Cashless payments: racing towards a future where cash is no longer king

While millennials have led the charge to digital payments, the appeal is much broader.

Remember when cash was king? Now, as consumers rapidly adopt cashless payments as the norm, businesses and charities have everything to gain by making the shift to digital payments.

Given its commitment to provide about A$60 million a year in research funding as part of its cancer-fighting initiatives, Cancer Council Australia cannot afford to lose a single dollar in donations.

As cash donations become rarer in a world of electronic payments, it has been quick to embrace new digital payment options for two of the nation’s biggest charity events. The group has been a trailblazer in the use of Apple Pay to accept donations for Australia’s Biggest Morning Tea, and it has forged a relationship with ANZ to use mobile payment devices and apps to receive cashless donations for Daffodil Day.

“We want to be able to use all the technologies available and be a modern charity,” says CEO Sanchia Aranda. 

“There’s no doubt that charities need to stay ahead of the technology and make sure it is embedded into the way that we do fundraising.”

Evolving towards a cashless society

Many businesses and consumers are adjusting to an increasingly cashless society. In a speech late last year, Reserve Bank of Australia (RBA) governor Philip Lowe supported the notion that cash could become “a niche payment instrument”, noting that at the turn of the decade Australians went to an ATM, on average, about 40 times per year. 

Today, that figure has dropped to about 25 times a year, and some suppliers are ripping out their ATMs as use declines.

Cheques are also on the way out. In the mid-1990s, Australians made about 45 cheque payments a year, whereas today they average about three per person.

On the flipside, Australians now make almost 500 digital payments a year on average – up from about 100 a year in 2000.

Will we ever go entirely digital with payments? Australian Taxation Office (ATO) assistant commissioner Peter Holt refuses to speculate on the longer-term future of cash, but he concedes that “we are seeing a preference for digital payments”.

“Our research clearly shows that across every part of the economy, the move away from cash has gathered pace – most people are carrying less cash and the vast majority of people and businesses expect electronic payment to be available.”

The ATO reveals that digital payment is now the preferred method for almost every amount of money, and it is overwhelmingly preferred for any transaction of more than A$50. “Even the morning coffee – that is, payments under A$5 – are now split almost 50-50 for payment preference,” Holt says.

“People under 35 are carrying less than half as much cash as those over 65, but the amount of cash people are carrying is falling across the board – the days of buying a car or even a washing machine with cash are rarer than ever, he adds.”

Despite this trend, some analysts believe reports of the death of cash may be exaggerated, especially in rural areas where digital networks can be patchy. Technology expert David Glance, director of the University of Western Australia Centre for Software Practice, a research and development centre, says that unless governments or banks take explicit steps to stop using cash, there will be a proportion of the population, including businesses, that continue to use it.

“There is also the ongoing issue with large denomination notes that people are disproportionately holding on to, suggesting that the black and grey economies are going to drive cash use for some time to come.”

Tech advances are enabling the shift towards cashless

From tap-and-go payments to credit and debit cards, EFTPOS, online payments and smartphone and tablet card processing, the rapid adoption of new payment platforms shows how businesses and consumers are willing to adapt and change.

The RBA contends that the most significant of the new technologies to emerge is the New Payments Platform (NPP), a billion-dollar project to deliver almost-instant payments between customers of different banks who can use a simple identifier such as a mobile phone number or an email address. It will take away the need to use banknotes for many transactions and, as it expands, is expected to further cut the use of cash in the economy and improve the efficiency of digital payments.

Into this environment of innovation come technology players such as Zip Co, which provides point-of-sale credit and digital payment services to a total of about one million consumers and merchants. Its growth has come largely on the back of the popularity of digital buy now, pay later services.

“Businesses are seeing customers requesting these types of alternative payments, and businesses that embrace them are seeing increased conversions, increased basket sizes and new customers,” says Zip Co’s chief strategy officer Tommy Mermelshtayn.

Once the preserve of major retailers such as Harvey Norman, he says the ability of Zip Co and other disrupters to offer retailers such a product has democratised the concept of real-time credit in store. Mermelshtayn says the average age of a Zip Co customer is about 32 or 33, the older millennials who are early adopters of technology.

“As you start seeing bigger brands come online – the likes of Kogan and Fantastic Furniture – it gives customers more confidence and that makes it more appealing to a larger audience. Millennials have definitely led the charge, but the appeal is broader than that.”

Onus on businesses to get with the digital payments program

Despite the shift to digital payments, some businesses are still laggards. Glance notes that some smaller enterprises, in particular, still prefer cash because they do not understand transaction costs such as card fees compared with their other costs of doing business.

“Because it is a bank, or payment company, that is explicitly charging for each digital transaction, some small business owners get more emotional about these charges and do things like setting a minimum fee, which is arbitrary, like A$10, when their average transaction is less than that. They could easily incorporate the transaction cost into the price of their product, but a large number of business owners don’t have the numerical skills to make these decisions.”

Nevertheless, he is certain digital payments will keep increasing, with the banks’ decision to end a boycott of Apple Pay payments over iPhones, for example, representing a major move. 

He agrees NPP will drive digital payment adoption, as will peer-to-peer payments through brands such as Apple Cash, Venmo, Zelle, Google and Facebook.

"Millennials have definietly led the charge, but the appeal is broader that that." Tommy Mermelshtatn, Zip Co

Australian businesses and customers have embraced tap-and-go payments, Glance says. “What we need now are more apps that allow greater transparency of spending – another advantage over cash.”

In visits to London and while shopping at Spice Alley, a trendy hawker-style food precinct in Sydney, Aranda has noticed a big push towards completely contactless payments. In Kensington Street, Spice Alley is a cashless destination where consumers either tap-and-go with a credit or debit card or pay with a smartphone or smartwatch app.

Aranda backs Glance, however, in saying that more businesses must start to incorporate fees for digital payments into their pricing structures rather than slugging customers for each transaction.

“People are often reluctant to pay with a card these days because of the 1-2 per cent that businesses add on to that. It should now be just a normal part of basic business costs.”

Charities seize the day by shifting towards electronic payments

Charities such as Cancer Council Australia and World Vision are already using tap-and-go for donations in the street and shifting towards more regular digital payments from donors.

World Vision Australia head of marketing Garth Stirling says the pressure is on charities to adapt.

“Society is constantly changing and the pace is getting faster,” he says. “The key is to identify and seize those opportunities.”

World Vision has not traditionally relied heavily on pure cash transactions, but Stirling adds that “we have certainly seen a big drop in cash donations”. 

“People just don’t have cash in their pockets or purses like they used to. On the other hand, e-commerce and [tap-and-go devices] to donate have all risen as cash has decreased.”

World Vision has been trialling devices provided by technology company Quest for contactless payments through more than 100 corporate retail partners, as well as directly with the public. “We are treating this as a new revenue channel rather than a replacement for cash donations as it’s a slightly different giving behaviour,” Stirling says.

He believes digital and corporate opportunities abound for charities such as World Vision. 

“Peer-to-peer experience platforms allow participants to promote their activity via their social networks, reaching and converting more supporters. Partnerships with corporate partners like Jetstar, where a World Vision donation is available at point of purchase, are exciting new opportunities for supporters and charities.”

Innovation the key when it comes to digital payment

With the cost of interchange fees and digital payments coming down, Mermelshtayn believes that cash won’t be king forever, even in developing markets. “Those are trends that are going to continue the demise of cash, but I think cash will be around for at least another 20 years.”

For businesses, though, he says the advantages of simpler payment reconciliation and integration with software such as Xero and MYOB will push them to adopt non-cash payments.

“Plus, if consumers are demanding alternative payments, the future for businesses that don’t adjust is not going to look bright.”

For those businesses or charities that are still reluctant to shift from cash to digital payments, Aranda points out that handling cash creates a lot of work. While not wanting to reject donors who like to give cash, she is determined to ensure that Cancer Council Australia is flexible and adaptive.

“Our focus is on staying on top of the changing patterns and being available to donors in whatever form they prefer.”

Is cash a black market boon?

Only one in five Australians still prefers using cash for purchases, according to the Australian Taxation Office (ATO).

On the whole, people prefer the ease of using a card, phone or even a smartwatch. Most businesses, as a result, are responding.

“Ninety per cent of businesses are already offering electronic payment services, and a similar amount report that their customers expect to be able to use digital payment,” says ATO assistant commissioner Peter Holt. “Businesses know what their customers want and what they want is the convenience and security of cashless transactions.”

While some see the cash economy as a boon for the black market, the ATO acknowledges that cash is legal tender and businesses have a right to transact in cash only if they choose. 

“[However] our research reveals that most consumers find it inconvenient when paying cash is their only option, and that they’re twice as likely to associate ‘cash only’ as negative rather than positive,” Holt says.

A small number of businesses may be using cash only or cash discounts as a means to avoid paying tax, but others may have legitimate reasons as to why they choose to operate as cash only. Holt warns such operations, though, that it is easier to make mistakes with cash payments and that the ATO is determined to crack down on rogue businesses that are contributing to the black market.

“We are visiting businesses around Australia as part of our work to protect honest businesses from unfair competition by addressing black economy activities.”

Read next: Cashless payments to transform business

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