Is cash set to become a thing of the past?

21 Mar 2019

By Shadforth Financial Group

Some financial professionals are predicting Australians could be living in a cashless society in less than a decade. What does the potential death of cash mean for you personally and for Australian society as a whole? We explore the current trends in consumer payment behaviour and some of the ramifications of a cash-free world.

A revolution in the way we pay

Can you remember the last time you went out for dinner with a group of friends or family and everyone had cash to split the bill? It’s not surprising if you can’t remember because the past few years have seen a revolution in the way we choose to pay for goods and services. It seems that more and more Australians are forgoing cash in favour of electronic and contactless payment methods.

According to the Reserve Bank of Australia (RBA), Australians are the sixth highest users of electronic payments in the world, with only 37% of household spending now done using cash compared to 69% a decade ago.1

How will this shift affect other payment methods?

The ushering in of this new payment trend has displaced not just cash, but other traditional payment methods such as cheques. In fact, cheque use in Australia has dropped by 77% during the past ten years, with only a small number of cheques still being used by certain sectors in the community.2

While coins will obviously be retired should we move to a cashless society, there are current restrictions around coin payments. For example, if you have a collection of 5c coins, you can only use them to pay for goods up to $5. Any more than that will not be considered legal tender and you will need to deposit them into a bank account and use a larger denomination coin or note, or an alternative payment method to make your purchase.

The cost of convenience

If you’re one of the almost five million Australians who haven’t visited an ATM in the past four weeks or can’t even recall the last time you withdrew cash, a cashless society might feel like a natural progression.3

But while convenience has replaced cash as king, it comes at a cost to groups that rely on cash for tips such as waiters or cash donations such as charities and the homeless, who are now resorting to alternative ways of collecting money.

For small business vendors, the growing consumer expectation to pay for goods as small as a $4 latte using tap-and-go technology has also proven costly. The Australian Retailers Association estimates that these types of payments cost businesses an extra $500 million a year, due to the additional fees that businesses are being charged by banks to process these tap-and-go transactions.4

In response, some businesses are passing the extra costs on to consumers, either through surcharges on top of card transactions for tap-and-go payments or by increasing the cost of goods across the store.5

As a consumer, this disconnect with cash also has an impact on our spending behaviour. According to a study from the University of Sydney, people often spend up to 50% more by paying with any payment type other than cash. This is attributed to the fact that non-cash payments can cause us to subconsciously detach from our money, leading to a sense that our spending is not ‘real’. This can, in turn, lead to inaccurate mental accounting and overspending.6

For the wider Australian economy, the news is more positive. Our tendency towards spending more when not using cash means more cash flowing from consumers to businesses and more money going into the economy. The RBA also points to the shift to a cashless society as a solution to a leaky tax system, which loses an estimated $6 billion a year to the cash-fuelled black market.

"If the pace of change continues, then it’s predicted that physical notes and coins could vanish in Australia as soon as 2026.7"

No Wallet? No problem

Contactless technology has spawned a range of creative payment options for consumers. We can now choose to pay for goods and services using a range of mobile and digital devices, which means leaving the house without your wallet is no longer the headache it once was.

Payment options vary from mobile apps like ‘HeyYou’, which allows you to order and pay for your morning coffee via your mobile, to digital wallets like Apple Pay or Google Pay, that are linked to your bank account and enable tap-to-pay purchases via your mobile, tablet or smart watch.

With the majority of consumers favouring the convenience of contactless payments, coupled with the technological advancements that are leading us away from a reliance on physical currency, a cash-free world seems inevitable. How it affects business, individuals and Australian culture as a whole will be an interesting social evolution to follow.

1 The Sydney Morning Herald, ‘Australia could be cashless in just three years: experts’, 16 December 2018.
2 The Sydney Morning Herald, ‘Cashless future is here, with coins and banknotes to become niche’, 2 December 2018.
3 Money and Life, ‘How close are we to a cashless society?’, 18 September 2018.
4 The Sydney Morning Herald, ‘Rise of tap and go slugs bottom lines’, 17 September 2018.
5 www.news.com.au, ‘You are being charged every time you tap-and-go’, 11 May 2018.
6 Business Insider Australia, ‘How Australia’s move to a cashless society is damaging millennials’, 6 December 2017.
7 www.finder.com.au, ‘Cash payments predicted to disappear within a decade as tap and go takes over’, May 2018.

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