Keeping cash: Why the government still sees a future for traditional payment

Technology can provide an alternative and convenient method to pay for goods and services, while leaving the wallet at home. But what does this mean for traditional payment methods like cash and cheques?

According to the Reserve Bank, use of cash in retail fell from 27 per cent in 2019 to 17 per cent in 2022.

“Cash in the system is valuable, [it can] maintain the integrity and uniformity of the value of the Australian dollar,” says Dr Anton Didenko, senior lecturer specialising in banking and finance law at the University of NSW.

He points out that “… [right now] cash is the only legal tender. Legal tender is a legal concept …, and should cash disappear at some point, there will be no legal tender in the payment system.”

Although the use of cash and cheques has decreased and digital payment methods have become more commonplace, Didenko does not think that Australia is close to becoming completely cashless. “Even in the European Union … the preferences among people in those countries differ widely. For example, Sweden is close to becoming almost entirely cashless. [Whereas] in countries like Germany, there [is] cash everywhere. I think we are really not yet close to going completely cashless,” he says.

This comes as the Federal Government announced that it will make it compulsory for businesses to accept payments in cash, particularly for “essential items” such as groceries and fuel. The government will take steps to assist in the discontinuation of cheques by the end of September 2029.

In the Government’s report, ‘A Strategic Plan for Australia’s Payments System – Building a modern and resilient payments system’ (Strategic Plan Report), it was estimated that card based payments make up approximately 75 per cent of non-cash retail payments and an individual makes an average of 650 electronic transactions per year.

According to Treasury, approximately 1.5 million Australians use cash to make more than 80 per cent of their in-person transactions and around 94 per cent of businesses use cash. This is not surprising as cash is seen as a reliable alternative to digital payment during natural disasters or digital outages.

Didenko says a crucial part of the discussion is to “…make sure that we always keep front and centre what the people actually prefer because these preferences as to whether to use cash or not vary widely across the world.”

He points out “… the fact that you have different demographics, different preferences among different people and people who are … not technologically savvy, is a really strong argument for either keeping cash in the system or finding alternative solutions to make CBDCs (Central Bank Digital Currency) more accessible (and potentially usable offline)”. The Reserve Bank is investigating CBDC as another form of payment in addition to cash and bank account balances.

“Having this ability to withdraw your digital (bank account) balance into cash is really powerful because it ensures that those balances are valued equally,” he says.

Treasury has announced that it will begin consultation on the cash mandate by the end of 2024. It will consider the types of businesses that will fall under the mandate, and it’s also expected to examine the needs of those who depend on cash, including those who reside in regional areas, those who cannot use digital payments, and the impact this will have on businesses, especially small businesses.

The consultation is also expected to consider what further steps are needed to ensure the long term and sustainable circulation of cash.

The government also released its ‘Cheques Transition Plan,’ which will ensure the discontinuation of cheques in an “orderly and planned way.” It is expected that, under the plan, cheques will cease to be issued by 30 June 2028, and it will cease to be accepted on 30 September 2029.

In the Strategic Plan Report, it was noted that use of cheques has decreased by 90 per cent in the last decade and many banks and financial institutions are no longer issuing cheques for new customers.

Another key area of focus is “excessive surcharging.” Imposition of surcharges on transactions has been a topic of interest, especially as many consumers feel the cost-of-living pressures. Surcharges can often increase the total value or price paid by the consumer for the goods or service.

As Didenko explains, “Surcharges are fees imposed by merchants – in addition to the price of goods or services – to pass on to the customer the costs of using a particular payment method,” he says.

He explains that surcharges are permissible so long as “they are not ‘excessive’ and … reflect the cost of using the relevant payment method.” He points out that rules regarding surcharges are enforced by the ACCC and the Reserve Bank of Australia (RBA) has published detailed standards on calculation of the merchant’s costs.

Didenko points out that “card acceptance costs can be passed on by the merchant to the customer (via surcharges) – which in principle should incentivise the use of cheaper payment options.”

The RBA is currently conducting a review into retail payments and as part of the consultation, it is examining merchant card payment costs and surcharging, especially in light of the cost-of-living debate and the change in people’s payment preferences. The RBA is inviting feedback on a range of issues, including whether surcharges should be capped or banned.

The government is also expected to expand the RBA’s powers to regulate new payment technologies and support an industry-led transition away from the Bulk Electronic Clearing System (or direct debit system) and invest in ways to address scam activity.

If Australia implements a cash mandate, it will join countries like Spain, France, Norway and Denmark, where cash mandates are already in existence.

“[There might be] solutions from a technological [standpoint] that will try and reproduce this functionality of cash … but they aren’t likely to change fundamentally the preferences of the people …,” says Didenko.