZ Worldline outage in February 2024. During the Optus outage, “we lost sales because […] the phones were down, so people couldn’t put through their orders […] and because people couldn’t pay by card,” said Hanede Rabah, manager of a Halal store in Melbourne.

Australian merchants are charging credit card surcharges to make up for the costs passed on by banks and credit card companies, like those in the United States. These costs add about 1-1.5% to the purchase price.

Australian customers are also paying extra for the “convenience” of using QR menu apps at restaurants.

Seniors and Cheques

The share of cheques in payments declined from 1% in 2007 to 0.1% in 2022 (Nguyen, Watson 2023: 22). Last year, Australian Treasurer Jim Chalmers said that Australia would phase out cheques by 2030, in a “gradual, coordinated, and inclusive” manner.

However, Australian banks are increasing their cheque processing fees well before that deadline, to the dismay of seniors and others who use cheques to pay for rent and other utilities. The rise in fees has pushed cheque users to use third-party platforms that charge fees for their transactions.

This post is also available in: Spanish