This article was first published on www.theblondgroup.com and is republished with the author’s permission.

Headline cashMoney in physical form such as banknotes and coins. More on issue – perhaps a better term than cash in circulationThe value (or number of units) of the banknotes and coins in circulation within an economy. Cash in circulation is included in the M1 monetary aggregate and comprises only the banknotes and coins in circulation outside the Monetary Financial Institutions (MFI), as stated in the consolidated balance sheet of the MFIs, which means that the cash issued and held by the MFIs has been subtracted (“cash reserves”). Cash in circulation does not include the balance of the central bank’s own banknot... More, as clearly large volumes of cash are being held and not circulated – continue to break month on month records, with the value of Australian DollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More banknotes reaching almost $99.5billion at the end of October 2020, a more than $13billion (16%) increase since the onset of the COVID pandemic in Australia at the end of February 2020 and a near $17billion (21%) increase since October 2019.

As previously reported, this growth has been predominantly in high value banknoteA banknote (or ‘bill’ as it is often referred to in the US) is a type of negotiable promissory note, issued by a bank or other licensed authority, payable to the bearer on demand. More denominations, for example, last month’s increase being $475million in $50s and $669million in $100s, including approximately $200m in new $100 Next Generation Banknotes released near month end. By contrast, lower denominationEach individual value in a series of banknotes or coins. More ‘transactional’ notes have barely changed, up just a net $36 million (or 0.6%) year on year.

Growth of Australian Dollars in Circulation(Source: Reserve BankSee Central bank. More of Australia/ Blond Group analysis)

Despite the increase in notes issued, ATM use remains subdued

Notwithstanding the records levels of banknotes on issue, reported ATM cash withdrawals remain substantially lower than this time last year.

Following the dramatic fall in ATM withdrawals at the onset of the pandemic (total withdrawals were down from $11billion in February to just under $7billion in April – a 37% decline) a steady recovery was evident in May, June and July. By July withdrawals had reached $11.75 billion, just under 6% less than the July 2019 number. In early August the state of Victoria entered second wave lockdown, declaring a night time curfew and severely limiting movement outside the home.

Not unsurprisingly with Victoria accounting for around 20% of the country’s ATMs (and by most measures a similar share of Australia’s economic activity) August numbers took another dive, down about 11% on the previous month. In September numbers fell further with total ATM withdrawals at just over $10 billion.

The reduced ‘brand loyalty’ is also no doubt a function of the overall decline in number of bank owned ATMs, with the Australian Prudential Regulation Authority (APRA) recently reporting that the number of financial institution owned ATMs have fallen from 11,249 ATMs in June 2017 to 7,104 in June 2020, a three year 4,145, 37% decline. While some of the decline can be attributed to transfers of bank owned (mainly offsite) ATMs to Independent ATM Deployer (IAD) owned networks, overall ATM numbers in Australia have seen a significant contraction in recent years.

Australian Dollar Value of ATM Cash Withdrawals(Source: Reserve Bank of Australia/ Blond Group analysis)

One interesting side note, when delving a little deeper, is how Independent ATM Deployer (IAD) ‘convenience’ ATMs have performed compared to their financial institution counterparts.
Year on year IAD ATM withdrawal levels remain significantly lower, most likely given their greater presence in gaming and leisure locations, which have been heavily impacted by lockdown restrictions. Also interesting to note that cardholders are now far more likely to use (a usually fee free) ATM at another financial institution, with loyalty to one’s own bank dropping from around the 65% level (back in September 2017 when the big banks eliminated fees for other bank cardholder use) to now just 53%.

ATM withdrawals relative to December of previous year (Base = 100%)(Source: Reserve Bank of Australia/ Blond Group analysis)

Cash Out and Cash Advance demand significantly reduced

Pre COVID, debit card cash out (or cashbackA service whereby the customer pays electronically a higher amount to a retailer than the value of the purchase for goods and/or services and receives the difference in cash. It is also a reward system associated with credit card usage, whereby the consumer receives a percentage of the amount spent on the credit card. More) and credit card cash advances formed an important alternative source of cash, representing about 12.5% of total cash withdrawals. By September this has fallen to just shy of 10% ($712million in cash out, $418million in cash advances). With generally less point of sale activity and in many cases active discouragement of handling cash at point of sale, it’s perhaps not surprising that these numbers are down. It will be interesting to see whether Australian cash out/cash advance values rebound, or remain subdued. Are ATM cash withdrawals for the hard core cash user, whereas cash out at point of sale is a more discretional transaction? With the United Kingdom considering legislation to mandate offering cash out as an alternative means of access to cash, is this channel really a robust and reliable source of cash supply, or an illusion to deflect from the decline in bricks and mortar bank branches and ATM networks?

Australian Dollar Cash Withdrawals at ATM and Point of Sale(Source: Reserve Bank of Australia/ Blond Group analysis)

It’s not just cash at point of sale that’s taken a hit

It worth reflecting that while cash use at point of sale is down, Victorian COVID restrictions have had an impact on ALL point of sale (POSAbbreviation for “point of sale”. See Point-of-Sale terminal. More) transaction activity.

Value of Australian Dollar @ Point of Sale (POS) Transactions(Source: Reserve Bank of Australia/ Blond Group analysis)

From a low of $26billion domestic POS activity (debit and credit card) in April, values recovered to $37.4 billion not far short of the July 2019 numbers. With lockdown in Melbourne and across Victoria POS activity fell in August and September with September monthly totals just tipping $34billion, about 7% down year on year. Debit cards have been the star performer increasing their share of all cards at POS from 62% in September 2019 to 67% in September 2020.

Looking at average transaction values, debit card transactions have gone from about $43.50 up to $45.20 (September 2019 to September 2020) whereas average credit card transactions have moved from about $73.50 down to $69.90. I suspect that the debit card shift mask a higher number of smaller tap and go transactions – that morning coffee – balanced out with some higher value debit card purchases that might have been previously paid on credit. The growing popularity of buy now pay later schemes, such as Afterpay and Zip are no doubt also starting to influence both traditional POS and online card use and are as yet not reported in the Reserve Bank’s data, although touched upon in the latest Consumer Payments Survey work.

Debit versus credit online

A striking theme of the COVID pandemic in Australia has been the pay down of credit card balances. In February 2020 outstanding credit card balances totalled $49.7billion, by September this has been reduced to just over $38billion, a 21% drop. This reduction in credit has also been reflected in – until recently – a significant fall in credit card use and greater reliance on debit cards directly and immediately linked to one’s bank account.

Online (and that increasingly includes in app payments such as food ordering and ride apps) debit card share of debit and credit transactions by value has increased from 32% back in September 2019 to 43.4% in July and by September a little lower at 40.7%. I wonder if the uptick in credit card use is a sign of confidence and recovery of the economy or quite the opposite and the start of a returned reliance on credit. Again, the absence of buy now pay later values makes the picture incomplete. Time and perhaps how card balances track will tell.

Value of Australian Dollar Device not Present Transactions(Source: Reserve Bank of Australia/ Blond Group analysis)

Cheque use continues to dwindle

Australian cheque use continues its decline. In September 2020 just under 3.2million cheques were written to pay $29billion of which just 944,000 (worth $3.3billion) were personal cheques.

The September figure was a little up on the new record low in August 2020 and a far cry from September 2010 when 23 million cheques were used to settle $108 billion worth of transactions.

Value of Cheque Payments(Source: Reserve Bank of Australia/ Blond Group analysis)

Faster Payments continue to grow, but from a modest base

Like all paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More methods New Payment Platform payments took a dip in August. The upturn in September saw $51.4billion transacted, down from a high of $53.5billion in July, with OSKO powered overlay payments making up the bulk of the transactions. Average transaction values remain broadly stable with overall average NPP values at about $975 and OSKO averages a little higher at $1,110. While steadily growing, NPP volumes of 41.6 million in September represent just 6% of the debit card transactions during the month. NPP appears to be proving itself as a fast alternative to large payment transfers, but is yet to be embraced as a means of fast person to person payments.

Value of Australian Faster Payment Transactions (NPP & Osko)(Source: Reserve Bank of Australia/ Blond Group analysis)

In Conclusion

The oft-cited disclaimer “past performance is not a reliable indicator of future performance” is probably never truer at the moment as the effects of COVID, both in terms of health and economic impact play out in Australia and around the world. While thankfully at time of writing Australia’s COVID numbers have returned to remarkably low levels the same can’t be said of much of the rest of the world. With borders closed (both internationally and between some states domestically) regular movement, trade, travel and tourism will be distinctly different for some time to come. Take a look at the international component of any of the numbers presented and all are distinctly lower.

As in most aspects of life and commerce, COVID 19 has caused widespread shock and we are just beginning to come to terms with how this will shape the future. The rich data set provided by the Reserve Bank of Australia provides some fascinating insights into the payments landscape.